Following recent developments affecting the gold price, people may be inclined to think that bullion has peaked for the year. Nothing could be further from the truth, as the ongoing issues in the US may leave a permanent mark on its – and by extension the entire world’s – economy.
Don’t Worry About the Gold Flash Dip
Big was people’s surprise when the price of gold dropped by $50 in a matter of hours this Friday. It was an unexpected loss, and a rather steep decline given the recent market momentum. News coming out of the US regarding unemployment rates rekindled the stock market, and pushed precious metals down ever so slightly.
Sources claim that over 2.5 million jobs have been added to US payrolls in May 2020. This is positive news given the massive job decline of April, but there is still an unemployment rate of well over 13%. It also beats expectations of 20% unemployment rates projected by “experts”, as they clearly missed the mark this time around.
None of this means that the US economy is effectively recovering, however. While stocks might be rebounding and the gold price dipped a bit, the long-term game hasn’t changed in the slightest. Repercussions associated with stimulus packages and low interest rates will not become apparent until Q3 and Q4 2020. When they do, however, the stock market is likely to take another beating when investors flock to safe-haven assets.
The Hurt has yet to Come
Short-term optimism is all fine and dandy, but one should never lose track of the bigger picture. Some experts agree on this matter, as they still expect tough times to materialize. Ongoing physical distancing confirms that there may be permanent damage being done to the US economy and daily lives of Americans.
Moreover, one has to consider how the unemployment rate will remain relatively high for some time to come. Several struggling businesses are sticking around, but they may be on their last legs. When the real damage starts to become apparent, there will be many layoffs across different industries.
Looking beyond the scope of COVID-19, there are also geopolitical tensions, trade risks, and a potential threat to the monetary system in the form of cryptocurrencies and Facebook’s Libra. No rest for the wicked by any means, thus the current optimism is likely to be very short-lived.
In closing, it seems likely that gold – and by extension, silver – will rebound in the near future. When that happens, things are bound to get very interesting, as analysts predicted a very high gold price by 2021. If that vision comes true, severe damage will be done to traditional investment vehicles such as stocks, bonds, and treasuries.