Gold is starting to take the place of big tech – Mohamed A. El-Erian
With U.S. treasury yields set to fall, investors are starting to cycle into solid, real assets like gold, said Mohamed A. El-Erian in an interview with Bloomberg.
During an interview posted on Friday, the former Chief Economic Advisor at PIMCO said that the narrative that has been driving big tech is now true of gold.
"What's interesting about gold is that it's starting to become everything to everybody. People like it because it's defensive. People like it because it's a reflationary trade. People like it because its inflation protection," said El-Erian.
"So the narrative of gold is similar to the narrative with big tech: it gives you everything."
Treasuries are holding less appeal. Scott Minerd of Guggenheim Investments told Reuters that he expects U.S. treasuries to dip into negative territories with Federal Reserve Chairman Jerome Powell keeping interest rates near zero indefinitely while Powell waits for the economy to regain its footing.
Tech stocks have out-performed other sectors by significant margins this year.
El-Erian said people are moving partially out of treasuries and looking at a basket of assets that will act as a risk mitigator.
"What I've seen smart people do is combine treasuries, high-quality investment grade and solid real assets," said El-Erian.
"It's that allocation that is replacing just an allocation to treasuries.
Be careful what you wish for – Would a gold standard trigger gold confiscation?
Massive money printing, weaker U.S. dollar, currency debasement fears, and major inflationary concerns are all flashing warning signs for many precious metals investors, elevating the voices in support of the gold standard. But would a hypothetical adoption trigger gold confiscation? Remember the 1930s?
The U.S. dollar has been on a downward trend recently and many analysts, including those from Goldman Sachs, are warning that the U.S. dollar is at risk of losing its global currency reserve status. There are “real concerns around the longevity of the U.S. dollar as a reserve currency,” Goldman said in a report last week.
Gold, on the other hand, has been on a very bullish uptrend, continuing to hit new all-time highs above $2,000 an ounce almost on a daily basis this week
As the great American money printing machine churns out more and more dollars, would a gold standard help the situation?
Analysts and commodity experts are in a heated debate over the topic. But there is a major unknown in the equation — would gold confiscation be a part of the deal?
Confiscation fears
Let’s start from the beginning. The gold standard was adopted by the U.S. in 1879. The period between 1879 and 1914 is known as the so-called classical gold standard era, during which one ounce of gold would represent $21.
Things got a little more complicated from there. In 1933, Franklin D. Roosevelt used the authority granted to the president by the Trading with the Enemy Act to ban gold ownership in the U.S. More specifically, all U.S. citizens were required to sell their gold coins, gold bullion, and gold certificates to the Federal Reserve in exchange for $20.67 per ounce, which was below market value. This is known a Roosevelt's Executive Order 6102. Important exception was made for rare coins: “Gold coin and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins,” the order stated.
After this, the price of gold was raised to $35 an ounce and remained fixed until 1971, when Richard Nixon put a halt on the U.S. dollar’s convertibility into gold, which meant that other countries could no longer redeem dollars for gold. Finally, in 1973 Nixon scrapped the gold standard.
Pro-gold actions followed, including the 1974’s decision to repeal Roosevelt’s Executive Order to nationalize all privately-owned gold, which restored the U.S. citizens’ right to own gold. Then in 1977, the president’s authority to control gold transactions during a period of national emergency was removed, aside from during a time of war.
However, the Trading with the Enemy Act is still in force, which is where most of the confusion and fear that gold confiscation could be back comes from.
The experience with gold confiscation is not unique to the U.S. either. Some other famous cases included Australia’s 1959 law that allowed gold seizures from private citizens and the U.K. private gold ban of 1966, which was lifted only in 1979.
So, this leads us into our hypothetical scenario — if the U.S. were to go back to the gold standard in some shape or form, would there be a confiscation of privately-owned gold?
Analysts were divided on the subject, but the majority did not seem to rule it out.
“There would have to be some type of gold confiscation. If you back the money with gold, you really can't allow people to openly trade that monetary asset. Jewelry would be fine and I'm sure you would see lots of people trying to melt down their gold and turn it into jewelry if there was another gold confiscation,” Gainesville Coins precious metals expert Everett Millman told Kitco News. “And it's not even just the U.S. I've also heard some rumours about the potential for that to happen in Europe. The idea is popping up more and more now.”
Some kind of controls, including some form of confiscation, would be required, said Horizons ETFs portfolio manager Nick Piquard. “If you go back to the gold standard, gold becomes your money and you need to control gold,” Piquard told Kitco News.
At the end of the day, it depends what kind of policy the U.S. government hypothetically adopts, noted TD Securities head of global strategy Bart Melek.
“Would gold confiscation be part of it like in the 1930s? It doesn't have to be. The government can use whatever reserves it has at Fort Knox — take the obligation, divide it and set a price,” Melek said. “It depends what policy would be like. If policy didn’t want people controlling the money supply, then that's something that it might want to do, [especially if you think] that private agents could mess the pricing up.”
Important to keep in mind though that central banks are only independent as far as legislation allows it, which means that changes to the rules are not out of the question. “If tomorrow the Congress passes a new Federal Reserve Act and decides that the Treasury Department controls the Fed, there goes its independence,” Melek explained.
Setting the price of gold
Aside from the issue of confiscation, the other big question is just how high to set the gold price to make the gold standard workable in the current environment?
Piquard stated that gold would need to be five times higher from where it is today. “From that perspective alone, it's not practical,” he said.
Millman noted that gold could be priced as high as $5,000 an ounce. “That would basically just be to represent that the dollar is being devalued,” he said.
One of the more bullish calls was made by the best-selling author Jim Rickards. “If you are going to have a gold standard, or even use gold as a reference point for money, the implied, non-deflationary price is $15,000 an ounce,” Rickards told Kitco News.
Here’s his calculation: “If you just took the money supply of the Federal Reserve, European Central Bank, Bank of England, Bank of Japan and People’s Bank of China (that’s over 75% of global GDP) divide that number by the official gold [reserves], which are about 34,000 metric tons, you come to $15,000 an ounce.”
During the gold standard days, the United States Department of the Treasury had to set the price of gold higher as well, raising the level to $35 an ounce from $20.67 an ounce back in 1934
Would a gold standard even work?
The idea of the gold standard is treated by the mainstream forces as an extreme one, but maybe it shouldn’t be, said Millman.
“That's one of the more fascinating topics. Outside of someone like the Federal Reserve nominee Judy Shelton, it's basically treated as a ridiculous idea. But even though it's unlikely, we're closer to it than we've been since 1971,” he said. “It may not be a perfect system, but it's probably better than what we have now.”
The gold standard could even potentially work with today’s economy, Millman pointed out.
“I don't think it's a completely far-fetched idea. What a lot of people don't remember is that the gold standard allowed you to exchange dollars for gold directly. But they could print more dollars than what was being held in the gold reserve. The reserve had to back up only 40% of the dollars that were out in circulation. I don't see why we couldn't do something similar to that today,” he said.
However, this is just one side of the argument. Many analysts believe that there is a very good reason why the U.S. has abandoned the gold standard in the 1970s.
"There is very little probability that the U.S. would seriously consider the gold standard. That would certainly interfere with the Fed's ability to print trillions of dollars and support the market. It'd be an absolute problem for a central bank that wants to do QE [quantitative easing] or that wants to fund government,” Melek said.
The biggest problem with the gold standard back in the day was the difficulty of controlling the supply of gold.
“When the economy is growing for example 3% in real terms, how do you expand the money supply? You would have these sudden increases in real rates, where you would have the economy increasing and you couldn't grow it because you just couldn’t grow the mining supply. And that could cause very sharp bouts of deflation for a while. And then when the economy shrinks, you would have too much gold. You couldn't control that one either,” Melek explained.
At the end of the day, it comes down to which system is better at dealing with fluctuations in the economic cycles, he noted.
Imagine if the Fed did not intervene in March with trillions of dollars worth of funds to support credit markets, asked Melek. “In Q2, the U.S. GDP dropped 32%. Well that might have been 40% in Q2 and another 40% in Q3 if the Fed didn’t step in,” Melek explained. “It’s not going to be free. We were going to pay for it, most likely through inflation and erosion of assets.”
This is why central banks started to use monetary policy — to smooth out economic cycles by controlling inflation through interest rates, Melek added.
And even though going back to the gold standard is an unlikely scenario, it is possible that the global economy will see a shift away from the U.S. dollar, he noted.
Piquard also said that the more likely outcome is not a gold standard but a new reserve currency. “What we're seeing now is that the U.S. dollar reserve system is not working. There are not enough U.S. dollars right now for all the debt that we've created,” he stated. “This puts the Fed in a really tight spot and going back to what we used before, is not going to help.”
What Piquard envisions for the future is something along the lines of Special Drawing Rights (SDR), which are supplementary foreign exchange reserve assets maintained by the International Monetary Fund (IMF). The SDR is pegged with a basket of currencies, including the U.S. dollar, the euro, Chinese yuan, Japanese yen, and pound sterling
“That might be a better reserve system because it would potentially spread out the risk and take some of the weight off the U.S. dollar,” Piquard said.
Prominent voices
One of the reasons why Trump’s Judy Shelton nomination to the Federal Reserve is so controversial is because of her views on the gold standard.
Back in 2009, she began an op-ed in the Wall Street Journal with the words: “Let's go back to the gold standard.” She continued: “… a gold standard stands in the way of runaway government spending.”
In 2019, she wrote another op-ed piece, titled ‘The Case for Monetary Regime Change: Central bankers aren’t omniscient. A linked-currency system could improve economic growth’.
In it, Shelton argued for “reliable store of value across borders and through time,” explaining that “it’s entirely reasonable to ask whether this might be better assured by linking the supply of money and credit to gold or some other reference point as opposed to relying on the judgment of a dozen or so monetary officials meeting eight times a year to set interest rates.”
At one point, U.S. President Donald Trump also spoke about the gold standard, commenting on the issue back in 2016 in a GQ video interview prior to his election. In the interview, he stated: “Bringing back the gold standard would be very hard to do—but boy, would it be wonderful. We’d have a standard on which to base our money.”
Current Fed Chair Jerome Powell commented on the gold standard recently as well, pouring some cold water on the idea and providing a very contrasting view to that of Shelton’s.
“If you assigned us to stabilizing the dollar price of gold, monetary policy could do that, but other things would fluctuate,” Powell said during his semi-annual testimony before the House Committee on Financial Services last year. “This is why every country in the world abandoned the gold standard some decades ago.”
U.S. gold standard timeline
1879: The gold standard is adopted by the U.S.
1879 to 1914: The so-called classical gold standard era. One ounce of gold represents $21.
1933: The U.S. bans gold ownership. Franklin D. Roosevelt uses the authority granted to the president by the Trading with the Enemy Act to require all U.S. citizens to sell their gold coins, gold bullion, and gold certificates to the Federal Reserve in exchange for $20.67 per ounce. This is knows as Roosevelt's Executive Order 6102. Jewelry and rare coins are excluded. The process of seizing all the gold allows the governments to print more dollars and stimulate the economy.
1934: The value of the dollar in gold is changed from $20.67 to $35 per ounce.
1950s: Black market for gold is on the rise.
1971: The price of gold is no longer fixed to the U.S. dollar. Richard Nixon puts a halt on the U.S. dollar’s convertibility into gold. This means that other countries can no longer redeem dollars for gold.
1973: Nixon scraps the gold standard.
1974: Roosevelt’s Executive Order to nationalize all privately-owned gold is repealed and Congress restores the U.S. citizens’ right to own gold.
1977: Trading With The Enemy Act is amended, removing the U.S. president’s authority to control gold transactions during a period of national emergency, aside from during a time of war. At the same time, International Emergency Economic Powers Act is introduced, which gives powers to the president to regulate international commerce after declaring a national emergency.
2020: Trading With The Enemy Act and International Emergency Economic Powers Act are both still in force.
E.B. Tucker correctly predicted $2,000 gold price; he now sees this year-end target
As gold prices breached $2,000 an ounce and continue to march higher, one analyst sees momentum continuing all the way to $2,500 by year end.
E.B. Tucker, director of Metalla Royalty and Streaming and author of “Why Gold, Why Now? The War Against Your Wealth and How to Win It” said that this current bull rally has not run out of control, and is in fact, still going to going to continue at a measured pace.
“Normally I would say [the bull run is overheated] but what I’m seeing in the daily action is that gold is rising in a very measured way and is not meeting much resistance, so when that’s happening you just step out of the way and let it go, that’s what you do,” Tucker said.
The U.S. dollar has been weakening, and this trend of devaluation is not new, he said.
“This is not new. Back to Nixon in 1971, there was a period when they tried to hide the devaluation of the dollar. It’s a measured devaluation, they don’t want this to be reckless, we have an adjustment periods. We’re in that right now. So right now, the dollar value is the big deal,” he said.
Tucker noted that deflation is a bigger risk right now than inflation.
“What’s really hard for people is…deflation is the real problem because what happens is we’re swimming in too much money, so you have so much money that’s been created, and all that money that’s created over the last 10 years goes looking for investments. When all that money goes chasing for investments, the return on investments goes down, down down,” he said.
The stock market, although appreciating in nominal terms, is not really appreciating in real terms, adjusted for inflation, he added.
Investors should not be trading gold in the short term on leverage, because a short-term correction may occur at some point before prices hit $2,500 an ounce, Tucker said.
“This is a secular bull market. This is a bull market in gold that you’re probably never going to see in the course of your life again,” he said.
After $2,000 gold price, $4,000 is next – Frank Holmes doubles down on call
The fiscal and monetary conditions have never been stronger for gold prices, and while the yellow metal already broke records this week by hitting $2,000 an ounce, Frank Holmes, CEO of U.S. Global Investors, doubled down on his $4,000 an ounce by the end of this bull cycle call.
Price corrections can happen along the way, Holmes said, but gold investors should buy on the dip.
“Every time you have a secular bull market, there are many 10% corrections. So you can easily get a 10% correction in stocks, if you get a 3% correction in bullion,” Holmes told Kitco News. “It’s just recognizing that that ratio of 3-1 is important, and if you have the stomach to weather it.”
On the economy, Holmes expects inflation to rise, but rates to stay low, creating a negative real rate environment.
“The greater the negative real interest rates, the greater the price of gold,” Holmes noted.
Holmes comments come as gold has breached the much anticipated $2,000 an ounce last week. Spot gold last traded at $2029.70 an ounce on Wednesday.
However, money velocity, a measure of the frequency of consumer transactions and is used as a gauge for economic health, has been decreasing, suggesting the people are not spending money.
Holmes argued that money velocity is no longer a valid metric for measuring inflation.
“You just can’t use money velocity now as an indicator of inflation. That’s really an important factor. I think more important is to remember that since 1980 when gold went through $850 and silver $50 and the gold-silver ratio back then was 17-1, you had very high interest rates. It’s very important to put that into context with what we have today,” he said. “The calculations for CPI [the consumer price index] for when gold had hit $850 has changed many times.”
The gold-silver ratio has been dropping as silver has outperformed gold recently, and Holmes said that trend is indicative of more interest from investors in the metals sector.
Gold price has another $200 to go after soaring past $2,000 — analysts
Bullish momentum in gold took prices above $2,000 an ounce, the rally could have another $200 to go before seeing a slowdown, according to analysts.
December gold futures jumped to a new all-time high of $2,024.40 an ounce on Tuesday, last trading up nearly 2% on the day. Meanwhile, spot prices climbed above $2,000 for the first time, last trading at $2,004.20 an ounce, up 1.33% on the day.
Eyes are on lower yields, said TD Securities head of global strategy Bart Melek.
“There is a lot of momentum here. Maybe some short covering after we eliminated shorts the other day,” Melek told Kitco News on Tuesday. “The 10-year yields are the lowest ever at 0.5% and we've got 30-year yields at 1.1888. These are pretty significant lows here.”
Gold got a leg up along with silver and crude oil on the news of an explosion in Beirut, which triggered the fear of missing out, said Blue Line Futures chief market strategist Phil Streible.
“We saw silver, gold ,and crude oil take off on news of that explosion in Beirut. And then when they came out, when it came out that it turned out to be like a firework storage place next to like a nitrate factory, we saw silver futures fall 50 cents, gold fell $9. On that pullback, some of the guys that were afraid to miss out on gold’s price action wanted to get in and buy at all costs,” Streible said.
Anytime new highs are probed, the market gets two types of traders — “a guy who gets stopped out, who is short … and a guy who is afraid of missing out,” Streible pointed out.
“That’s what we are seeing now — fear of missing out and new stops being hit,” he said.
There is also a growing view out there that the Federal Reserve may move away from preemptive inflation targeting, stated Melek. “Typically they would guide. Sounds like they possibly could be moving away from that.”
Tuesday’s move up also comes after a slight correction on Monday, added Melek, noting that gold could be looking at $2,100 next.
“We are at a record level. The next big Fibonacci would be $2,110 — this is where the 2011 gold high really is if you were to adjust for inflation,” he said. “Out target average for end of next year is at $2,100.”
The bull market looks healthy even above $2,000 an ounce, said Streible.
“All the technicals line up really good. As long as the lower real yields occur and the dollar continues to weaken, you’re going to continue to see gold bank all the time highs,” Streible told Kitco News. “It’s a pretty healthy bull market right now. The ADX, which measures the strength of the trend, is at 44, which says that it's a healthy, upward trending market.”
Gold tends to shoot for round numbers and $2,200 could be next for gold, added Streible.
“It seems like the more people talk about round numbers, the more they become like a self-fulfilling prophecy. Once it got to $1,921, we had to go to $2,000,” he said. “The $2,200 is the next resistance level based on the breakout at $1,857 to our most recent consolidation. That would be the Fibonacci extension.”
Streible also warned that, at the same time, this could be the high in gold if news of a successful vaccine rollout hit the market.
Gold eases as dollar firms – virus fears cap losses
Spot gold was down 0.2% at $1,973.54 per ounce by 0026 GMT. It hit an all-time high of $1,984.66 in the previous session.
Reuters
Gold prices edged lower on Tuesday as the dollar strengthened and risk appetite improved after positive U.S. economic data, while fears over surging coronavirus cases limited losses for the safe-haven metal.
FUNDAMENTALS
Spot gold was down 0.2% at $1,973.54 per ounce by 0026 GMT. It hit an all-time high of $1,984.66 in the previous session.
U.S. gold futures rose 0.2% to $1,989.20.
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The dollar index rose 0.1% against its rivals, crawling further away from a more than two-year low hit last week. A stronger greenback makes gold more expensive for holders of other currencies.
U.S. manufacturing activity accelerated to its highest level in nearly 1-1/2 years in July as orders increased despite a resurgence in new COVID-19 infections.
Asian shares were on track to open higher on Tuesday, after strong manufacturing data and gains in tech stocks boosted global equities.
More than 18.19 million people have been reported to be infected by the novel coronavirus globally and 689,871​ have died, according to a Reuters tally.
The World Health Organization warned on Monday that there might never be a "silver bullet" for COVID-19 in the form of a perfect vaccine and that the road to normality would be long.
The top Democrats in the U.S. Congress and White House negotiators on Monday said they had made progress in talks on a new coronavirus relief bill.
The U.S. economy, battered by a resurgence in the spread of COVID-19, needs increased government spending to tide over households and businesses and broader use of masks to better control the virus, U.S. central bankers said on Monday.
Silver fell 0.1% to $24.22 per ounce, platinum rose 0.2% to $918.50 and palladium gained 0.3% to $2,090.21.
Gold price hits new record highs, but $2,000 proves strong resistanceNews Bites
Gold is on a cusp of $2,000 an ounce level. Can the yellow metal continue its historic price rally and breach this level, and more importantly, trade above it?
At the time of writing, spot gold was trading at $1,979.10, up 0.11% on the day, after hitting a record high of $1,984.66 earlier in the session. And the December Comex gold futures were at $1,994.60, up 0.44% on the day.
The next move will depend on real Treasury yield, which are heading deeper into negative territory, said Pepperstone head of research Chris Weston.
“My gold sentiment guide has not given any bearish signals just yet and I am happy to hold a bullish bias, believing pullbacks will prove to be shallow and $2k is likely,” he said on Sunday.
U.S. fiscal negotiations will be playing a key role, according to analysts.
“Having passed the expiry of unemployment benefits, we eye this Friday’s ‘soft’ deadline before Congress heads to Summer recess, although there is the option to keep talks going until Monday 10th,” said Weston. “Reports (on Sunday) suggest that House Speaker Pelosi and White negotiators are still someway apart on restoring the $600p/w jobless benefits and that won’t inspire.”
The gold price will be watching the amount of the fiscal stimulus passed, said RJO Futures senior commodities broker Daniel Pavilonis.
“For gold, it will depend on how much stimulus is passed. If they start to wind down the stimulus, then there is a real possibility that gold softens a bit. If they ramp it up and continue to print up money, then gold should move higher,” he said Friday.
A weaker U.S. dollar pushed gold prices to new all-time highs last week and if this trend continues, gold could see more gains going forward.
“Gold prices again tested new highs [Friday] and while real yields remains the key driver, the correlation with the USD has strengthened … the USD testing two-year lows has propelled prices to new highs,” said Standard Chartered precious metals analyst Suki Cooper. “It bodes well for gold, that we expect the USD to weaken and expect real rates to remain negative.”
ING head of commodities strategy Warren Patterson projects weaker U.S. dollar for the rest of the year. “This is one factor which shouldn’t provide too much resistance to potentially higher prices,” he wrote last week.
The drivers are all still there for gold to keep climbing above $2,000 an ounce, Patterson noted, adding that he sees gold ending the year at $2,100 an ounce.
“Clearly the bulk of drivers are telling us that there is further upside to the market, and we believe it is only a matter of time before the market breaks through the US$2,000/oz level,” he said. “We expect prices to face some resistance as it approaches this level like we saw earlier this week.”
Gold investors cannot forget that a price pullback is expected in the short-term, given how quickly prices have moved up. However, the overall trend in gold remains bullish, Cooper stated on Friday.
“Prices are technically overbought; given how quickly prices have rallied, the risk of a temporary pullback has risen. But the balance of risks remains skewed to the upside for gold in light of the macro backdrop remaining exceptionally favourable; any near-term corrections are likely to be viewed as buying opportunities,” she said.
The biggest risks to the gold price rally are a quick and successful roll-out of the COVID-19 vaccine, swift USD recovery, and profit-taking, Patterson said.
Traders should also watch out for a repeat of what happened in March, which could have a major negative impact on gold, Patterson added.
“While a renewed sell-off in risk assets should provide upside to gold, there is the potential that we see a repeat of March, where a selloff in other asset classes, saw investors liquidating gold positions in order to meet margin calls,” he said.
It's a 'challenging time' for gold companies that need to grow – B2Gold
B2Gold (TSX:BTO) is a mid-tier gold company with mining operations in diverse locations: Philippines, Mali, Namibia and Nicaragua. The Vancouver-based company forecasts between 1,000,000 and 1,055,000 ounces in 2020.
Johnson said the low precious metal prices of the past decade, plus the overhang from the industry's last spending splurge has diminished the gold supply
"There's been a lack of exploration and a lack of development, so I think the supply of gold probably peaked a couple of years ago," said Johnson.
Johnson said he is not a "gold bug", but the extreme financial stress has favored the metal.
"You can't print gold and there's a finite amount of gold in the world," said Johnson.
He said producers are constrained by several factors if they want to add more production now through acquisitions.
"When you talk about M&A, it's kind of interesting because there aren't many great development projects out there. Investors are nervous about people paying premiums to take over companies, because that didn't go so well in the past. Barrick set an example with the Barrick-Randgold deal where there was no premium in that deal. So I think that it's an interesting and a challenging time for those companies that really need to grow today," said Johnson.
However, some mergers could better for all.
"We're not desperate to go run out and do a deal. We've got great projects, a great pipeline of additional projects. I think you will probably see some more mergers of equals and I think that's good for the industry. I think we need fewer and better run gold mining companies," said Johnson
A future project that should grow B2Gold's production is the Gramalote project in Colombia, a joint venture with AngloGold Ashanti. A feasibility study is planned for the first quarter of 2021. The indicated mineral resource for Gramalote is 2.14 million ounces.
B2Gold announced a fundraising initiative. The company is producing 1000 limited-edition ` Gold Bars to support conversation efforts for the critically-endangered black rhino.
As COVID-19 devastated the tourism industry, wildlife parks across Africa have taken a hit and are in danger of being shut down.
“That’s affected the ability to protect these species. So that’s why the Rhino Bars and the money generated from that is so important to assist today, in protecting the wild and supporting the communities that are doing this work. A lot of budgets would have been cut had it not been what we’re doing,” said Clive Johnson, CEO of B2Gold.
Does current gold price make sense? McKinsey warns these sectors destroyed permanently
As gold prices breached new all-time highs, confidence in the yellow metal signals to investors a desire to break away from the U.S. dollar, said Ken Hoffman, senior expert at McKinsey.
“The world is trying to get away from the dollar. You’ve seen a number of Chinese sources talk about the ‘de-dollarization’ and as the world tries to look for another currency besides the U.S. dollar, gold makes a lot of sense,” Hoffman told Kitco News.
The outlook for the global recovery following the COVID-19 pandemic looks promising for some sectors, but grim for others.
In a recent report published by McKinsey, the healthcare, information services, and technical service sectors will be the fastest to recover, while the arts and entertainment, hospitality, and educational services sectors will take the longest, with a recovery to pre-COVID levels taking place only by 2024-2025.
Mining, quarrying, and oil and gas extraction will also take a few years to recover fully.
Hoffman said that this is due to the oil companies that have been grouped into this category.
“Energy is a big part of that bucket, and energy has been impacted tremendously, particularly in travel…vehicle travel, air travel, ship travel, etc. That is the one area that we think is going to have a long-time recovery. Coal, in particular, may never see a recovery to pre-COVID levels,” he said.
Metals miners are seeing a mixed picture when it comes to a recovery, Hoffman noted.
“From a supply side, it’s been very spotty which industries have been hit by COVID and which have not. In particular, you’re seeing in South America a number of various sort of hits. Most notably is iron ore in Brazil, and copper Chile, has been quite hit as well,” he said.
Gold price path to $2,000 – 'There is no quick solution to U.S.-China tensions' — analysts
Gold is on a mission: to reach its all-time high of $1,920. And aside from looking like a very probable outcome for next week, analysts say that there is little to stop the precious metal from rising further and getting close to $2,000 an ounce.
Rising tensions between the U.S. and China, weaker U.S. dollar, falling yields, additional fiscal stimulus and still climbing COVID-19 cases have all been some of the significant drivers behind gold's massive move up this week.
At the time of writing, August Comex gold futures were trading at $1,899.80, up 0.52% on the day. In just five trading days, gold gained more than $80 and saw its seventh weekly gain in a row.
In terms of what's next for gold, the majority of analysts Kitco News spoke to on Friday said that the trend upwards remains intact and more price gains are likely. The main reason behind such bullish outlook is that gold's supportive elects are here to stay … for now.
"I don't see a quick solution to escalating tensions between the U.S. and China, I don't see a quick solution to the pandemic problem, and I don't see a quick solution to the global worries that come from increased stimulus and increased debt," RBC Wealth Management managing director George Gero told Kitco News. "The trend is my friend, according to traders in gold. They will remain buyers on dips."
Hitting higher levels is the outlook for both gold and silver, Gero noted.
U.S.-China tensions: 'U.S. dollar on its knees'
The U.S.-China tensions saw another escalation Friday when China retaliated for Houston's consulate closure by ordering the U.S. to close its consulate in the city of Chengdu.
"The U.S. move seriously breached international law, the basic norms of international relations, and the terms of the China-U.S. Consular Convention. It gravely harmed China-U.S. relations," China's foreign ministry said in a statement.
This rise in tensions, along with a weaker U.S. dollar, is creating a very gold-supportive environment for traders.
"The U.S. dollar is pretty much on its knees, political tensions between the U.S. and China are at their highs. And the Middle East is seeing a very bad time right now. Everything is pointing to much higher safe-haven demand," said Afshin Nabavi, senior vice president at precious metals trader MKS SA.
The weaker U.S. dollar is also helping international buyers acquire gold and silver, which in turn, boosts the price, highlighting Gero.
