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July Was a Good Month for Gold

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July was a good month for gold.

The yellow metal was up 2.1% on the month, driven in large part by a weakening dollar and political uncertainty in the US. It was the strongest month for gold since February.

The price hit $1,270.98 on July 31, the highest level since mid-June.

Commerzbank analyst Eugen Weinberg told Reuters there were a number factors behind gold’s strength over the last month, with the tanking dollar heading the list.

Dollar weakness is driving the gold price. It’s not just against the euro, it’s against most major currencies. US politics is a mess and US data has not been inspiring.”

The dollar plunged to its lowest level in 16 months against a basket of currencies in July. Analysts say the weak greenback makes dollar-denominated gold cheaper for holders of other currencies, which could drive stronger world-wide demand.

Safe-haven investing is also pushing gold higher. Tensions with North Korea remain at a heightened level, and the Trump administration is in turmoil.

Rising geopolitical tensions and political uncertainty, weak US macro data and a weaker US dollar have buoyed gold prices,” said Standard Chartered in a note. “Recovering investor interest has overshadowed the poor physical market.”

The Republican’s failure to repeal Obamacare signals deep trouble for the Trump administration, and casts doubts on his ability to push through other major economic policies, including tax reform and and a massive infrastructure stimulus plan. A lot of Americans – specifically Trump voters – have been riding a wave of optimism in the wake of his election, expecting his policies to boost the economy. Stocks have continued to climb higher. Many analysts dubbed the stock market climb based on this optimism the “Trump Bump.” But Peter Schiff recently called it “false optimism.” With the glaring dysfunction in D.C., Peter appears to be right.

I think there’s too much false optimism out there on the part of people who voted for Trump … I think a lot of people actually believe this is a game-changer, that he’s going to drain the swamp, that he’s going to solve all the problems, and people are now optimistic. Unfortunately, none of this is true. Nothing that Trump is likely to do is going to make any difference as far as the course we are on.”

Basic supply and demand fundamentals also support a strong gold market. Demand for physical gold rose to 1,895 tons in the first half of 2017, a 17% increase over the same period last year. Meanwhile, supply shrank.

INTL FCStone analyst Edward Meir said he is optimistic about gold’s future.

We think that there is more upside on gold. A combination of a weaker dollar and falling US bond yields should propel the precious metal higher, with North Korea being a wild card.”

Silver was also up on the month, gaining  0.8%.

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