Gold is on Fire - The Facts

Gold is on Fire – The Facts

gold is on fire
Gold Bars

Last week’s gold rally has been outstanding. This goes to show that gold is on fire. Its run started on Monday from $1,810 and ended on Friday at $1,901 per troy ounce. Gold needs only 19 dollars to get over its record high of $1,920. Judging from last week’s performance this outcome is highly probable to take place in the oncoming week.

Reasons for Gold Rally

  • The oncoming US and China trade war
  • The falling yields
  • The growing economic uncertainty due to the Covid-19 nightmare
  • The weak dollar
  • The US and EU economic stimulus

The Oncoming US and China Trade War

The trade issues between the US and China did not start with the covid-19 virus. Prior to the pandemic, the two superpowers were fully immersed in a trade war.

In fact, the trade war started in July 2018 with the US imposing 34 billion in tariffs on certain Chinese products and as a result, China followed suit. The trade war did not stop there and by the end of 2019, the Americans had imposed a total of 450 billion dollars in sanctions. The Chinese responded with a total of 170 billion dollar sanctions.

This year the Chinese have been accused of the way they handled the coronavirus crisis and rightly so. President Trump is one of their critics.

The US-China relations saw another escalation last Friday, when China retaliated for Houston’s consulate closure, by ordering the US to close its consulate in the city of Chengdu.

No doubt this action added more fuel to gold’s engine.

The Falling Yields

Gold is on Fire - The Facts
Empty pockets

High-grade fixed income plays an important role in a modern investment environment. It tends to be safe, more liquid, and a less volatile asset.

Nevertheless, right now bonds are trading at very low yields even negative yields. In fact, there are trillions of dollars trading at negative yields. This is due to the quantitative easing policy adopted by the European central bank and by the Fed.

This has pushed many investors away from the bond market and forced them to place their capital in profitable assets. Gold is one of them. If we take a closer look at gold, we will see that gold was trading at around $1400 per ounce before the end of 2019. Last Friday gold jumped over the $1,900 mark. In addition, analysts expect gold to continue its rally before consolidating.

The Growing Economic Uncertainty Due to Covid-19 Nightmare

Gold is on Fire - The Facts

There is no country in the world the global pandemic hasn’t touched. In the beginning, we all thought we could deal with it easily by shutting down and staying at home. It didn’t work. Unfortunately, over 14 million people have been infected worldwide and over 636.000 have lost their lives.

In the US the nightmare doesn’t seem to come to an end. The number of those infected is on the rise. In Europe, the second wave is on the way. Spain yesterday reported 8,000 new infections, while there is also concern In Italy, France, Germany, and many other countries.

The damage to the global economy is enormous. Trillions of dollars have been lost, large corporations have gone bankrupt, and many more are facing an uncertain future. There is no end to bad news as LinkedIn announced job losses. The Microsoft-owned firm will be letting go of around 960 jobs across the globe, as the pandemic has reduced demand for its recruitment products.

The Weak Dollar

Gold is on Fire - The Facts

The US dollar is down on its knees. At the moment it trades at 0,86 and it looks like it will stay there for a while. The dollar’s downturn came as a natural consequence of the government’s and Fed’s massive money printing program.

The weak dollar makes it easier for international investors to buy gold and silver because the cost is significantly lower. Increased international demand boosts gold’s value.

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The US and EU Economic Stimulus

The Americans and the Europeans have announced massive economic stimulus programs to deal with the covid-19 devastating effects. The US government has already carried out a 2.3 trillion stimulus program and is just about to introduce an additional 1 billion program. This will actually raise the national debt to $26.5 trillion dollars, or 132% of the national domestic product. (GDP)

On the other side, the EU has agreed to spend a $2.1 trillion stimulus package. The Europeans will raise money by selling bonds collectively rather than individually, which then will be given to member states. Most of it will be grants given to countries without them having to pay it back.

Those enormous economic stimulus programs are a way for the US and Europe to deal with the coronavirus’s massive economic blow.

All additional fiscal stimuli introduced around the world will give gold a further boost.

Final Words

  1. The never-ending US and China trade conflict will continue for a while and as the election date is getting closer, president Trump could actually step it up if he thinks he could get more votes out of it.
  2. The quantitative easing policy will continue for at least the next couple of years, which will push more investors out of the bond market and into precious metals.
  3. The coronavirus nightmare will be dealt with only after a vaccine is introduced and that will be no earlier than 2021.
  4. I do not see the dollar recovering before the end of 2020.
  5. The US and EU economic stimulus are here to stay and that will push gold’s price further.

My opinion is gold and silver will continue to rally, but not for long. There will be some consolidating in the following weeks and then I expect the rally to start again, as the fundamentals are right therefore, now is the right time to invest in gold.

Additional reading:  Investing in gold July 2020

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No Reason to Sell Gold

No Reason to Sell Gold

There is no reason to sell gold, as the outlook for gold prices remains positive. All indicators are bullish to gold.

  1. There is no end to the trade war between China and the United States.
  2. The bond yields will continue to fall.
  3. Brexit uncertainty still rising as the Tories lose parliament support.
  4. The economic outlook is getting from bad to worse.
  5. The global debt bubble.
  6. The covid-19 effects on global economy

Gold Consolidates

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In my mind, gold will consolidate for a while as the formal withdrawal of the Hong Kong extradition bill, will remove fear from the global markets. Also, in Britain a bill is about to pass that will forbid a no deal Brexit. These two events will remove fear from money managers around the world, as they will see fewer risks coming out of Hong Kong and Britain.

As a result, gold will consolidate for a while until the various central bank meetings take place in September. Central banks will continue their monetary policy as it is, we all know that. In fact, Christine Lagarde, the next president of the European Central Bank, already announced the continuation of Mario Draghi’s policies regarding quantitative easing and negative interest rates.

Silver Soars

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Silver soars like there is no tomorrow, surpassing each of our target prices of $18,00 and then $19,00. On top of that, the silver to gold ratio has fallen from 90-1 to 79-1 and we expect the ratio to continue to narrow, while gold and silver continue rallying. Remember, it is widely accepted that the gold to silver ratio should be at around 60-1.

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Recession is Coming

According to Frank Giustra, the chairman of Leagold we are heading for a recession worse than the one we had back in 2008 and I agree with him.

Global debt has actually doubled since the 2008 crisis. In fact, global debt value was fueled by “cheap” money such as quantitative easing and low interest rates.

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The overpriced and overvalued Stock Market, has also been fueled by massive amounts of easy money. The Stock Market has been moving up for an unusually long time and as a result, people have become accustomed to that type of behavior. They think this will keep going on forever, which is not the case and at the end they will be hurting themselves. A thirty percent fall in the markets will be normal to see.

We are long overdue for a recession, as this was the longest economic recovery ever. If we take a better look at the recovery we’ve seen, it was a fragile anemic recovery. The growth we’ve seen all these years was nothing more than 2% or 2,5% annual growth, compared to 5% and 7% healthy recoveries in the past.

If the bad scenario takes place, we could see massive unemployment, large corporation collapse, currency war, hyperinflation, and geopolitical uncertainty.

Conclusion

Although, a serious investor should always have some insurance in his portfolio, and the only insurance is gold, nowadays it will be reckless for an investor not to own gold. As the bad news continue coming in, many investors increase the percentage of gold in their investments. Best gold investment for me is to posses physical gold.

Silver too can be handy, as it is undervalued-underpriced and it also has the gold to silver ratio distance to cover. Furthermore, silver tends to follow gold as it rises and as it falls. A physical ownership of silver is always a better investment.

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When Will Silver's Price Rise?

When Will Silver’s Price Rise?

As gold consolidates around the $1500 mark, investors are turning to silver. Silver already enjoys a years high, but compared to gold, still has a long way to go. If we take into account that gold enjoys a six-year high, to silver’s one year, then yes silver has a lot going for it.

The truth of the matter is that silver has been consolidating for a number of years together with gold. Gold broke through this year and made some of the lost ground. On the other hand, silver’s breaking was not anywhere near gold’s. As a result the gold to silver ratio is 88 at this moment.

Gold, silver’s rival, consolidates at around the $1500 mark at right now, but it still has the potential to move higher. As long as the large economies around the world fall into recession, the trade war between United States and China, the possibility of a no-deal Brexit, the troublesome Italian Banks, the civil unrest in Hong Kong, the Genman Economy’s slowing down, the United States economy slowing down, Turkey is just about to turn its back to the west and join Russia. You will have to be mad not to own gold and silver.

Right now the US and the German economies are still vibrant but all economic data suggests both economies are slowing down. The recession will hit both countries in 2020. That’s my humble opinion.

If all hell breaks loose (no deal Brexit, Italian Banks collapse, US China trade war deteriorates, etc) then there is no doubt, the recession will be as bad as the 2008 recession.

When Will Silver's Price Rise?
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However, the Fed, the European Central Bank and Japan’s central Bank are all ready for the recession. They are prepared to do anything in their power to ensure the recession will be mild. At the moment they are considering ways to inflate money supply. The lowering of interest rates by the Fed and the quantitative easing by the ECB will do exactly that.

If you are going to engage to the precious metal market, then silver is the way to go. The gold to silver ratio has dropped from 93 to 88 so the momentum is there. In my opinion silver at $17,10 per ounce is dirt cheap.

According to Peter Hug, Kitco’s global trading director, the demand for silver in Hong Kong is much stronger than the demand for gold. The Chinese are adamant, that silver is currently undervalued.

If gold reaches $1600 by the end of the year, then silver should be between $18,50 to $19,00. Nevertheless, the silver to gold ratio, will drop, one way or another.

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