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$2,200 Gold Sounds Scary? Experts Are Talking About $4,000 and $5,000 | July 01, 2020 (1 comment)
Merrick, NY—Gold is quickly nearing its former peak price. Overnight from Tuesday into Wednesday it breached $1,800; easy spitting distance of its all-time high of $1920 in 2011. Although prices had retreated to $1775 an ounce by press time on stronger-than-expected ISM numbers, worries over a surge in new COVID-19 infections dampened investor optimism about a swift economic rebound. Gold is traditionally a safe-haven investment that rises in tough times and retreats in good times.
But as if to underscore how utterly uncertain everything is, at the start of the pandemic lockdowns—a time when gold theoretically should have begun to rocket—it didn’t. In fact, for a while it went down even as the stock market plummeted into deep bear territory.
Related: Gold Should Be Rocketing Right Now. Why Isn’t It?
At the time, pretty much every market flirted with panic mode. An article on Kitco.com had warned investors that both gold and silver prices were collapsing. Platinum also dropped 27% at the time, and all kinds of otherwise obscure markets went haywire. Prominent economists such as Allianz’s Mohamaed El-Erian and Wells Fargo chief economist Jay Bryson also said at the time that a recession was inevitable but that its severity and duration would depend on progression of the virus.
Three months later, the coronavirus is not under control. And it doesn’t look like it’s going to get under control any time soon. The initial optimism after COVID cases in the original hotspots declined sharply and states moved to reopen faded as infections have spiked in the Sunbelt. While stocks have regained a significant chunk of their initial losses from March, and we are in a better place with regards to testing and some potential treatment protocols, it’s obvious that summer is not going to be the panacea that many predicted and the virus is still going to be with us for a while.
Hence gold is now behaving like a proper safe-haven asset.
“The relentless spread of the coronavirus intensified investor fears about a delay in global economic recovery and weighed on risk appetite, driving inflows into safe-haven assets,” said a Reuters article. “The outlook for a global economic recovery over the past month has worsened or at best stayed about the same, according to a firm majority of economists in Reuters polls.”
Related: Analyst Foresees $2,200 Gold By Year’s End
$2,200, however, might quickly become a nostalgic price point. The idea of $4,000 and $5,000 gold already has been floated by experts. Frank Holmes, CEO of U.S. Global Investors told Kitco.com that gold could hit $4,000 in the next three years.
“Gold prices have seen a positive correlation to the expansion of the Federal Reserve’s assets, and as the Fed embarks on the largest stimulus program in its history, the yellow metal is set rally in the same fashion as in the aftermath of the last recession,” said Holmes in this video.
Using a historical comparison of the Federal Reserve balance sheet from 2008 through 2011—with gold’s corresponding meteoric rise from $750-$800 to over $1,900—Holmes says if history repeats itself with the trillions of dollars it will cost the Fed to rebuild the economy now, calculating with the same trajectory, puts gold at $4,000.
Chris Vermeulen, chief of market strategies for FX Empire, also used history as a guide but he went back much farther: into the 1970s, where he sees a similar economic pattern to today.
Vermeulen says that whenever gold hits a “washout low pattern,” the technical term for the moderate low price rotation (like we saw in March), it sets the stage for a rally and a new high. In this article, he compares some present market and economic dynamics to similar patterns in the 1970s, particularly “if the COVID-19 pandemic collapses global GDP while the US Fed and other global central banks continue to pour capital into the credit/banking markets, resulting in an inflated global equities/stock market bubble, and the global stock markets enter an earnings/income contraction phase (much like 1973 & 1974) while inflation grows moderately, we could expect to see Gold continue to rally for the next 3 to 4+ years and attempt a 500% rally from current levels.”
He believes “Q2 and Q3 [2020] data could be very reminiscent of 1973-1975 market data, in which case gold could rally to levels far above $5,000 as traders rush to safety.”