Within a month, gold’s price has reached all-time highs breaking all resistance. The yellow metal managed to break through the 2011 historical highs of $1.920. Everything is set for gold to continue its run and market analysts wonder if this is going to be the end of it, or if gold’s epic rally will continue.
According to the World Gold Council, in the first six months of the year, there was $39,5 billion invested in gold ETFs another all-time record high for gold. Investors only added 104 tonnes of gold in June and their total investments to a record high of 3.261 tonnes. The appetite for gold increased in July. As stated by the Bank of America, there was $3,8 billion invested in gold ETFs in the week between 15 and 22 of June. It was the highest amount of money ever invested in gold within a week.
If we integrate the latest data with the old historical data, we will come to an interesting conclusion regarding gold’s future price.
Gold’s best year for inflows was 2009 when there was a 646 tons increase. This record is already overthrown and that was done during the first six months of the year.
The amount of gold bought by the ETFs is colossal. It is larger than the amount of gold bought by the central banks for the years 2018 and 2019 together. It amounts to 45% of total world production for the first six months of 2020.
In 2009 when there was a record 646 tons of gold sold, the yellow metal went from $880 per troy ounce to $1.226. Two years later, gold surged to $1.920. Are we on the same path again, or not?
Every time there is a gold surge I always get asked the same question. Is now the right time to liquidate? My answer is: Do the reasons responsible for gold’s performance so far still apply?
Need for an Investment Refuge
The main reasons for gold’s price rally are:
1-The never-ending covid-19 nightmare. We have seen the second wave of the virus spreading like wildfire all over the world. In the States, the first wave isn’t over yet and things do not look good. There is not a single day without bad news. Record company losses, unemployment, companies shut down, zero consumer confidence, and so on.
2-The worsening trade relations between the two superpowers US and China are also bad news.
3-It will take almost a year before a vaccine or proper vaccine dealing with the virus is produced. The news from many research centers is not encouraging. For example, a study from the Frankfurt Hospital in Germany shows that a number of people who recovered from the virus have developed certain changes in their heart muscle, which make them susceptible to a heart attack. That means, there will be added strain on health centers for a long time after the end of the pandemic.
To Secure Currencies from the Dollar
During the last few years, many central banks acquired vast amounts of gold. In addition, the trend to “bring gold back home” has also been an indication of the coming changes to globalization and international cooperation.
When central banks buy vast amounts of gold, there is always a reason. They usually do it when they expect inflation to rise. Another reason is that they expect high monetary losses.
Gold will help a Western economy deal with tougher economic conditions and a possible currency crisis due to money printing and a repeated quantitative easing policy. For the rest of the world, gold buying is a way to keep some control over their own currencies.
We have seen countries such as Russia, Turkey, China, India, Iran, and so on acquire gold and secure it at “home” in their own facilities. Gold to them offers independence from the dollar, in case of a numismatic and a trade war. Gold gives their central banks the same opportunities as the Western banks.
Low Yields and Negative Interest Rates
The bond market now is trading at very low yields and in many cases at negative yields. Negative yields and low-interest rates result in low spending power. As a result, gold becomes attractive to investors because it is considered to be a store of value, and rightly so.
The fundamentals for the gold rally are there. There is no reason for the rally to stop. I expect some consolidation to take place soon but I do not see gold slowing down. Gold feeds from uncertain and troublesome times and we are seeing that right now. Nevertheless, acting with caution and always being prudent without placing all eggs into one basket, is the best way to invest in today’s uncertain times.
The low yields, the negative interest rates, and the stock market downturn are threatening many retirement funds with extinction. Thus, the savings of a lifetime for good honest Americans are already slashed. To avoid further losses it is advisable to change your IRA fund into a self-directed gold IRA fund.