![]() So for those who are looking to hedge against the still distant prospect of stagflation (hyperinflation + economic contraction), gold might be a key weapon of choice in your trading arsenal. While we might be in a global economic standstill, the current stock market, while fraught with anxiety, is nowhere near a doomsday scenario, at least for now. Whatever the outcome of the US election, it would seem that gold will remain as the feel-good asset during times of duress. If Joe Biden wins, gold could also advance because conservatives will fear that he will further debase the dollar with tax-and-spend policies. If Donald Trump is re-elected, gold should benefit because of the uncertainty surrounding Trump’s drastic actions that he might take in his second-term. Such a backdrop will favor the outperformance of gold.īeyond global currency debasement, one more issue looms in the background that is not fully reflected in gold’s price: the US presidential election. Such a scenario reduced the “opportunity cost of holding a zero-coupon asset such as gold”.Īnd because the Fed and other central banks will have their hands tied when it comes to raising interest rates as a result of high unemployment even if inflation is to start picking up, this could mean a substantial negative real yield for investors. This is when the return investors get on bonds is equal to or below the rate of inflation. They highlighted that at its core, the rally in gold was being driven by central banks’ monetary easing, which had resulted in negative real yields. According to Citi economists, they believe the metal could reach US$2,100/oz this quarter and US$2,300/oz in the next 6-12 months, with “risks skewed to the upside”. They have made a grand entrance thus far in 2020 and one particular reason why that party can continue for the rest of 2020 is due to negative real yields. They hibernate for years and emerge in a frenzy in reaction to some fear that ultimately subsides and then they go away until the next maelstrom sparks their re-emergence.” After a neck-breaking rally, it’s natural to ask if we are already too late in the game? Still more upside?Īccording to Steven Sosnick, Interactive Brokers’ chief strategies, he commented that “gold bugs are the cicada of the investment ecosystem. The combination of a rapidly worsening US-China trade relationship and global money printing press going into overdrive might partially explain why gold is currently at an all-time high level of US$2,030/oz. The Fed is also mulling a more accommodative stance towards inflation, with short-term rates unlikely to rise anytime soon. The central bank assets have now ballooned to USD$7trn and that figure is likely to keep rising. Moreover, the Fed has been flooding its financial system with cash. This is not just a single city issue but one that transcends the entire nation with deglobalization potentially increasing the overall cost of production worldwide. ![]() Donald Trump’s rapid-fire escalation of attacks on China, with the ban of TikTok and WeChat taking center stage as well as sanctions of Hong Kong’s top official Carrie Lam, risk igniting a cold war between the world’s two superpowers that could result in massive disruption of the global supply chain.Ĭheap products such as car parts that were once made in China’s city of Wuhan can no longer land in the US. War is inflationary and we are currently in the midst of a massive trade war between the US and China that recently reach a new peak of “pent-up” grievances. Trade War + Central Bank printing = More upside for gold?
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