Gold at Highest Level Since 2011: a Bad Sign for Troubled Equities

Markets remained near zero for much of the day, finally gaining slightly during the final hour, while investors have flocked to gold. 

Signs that say “No Job No Rent” hang from the windows of an apartment building in northwest Washington on Wednesday. (AP Photo/Andrew Harnik

MANHATTAN (CN) — Equities flatlined for most of Wednesday before jumping slightly, as skittish investors have flocked increasingly to gold.

The Dow Jones Industrial Average got off to early gains, then spent most of the day at near 0% before finally gaining 0.7% by the closing bell. The S&P 500 followed a similar path throughout the day, closing up 0.8%.

The Nasdaq had a much less rocky day, spending the day at higher than 1% to settle at a new high point of 10,492 points, a 1.4% increase. This is the fourth time in roughly a week that the tech-heavy Nasdaq has set a new high point. 

Ominously for equities, gold prices have rallied — at one point spiking to $1,827 per ounce — to settle at $1,818 per ounce, its highest level since 2011. Investors traditionally see gold as a haven during rocky economic times, hinting at additional economic trouble to come later this summer.

“Gold is getting supercharged by Covid-19-related accommodative monetary and fiscal policies, while trade and geopolitical risks simmer on the backburner,” wrote Stephen Innes, chief global market strategist of AXI Trader. “Low-interest rates, monetary accommodation — including balance sheet expansion — and massive fiscal spending for as far as the eye can see will probably cement and extend gold’s rally well into 2021.”

Tuesday marked the seventh straight month of gold-backed exchange-traded funds recording positive flows, according to the World Gold Council, which observed a new high level for global net inflows. Gold-backed ETFs drive a significant portion of the gold market and can indicate interest in holding gold, the World Gold Council says.

Abroad, markets did poorly. European exchanges dropped 0.5% to 1% in value across the board, with the pan-European Stoxx 600 losing 0.6%.

Even the announcement late in the day of a raft of measures to reboot the English economy did not spur any late rallies.

During the “summer statement,” British Finance Minister Rishi Sunak called for companies to assign bonuses of £1,000 ($1,261) per furloughed employee they bring back and keep on the payroll to January. As many as 9 million workers in England have been furloughed to the pandemic. 

“While we can’t protect every job, one of the most important things we can do to prevent unemployment is to get as many people as possible from furlough back to their jobs,” Sunak said in a speech before British Parliament. “Our message to business is clear: if you stand by your workers, we will stand by you.”

The stimulus package includes an even bolder plan: paying the wages of new employees, which the minister called “kickstarters,” for their first six months of work.

Other measures include slashing the Value-Added Tax on food and nonalcoholic drinks at restaurants to 5%, and offering 50% discounts on midweek restaurant meals to help the beleaguered hospitality industry, as well as a temporary property sales tax holiday to aid the real estate sector.

All told the measures are expected to cost roughly £30 billion (nearly $38 billion).

The growing weight of coronavirus cases has caused a shaky economic rebound.

About 11.9 million people have been infected by Covid-19 worldwide, while about 545,000 have died, according to data compiled by Johns Hopkins University. In the United States, more than 3 million people have contracted Covid-19, while more than 131,000 have died. On Tuesday, more than 60,000 new cases of coronavirus were reported, a single-day high. 

While coronavirus-related deaths in the United States have dropped in recent weeks, some say that number may again rise since increases in deaths previously came a month after spikes in reported cases. 

Due to the increase in cases and hospitalizations, some states are now imposing more stringent restrictions. On Wednesday, New Jersey Governor Phil Murphy said he would require all visitors and residents in the state to wear face coverings even while outdoors when social distancing is not possible. New York already requires people to wear masks outdoors in certain circumstances.

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