Gold: Conditions Setting Up for the Price to 2X


Volatile stock markets and the outbreak of the coronavirus helped drive holdings in gold-backed ETFs to record highs in Y 2020. The buying is a clear indication of the prominent role of gold ETFs in investors’ portfolios, especially during periods of uncertainty and panic.

Gold-backed ETFs saw $4.9-B of inflows in February, taking holdings to a record 3,000 tonnes of gold, according to the World Gold Council (WGC), worth $157-B at current gold prices.

Interest rates at Zero, record deficit spending and the Fed’s QE with no preset limits is the perfect environment for gold I believe.

The difference between now and Y 2008 is that this is a government-mandated recession. The government has to stop the economy in order to stop the coronavirus.

Q-2 GDP in the US will be down double digits in the 20%-40% range. GDP numbers are reported on an annualized basis, so if US GDP is down 10% from the previous Quarter, it is reported to be down 40% on an annualized basis. Q-3 GDP in the US may be up in double digits because of the same calculation, if the US government has managed to flatten the curve of the virus infection.

With record deficit spending and interest rates at Zero, we may be faced with a scenario where the Fed keeps interest rates below the level of inflation for some time until the economy normalizes after the virus outbreak is controlled. This would be the perfect environment for gold.

The other major precious metals

Silver, platinum and palladium fell a lot more than gold during the past month, even though they have rebounded some. This is because they are primarily used for industrial purposes.

Gold is money and much of it used for precious purposes like jewelry and store of value. If the government-mandated global recession is not over soon, the industrial precious metals should continue to underperform. So stay away from them.

Have a terrific week, stay home!