ivana-cajina-HDd-NQ_AMNQ-unsplash_edited

We cherish independent and rational analysis. 

BFI Perspectives 

  • Scott Schamber

Gold Looks Well-Positioned for More Gains

Investors around the globe have embraced gold as a key element of their investment strategy, and as a hedge against the growing risk of a financial and economic crisis ahead. While a few weeks ago, there were still numerous voices hoping for a faster economic recovery (a V-shaped wonder) after the COVID-19 lockdowns, the consensus is now shifting toward a slower recovery (a U-shaped reality) at best. The fear of a “second wave” is a prime concern, while there is also a growing number of investors and analysts warning about inflation. Either way, it all reinforces the role of gold as a strategic asset allocation. Gold prices have been rising ever since the summer of 2018. After the brief setback in March of this year, gold prices came back instantly and strongly. As I write this post (on July 16th), the price is slightly above the US$ 1’800 per ounce mark at US$ 1’810. I have to admit, I was hoping for a bit of another drawback to stock up some more, not only for myself, but also for our clients. Right now, nothing appears to be stopping the trend. So, I am in danger of a bit of FOMO (fear of missing out) here, although as you might imagine, I’m certainly not short on gold. 5 Year Gold Price in US$/oz

Source: www.goldprice.org Gold outperformed all major asset classes so far in 2020. Other classes are starting to look toppish and even stocks, which have been carried by another splash of liquidity, are starting to run out of steam.

For me, what lies ahead is quite clear: central banks and governments will continue adding their multi-faceted forms of “support” to the economy. After the COVID-19 lockdowns, pretty much anything goes. Governments have, for example, discovered the wonderful tool of credit guarantees to banks, which allows commercial banks to give credit where they otherwise wouldn’t.


YTD Gold Performance in US$, per end of June 2020

Source: Bloomberg, World Gold Council

Most of the liquidity continues to go into the financial markets, particularly stocks. However, government-sponsored credit, contrary to central bank liquidity, is now also starting to flow not just into assets, but the economy as well. That may in fact help GDP, and it will certainly help asset prices more, including gold. However, it also justifies the rise of inflation expectations.

The nice thing about gold is that it will benefit and rise in any of these scenarios. Our outlook for gold at the BFI Capital Group is bullish. A combination of solid factors supports the continuation of a bull market in gold. Most importantly, from an investment standpoint, you need to recognize the attractive combination of positive price momentum and the low opportunity cost of buying gold to that of the growing risk in other asset classes.

If you need help in stocking up, give me a call. We will be happy to answer any questions you may have and make sure your physical holdings are safely stored in the most secure vaults out there, right outside of Zurich, Switzerland, or in one of our other high-security vaults around the globe.

Download PDF blog post
.pdf
Download PDF • 397KB