Despite some hurdles along the way, the overall bullish sentiment for gold and other precious metals remains firmly in place. Especially with so much new money entering the economy, there is a good chance that the safe-haven assets will come out on top when everything is said and done.
Current Developments Favor Safe Havens
Various countries around the world genuinely struggle to keep their economy afloat. Especially in the United States, the desire to resume normal operations is palpable. Whether or not that is a good idea given the current circumstances, is a different debate altogether.
If President Trump is to be believed, coronavirus lockdown measures may begin to reverse by the end of April. An ambitious approach, for obvious reasons. The coronavirus death toll in the country is still rising every day, thus a change in lockdown measures is not necessarily a smart idea.
There is a good reason as to why this approach is being considered. Every day that the lockdown continues, the central bank needs to inject more liquidity. While the Federal Reserve has done so already, this process cannot go on indefinitely. Despite it being called ‘unlimited quantitative easing“, it is not something any central bank wants to maintain for months on end.
Until things improve, however, things will remain as they are today. A lot of helicopter money has been injected, which will ultimately result in inflation, or even hyperinflation. For a dominant economy such as the US one, that is far from an ideal scenario. It is very likely that most of this “new money” will make its way into safe-haven markets eventually.
Gold Momentum Intensifies Rapidly
As the Federal Reserve continues to create trillions of dollars out of thin air, investors are already playing their hand. This week has been a good example of what the future may hold. The recent $2.3 trillion injection – designed to be used for loans – have allowed the gold price to recover rather nicely. For all intents and purposes, this may very well be a sign of things to come.
Another crucial indicator is the gold futures price. This week, that value reached a high of $1,750, which is the highest value in over seven years. Investors with a long-term approach in this market will be very happy with that outcome, as it shows that the gold price momentum is still firmly intact.
Other factors come into play as well. There is an ongoing shortage of physical gold, which will undoubtedly trigger a market shift sooner or later. A subdued gold supply and production is a very intriguing catalyst, as something like this hasn’t happened on such a large scale.