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BFI Perspectives 

Gold Outlook Bright After a Temporary Setback

Even though the gold price has declined since its latest high at US$ 1674 an ounce, the overall outlook for gold is very positive in the medium- to long-term. The monetary and fiscal interventions of central banks and governments have become highly predictable. In response to the COVID-19 crisis and the oil price war, the global disaster prevention teams will be at it with everything they’ve got…

The following factors will support and drive up the price of gold over time:

  • Fear – the capacity of gold to act as a safe haven has been repeatedly confirmed historically, so it was no surprise to see demand surge when the current crisis started to unfold. Fear and panic will increase even further as the coronavirus cases and fatalities continue to climb in the coming weeks in Europe, and then in America, as is expected by statistical models and projections.

  • Monetary and fiscal policies – central banks and governments are back at it. Lower and lower rates, more and more cheap money, more and more debt-financed fiscal programs to stave off the inescapable economic impact of the virus and of the measures to contain it. As a result, inflation could be kicking in soon, while the monetary and fiscal policies will not be as effective as they were in 2008.

  • Deleveraging has suppressed the price – The economic impact of the coronavirus is best summed up as a credit crunch. The most recent pullback in the gold price is a result of intense deleveraging. In the midst of the crash, collateral selling damage has been inflicted on a broad array of “good” stocks as well as gold. In this kind of market, large scale covering of margins, selling for liquidity purposes and automated selling hit the best assets as hard as those overdue for a correction.

It is precisely this kind of scenario that offers the chance for smart buyers to make a killing. Ultimately, as we all have to be reminded again and again, investing is about BUYING LOW AND SELLING HIGH.