The market is starting to feel a little bit like Groundhog Day as gold prices hover around $1,900 an ounce. One day, gold prices are higher as investors’ hopes are raised that the U.S. government is close to reaching an agreement on a new stimulus bill. The next day, gold prices are down as those same talks break down and, of course, rinse and repeat.
Although the gold market appears to be going nowhere fast, I think it is important for investors to realize just how far the price has come so far this year. If gold prices continue to hover around $1,900 that will represent a nearly 25% gain for the year.
“That’s a heck of a performance,” said George Milling-Stanley, chief gold strategist at State Street Global Advisors, when we recently talked. He added that investors should look past the current bought of volatility and focus on the factors that drove gold to an all-time high in August because those issues haven’t gone away.
“My sense is there is so much wrong with the world right now, macro, economically, and politically that gold can only go higher,” he said. “We just need to get this little bit of nervousness or panicky profit taking out of the way.”
This week, commodity analysts at TD Securities also warned investors that they should look past this current volatility, which is being driven in part by uncertainty ahead of the Nov. 3 U.S. general election.
The Canadian bank warned that whoever is in power, gold prices will continue to move higher.
“The resulting record debt and deficits, monetization and the Fed’s ultra-low interest rate policy across the yield curve all imply that gold should see a sustained rally, once the new government starts operating in the early months of 2021,” the report said. “It is likely that large fiscal spending programs, topping five trillion dollars over the next two years, will very likely be passed by whoever is in power … Lower real interest rates and weaker USD will be important factors assisting gold in its move to new records.”
According to many analysts, Kitco News has talked to, it is difficult for them not to be bullish on gold when investors know that governments will eventually have to deal with the trillions of dollars that has been pumped into the global economy after it was devastated by the COVID-19 pandemic.
The world’s largest asset management firm, BlackRock, noted that because of the unprecedented monetary and fiscal stimulus, gold is no longer a safe-haven hedge against market risks. It is now once again a hedge against inflation.
“As I’ve highlighted previously, gold performs best when real rates are negative and the opportunity cost in lost income is low. And as the Fed has repeatedly emphasized, this is likely to be exactly the environment we’re in for some time to come,” wrote Russ Koesterich, portfolio Manager for BlackRock’s Global Allocation Fund, in his latest gold report. “All of which suggests that investors should hold, for now, add on weakness and, most importantly, look for other hedges to help mitigate equity risk.”
That’s it for this week. Have a great weekend!
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