Gold hits an all-time high as investors weigh the costs of fresh stimulus measures

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Good morning, Bull Sheeters. Stocks are mostly higher in Asia and Europe, but the U.S. futures have dipped into the red. It’s the volatile trade in gold, however, that’s getting most of the attention. Gold futures hit a new all-time high in Asian trade before selling off some. A reminder: a run on gold is the equivalent to a big thumb’s-down on the economic outlook.

Let’s check in on the action.

Markets update

Asia

• The major Asia indexes were gaining in afternoon trade. The Shanghai Composite is the best of the bunch, up 0.7%.
• Malaysia‘s former PM Najib Razak was found guilty of a slew of charges connected to the massive 1MDB fraud case involving the state’s investment fund. You may recall that Goldman Sachs agreed last week to pay the Malaysian government $2.5 billion for its role in the matter, and agreed to track down an additional $1.4 billion that’s gone missing from the fund.
• Taiwan’s Taiex benchmark index hit a 30-year high on Tuesday, thanks in no small part to TSMC’s bull run. The contract chipmaker has cracked the top 10 most valuable companies, supplanting Intel.

Europe

• The European bourses are a touch higher at the open with Germany’s DAX up 0.4%.
• The EU continues to tinker with its COVID travel restrictions. Under a new plan, it would extend by another two weeks its ban on overseas travelers, including those from the U.S. Meanwhile, internal European travel is also getting messier, throwing the sacred summer holiday into disarray.
• Bad news for shareholders of European banks… The ECB is asking that European lenders hold off on paying dividends until next year.

U.S.

• U.S. futures are trading lower ahead of a big batch of corporate earnings reports. Visa, Pfizer and McDonald’s are all scheduled to report today.
• Ok, Democrats, it’s your turn. Senate Republicans yesterday unveiled their $1 trillion coronavirus relief plan. It includes stingier unemployment benefits, but involves a second round of direct payments to families and liability protections for companies. The fight over unemployment insurance will likely be the sticking point.
• Google parent Alphabet has extended (again) to July, 2021 its work-from-home policy, a full-year out. Look for other companies to follow suit.

Elsewhere

• Gold continues to hit new records, with futures touching $2,000 an ounce in Asian trade.
• The dollar is up, slightly.
• Crude too is in the green.

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Golden age

Gold is having a run for the ages. The shiny yellow stuff is up 35% since mid-March, hitting a slew of new records.

In the past two days, UBS and Bank of America both put out investor notes saying the price of gold will appreciate further. UBS predicts a $2,000 an ounce price by September. The way it’s trading, we could hit that milestone by the end of the week. Here’s the Bloomberg chart from this morning.

Gold, the ultimate safe haven, is gaining even as the major indexes are rallying. That may be a bit puzzling to veteran market observers—that is, until you zoom down and see the S&P’s gains are fueled mainly by tech stocks, which, like gold, are viewed as safe plays for your money during a pandemic.

There are other reasons gold is soaring. The gold trade is a hedge against negative yielding assets. As long as nominal U.S. interest rates hover around zero—thank you, Federal Reserve Bank—you’ll see investors piling into gold. As Bank of America bullet-points: “massive easing of monetary conditions and expansion of central bank balance sheets is bullish gold.”

Stimulus measures should also act as rocket fuel for gold. The combination of the Fed’s ever-expanding balance sheet, rock-bottom interest rates and accommodative monetary policy amounts to bad news for the dollar and good news for gold.

None of this changes the fact that a run on gold means investors are deeply pessimistic about the future of the U.S. economy. If you’re buying gold at these prices you’re fairly certain that trade tensions with China will worsen, that the labor market will deteriorate further and that Congress and the Fed will have to unveil further stimulus measures to help out American families and American businesses.

It’s a rally with big social costs.

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Postscript

Thank you for all the Homer-inspired emails yesterday. As I’d suspected, there are a number of classicists in the Bull Sheet community.

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Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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