General economic optimism persists on a global level. Europe’s economic growth, while tepid, continues to gain strength. Brazil is emerging from its worst recession in over 100 years. While India’s economy, especially small business, was hit by its demonetization-driven cash crunch and the rollout of the Goods and Services Tax that slowed production and hit manufacturing growth, it still posted 5.7 percent GDP growth. While the slowest growth in the past three years, it’s far above Europe’s and the United States’ 2 percent range. Furthermore, India’s S&P DSE SENSEX index is up 19 percent and the rupee has gained nearly 6 percent this year. Thus, both stocks and currency are outperforming most large economies. And Africa’s two biggest economies, Nigeria and South Africa, emerged from recession in the second quarter. For China, despite its growing property bubble and government attempts to rein in runaway debt, economic growth topped expectations in the second quarter with GDP expanding 6.9 percent from the year earlier. And as China grew, so too have industrial metal prices, which signal further economic strength. Since late 2015, The Commodities Research Bureau’s Raw Industrial Index rallied more than 30 percent. And copper — referred to as Dr. Copper because it’s reputed to have a Ph.D. in economics because of its ability to predict global-economy strength and weakness since it is used in most sectors of industry — while down several percentage points in recent trading, was up nearly 60 percent from its low last year. From emerging markets to developed nations across the globe, while speculative real estate bubbles will deflate and some will bust, we do not signal excessive market instability at this time. Therefore, a global economy recovery is negative for gold because it raises expectations for interest-rate increases. That in turn lifts the opportunity cost of holding non-yielding assets and boosts the dollar, in which gold is priced. Conversely, a lower US currency makes dollar-denominated gold cheaper for holders of other currencies, which boosts demand. Until there is a strong reversal in the downward trajectory of the dollar, gold prices will remain strong to stable regardless of global growth projections.
