2020 has seen unparalleled levels of international monetary disruption due to the COVID-19 pandemic. Share market segments collapsed and the price of gold rose by 15% in merely a number of months. Some state this is typically the beginning a bull run especially now, with Bank of America now predicting gold prices reaching S$3, 000/oz.
Let’s look at the case for gold reaching highs of $3,000 before the end of the year
There are over 4 million cases of COVID-19 and more than 400,000 deaths worldwide. Not only is COVID-19 a health scare it has also been particularly disruptive to the global economy. Countries went on lockdown for weeks and only now a few of them are re-opening their financial systems. However, we might be glad to get the economy going but the risk of a second wave of infections is high. The problem is that this is a new virus that scientists are still trying to figure out, so we might be a long wag away from a successful vaccine and successful remedies.
Recently Goldman Sachs stated: The downturn will end up being 4 times worse than the International Financial Crisis (GFC). In the U.S economic activity dropped by 35% in second-quarter and unemployment may hit 15%.
The IMF forecasts around the world GDP would go down to less than 3% this year and recuperate to be able to +5. 2% within next year if pandemic ends by the second half of 2020. The particular coronavirus health problems can be followed by a coronavirus debt crisis. Global government authorities have responded to COVID-19 with substantial stimulus packages and therefore resulting in the printing of trillions of dollars in new money.
Bank of America (BoA) predicted that gold would hit $3, 000/oz by October 2021. BoA stated that with an official recession on the rise monetary authorities will be poised to buy gold in large amounts of financial assets and increase the sizes of their balance sheets.
Global gold supply is already having difficulties increasing each and every year and it will become more difficult plus more costly to find more gold.
Precious metals like gold perform best any time interest rates are reduced, and today we certainly have historically low rates.
Historically, the yellow metal has proven to be able to be the most effective safe-haven.
The reduction in gold demand in China and India may affect the price of gold. Jewellery takes up the most amount of gold produced. The demand might have declined over the last decade it still make up for 50% of the total global gold demand.
A more powerful US dollar may suggest a lower gold price.
Recovery from COVID-19 may be quick, and could improve and lower sentiment towards gold investment.
The BoA might be right in saying the Federal Reserve cannot print gold. The scarcity of gold in addition to a centuries long-held belief of gold being a preserver of wealth, implies investors will constantly seek gold. If only we could meet the global demand that grow year on year but we can’t. Whilst gold supply dwindles, fiat currencies like the US dollar flood the market as printing presses run 24/7 to print new money.
Whatever happens, it would be wise for investors and to buy gold as a hedge against the collapse of the global economy and fiat currencies.