We have been bullish on gold since quite some time, and the case for investing in gold has not been this compelling in years. Gold prices have fresh highs recently, surpassing the previous high set in September 2011, and current price trends suggest a longer, sustained rally in gold, similar to the 2001-2008 secular rally stated Mr Prithviraj Kothari of RSBL.
Gold prices hit $2000 for the first time, in a $23 rally on Tuesday. Gold was lower at the start of North American trading but quickly turned around and has shot higher here.
The USD weakness is also reflecting the resurgence of COVID-19 cases across the U.S. As more states pause or rollback re-openings (now about 75% of the population), a full and sustainable economic recovery is at risk of either being delayed or becoming less likely.
A weaker recovery will result in more need of fiscal stimulus and hence long-term monetary policies are expected to continue, further the US unemployment figures are also expected to rise high while consumer spending is expected to remain weak.
In a situation like this the primary concern for policy makers and the Federal people is to control the spread of the pandemic. However, much to the dismay of all agencies across the world there is no confirm news of a cure or a vaccination that would eradicate the virus. Thus, the concern remains and so do the investors wariness with respect to investments and their money. Therefore, investors have started moving into gold backed ETF’s. Worldwide holding of ETF’s have risen sharply and just behind the official US reserves of bullion.
Further, sentiments are bullish for gold. Post COVID-19 pandemic environment, growth is expected to rise. Rising growth would mean lower interest rates and negative yield policy. This is one of the main tools for the Fed to bring down the growing U.S debt burden. But if the situation worsens that obviously it will lead to bullish consequences for gold.
We believe that gold’s latest price surge is likely the result of investors moving towards our long-held view as gold as a store of monetary value and a unique asset class with diversification qualities confirmed the bullion king of India.