Economy slows as economic reports indicate that the US economy has hit a soft spot
Investors flee to gold as a safe haven as the most recent round of economic reports trigger a steep stock selloff and drive down the dollar.
Gold futures hit a four-week high on Wednesday, while the Dow Jones Industrial Average dropped nearly 280 points and hit a five-week low, in market activity that followed reports indicating the U.S. economic recovery has hit a soft spot. The dollar declined, as well, when measured against a basket of major currencies.
Gold ended the day at $1,543.20 an ounce, after reaching $1,551.60 earlier in the day, the highest it’s been since May 2, according to Bloomberg. The precious metal has gained 26 percent in the last 12 months.
“Apparently the combination of a weak U.S. economy and the prospect of a lack of budgetary reform fanned safe haven and flight to quality sentiment,” said the CME Group in its daily market commentary on Wednesday.
The latest data points to slowdowns in both employment and manufacturing.A monthly report on private sector hiring revealed that the economy added a disappointing 38,000 jobs in the month of May – far fewer than the 175,000 new jobs forecast by a panel of economists polled by Bloomberg. Growth in U.S. manufacturing also slowed in May, according to a monthly report from the Institute of Supply Management. The ISM factory index fell to 53.5 in May from 60.4 in April.
Growing weakness in the economy and an apparent lack of budgetary reform by Congress may be driving large numbers of investors back to gold, said the CME Group. Fears of inflation are also growing as Americans experience sharp increases in gas and food prices.
Wealthy Americans continue to view gold as a good investment, in ongoing surveys conducted by Spectrem Group, a Chicago-area market research firm specializing in affluent investors. In a March survey, 30 percent of investors with a net worth of $500,000 or more expressed interest in purchasing gold ETF funds.