Gold dropped initially alongside stocks, as it often does in a financial crisis. Investors seeking liquidity to meet margin calls or to raise cash for the uncertain weeks and months ahead. But since the gold price did not drop as a result of any fundamental weakness, we have the bargain hunters coming in to buy gold cheaper than it ought to be. As a result, gold is up by more than 7% compared to the start of 2020.
Gold should head significantly higher. Expect volatility in all markets to continue until we see a much clearer picture of the situation. Along the way, the gold price will continue to be sentiment-driven. Like the stock market, gold will rise and fall on the latest news of the day. But remember, we are in a full-on bull market for gold, and higher prices are expected.
Expect,
1. the strong central bank buying to continue.
2. investor demand to continue and increase in volume.
3. the Federal Reserve’s low-interest policy. With negative real returns on cash and deposit accounts, holding gold might be a better option.
But have in mind, that it is always better to have already bought your gold as wealth insurance before the emergency appears. As you better buy your car or homeowner’s insurance before the disaster because after it is either unavailable or extremely expensive. It is the same when using gold as your wealth insurance. When demand surges, production can not keep or catch up. Bullion coins and small bars that retail investors prefer and are able to afford are gone. Supplies run out, delivery times take longer and premiums rocket higher. You might be chasing the market now.
Sven Franssen