- Gold higher as ‘white-knuckle’ week ahead for virus infections
- Central bank stimulus and burgeoning balance sheets boost prospects for gold
- Low or negative interest rates make it easier to justify gold investing
Gold ratcheted higher Monday to a more than seven-year high as investors turned to the sanctuary of the yellow metal amidst dire predictions of the virus. Comex gold futures on Monday tested the $1,700 high water mark again for the third time this year, falling back from a session high of $1,709.50 to close at $1693.30 – up by $48.20, or 2.9%.
The U.S. Surgeon General Jerome Adams on Sunday said that “this is going to be the hardest and saddest week of most Americans’ lives.” And further that “this is going to be our Pearl Harbor moment, our 9/11 moment, only it’s not going to be localized.”
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Stimulus stimulating gold prices
Investors globally are buying up physical supplies of the precious metal, fearing massive currency devaluations arising from stimulus packages to combat the virus.
Against the euro, gold has broken out to a fresh 20-year high.
“Fiscal and monetary stimulus will provide a nice backdrop for gold, but safe-haven demand will be high due to upcoming financial stress that will persist over the coming months as the U.S. economy enters a very dangerous place,” said Edward Moya, senior market analyst at Oanda, in a market update.
Gold as a shield against central banks’ debasement of money
Investors are coming around to appreciate gold’s long-ignored advantages: a store of value in an environment of fear, hyperinflation and financial uncertainty, and an asset immune to default from profligate central banks.
Roy Sebag, chief executive officer and founder of Goldmoney Inc, a precious-metal investment firm with $2 billion in assets, said: “Central banks have officially lost control of their most powerful policy tools… It is against this macroeconomic sea change that gold will thrive as the money par excellence.”
Ultra-low, or negative interest rates combined with an economic environment awash in “helicopter money” liquidity are likely to perhaps propel gold even higher. Very low interest rates also enhance the case for buying gold.
Nitesh Shah from ETF specialist WisdomTree Investments points out that the indiscriminate expansion of central bank balance sheets will stoke massive inflationary pressures that would be hugely supportive of gold. He predicts a price of above $2,000 for the metal.
Analysts at Citigroup also predict a price of above $2,000 for gold bullion – only they see it happening in 2021.
Gold ETFs and physical bullion in high demand
Year to date, GLD, the gold ETF, has delivered a daily total return of 5.54%. Among various asset classes, it is the top 2020 performer alongside Treasuries, the US dollar and German Bunds. Flows into GLD during the first quarter of 2020 were $3.8 billion.
Among other factors, the physical supply of gold supply is constricted because local authorities have closed down three of the biggest gold refineries in the world situated in Switzerland on the border with Italy. Yet demand is strong, leading to a yawning gap that is also helping to fan prices of physical gold higher.
“Before this is over, gold is going to go up a lot,” commodity investor Jim Rogers said to Bloomberg by phone from Singapore. “Whenever people lose confidence in money and governments, they always buy gold and silver.”