by Umar Farooq
Hedge funds longs in gold, gold ETFs, gold futures, and the gold miners have suddenly shot up to new all-time highs. If it turns out that the new administration policies do well, inflation will rocket, sending gold through the roof.
“Worried about new supply quickly coming on stream and killing the rally? It can take 10 years to get a new mine stated from scratch by the time you include capital raising, permits, infrastructure construction, logistics, and bribes. It turns out that the brightest prospects for new gold mines are all in some of the world’s most inaccessible, inhospitable, and expensive places. That’s the great thing about commodities. You can’t just turn on a printing press and create more, as you can with stocks and bonds. In short, there is not a lot to spread around.” seeking alpha
The potential threat of destruction, restructuring, or renegotiation of the EU and the single market makes gold an attractive asset that investors will seek out to provide safety in this time of uncertainty.
“In this time of uncertainty, I believe gold will continue to appreciate handsomely. Gold increases in price during times of uncertainty because investors look for safe havens to protect their wealth against the unexpected. Additionally, I believe gold will continue to thrive regardless of whether the dollar remains weak or strengthens. If the dollar remains weak and the US continues to print money and keep interest rates low, nations and investors will continue to lose confidence in the dollar. Many will turn to gold as a hedge against these unprecedented monetary policies. However, as stated earlier if the dollar were to strengthen complications may arise in emerging markets that will lead to an appreciation of gold.” seekingalpha
“The precious metals are momentarily disconnected from their usual correlations with outside markets,” said Michael Armbruster, principal and co-founder at Altavest. “It could be that gold’s strength is evidence of skepticism of the sustainability of the stock market’s melt-up.” But “we expect something to give sooner rather than later, either both stocks and bonds will reverse course or the precious metals will falter,” he said. “It will be interesting to see which occurs first.”
The demand for gold has been on a steady rise as well in recent years increasing the price of gold too. Investors mostly prefer physical gold rather than other “hard assets” and commodities for simplistic reasons. Gold is relatively cheap, easy to store, retains its value, and requires no maintenance.
In short, Gold is going to keep its momentum keeping in view the political uncertainty, a weakening dollar and suggestions that the equity markets are getting toppy.
by Umar Farooq