How President Biden Could Send Gold Soaring

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While the metal will likely prosper no matter who is in office, Ole Hansen of Saxo Bank explains why a Biden administration could be particularly bullish.

Analysts appear to be in unison when it comes to the coming U.S. election’s ability to shake the markets one way or the other. Given this year’s events, both candidates have shifted the focus of their presidential run to one that almost entirely revolves around revitalizing the nation’s economy.

Ole Hansen, head of commodity strategy at Saxo Bank, is among the pundits who expect gold prices to show strong sensitivity heading up to November 3 in regards to the buildup and the outcome. Hansen believes that a Biden victory in particular, including an early leg up in the run, would be bullish for gold given the candidate’s restructuring plan.

Biden’s team hasn’t hesitated to unveil plans for a multi-trillion stimulus program that would go into action within the first three months of the Democratic nominee’s presidency. With trillions of dollars already being printed this year and desires by officials to stay the course despite President Trump’s disagreements, Hansen sees this as perhaps the deciding factor that would keep pushing gold prices forward. The promise of another historic fiscal stimulus would not only meet sky-high inflationary expectations, but also ensure that the Federal Reserve gets its wish when it comes to keeping interest rates around zero until 2023 at the very least.

Hansen also expects gold to continue to display an uncharacteristic amount of volatility, though few could argue this hasn’t been a good thing for holders of the metal. After soaring to a new all-time high of above $2,000 in August, gold inched down slower amid various uncertainties, appearing to find strong support around the $1,850 level. However, the metal has shot back up once again, hitting $1,931 on Friday and therefore once again passing its 2011 high.

While Hansen hesitated to make predictions when it comes to gold returning to the $2,000 level, he took full note of September’s exceedingly strong price action. Throughout the month, investors across the board continued to pile into gold as a hedge against inflation, buoying prices even amid high volatility. This has perhaps best been exemplified by what looks to be a persistent interest in the metal among institutions. Asset managers, especially those of pension funds, have grown to view gold as a necessity in their portfolios and have helped propel demand for the metal to a record of 111 million ounces so far this year.

The driving force behind this has largely been singled out as an environment of plummeting negative real yields and rising inflation, one that is unlikely to change irrespective of the outcome. And though Hansen tethers more bouts of explosive price action in the gold market to a Biden presidential win, it’s worth noting that gold reversed its bearish course during the incumbent’s stay in the office in 2018, along with Trump and some of his key personnel being vocal proponents of a return to the gold standard.

Correlation Between Gold and Bitcoin Hits All-Time High

With institutions increasingly buying gold and cryptocurrency in recent months, the two assets are shining as decentralized hedges. Here’s what has changed.

The parallels between gold and Bitcoin have been there all along. Although both assets provide a decentralized hedge, the two have not often been directly compared due to Bitcoin’s extreme volatility and gold’s famous stability. Yet, much has changed since March. The unprecedented blow to the global economy has driven many to question stocks and even major currencies, as stimulative measures threaten to weaken the latter.

The biggest factor in the two assets becoming correlated has been the entrance of institutional money. Previously, institutions were reluctant to even consider exposing themselves to Bitcoin, in large part due to the nascency of the asset class. On the other hand, many fund managers either avoided gold or held a minimal allocation as they sought safe returns elsewhere, often in the form of bonds.

Now that most bonds offer a negative return, with the state and the currencies behind them looking shaky, institutions can hardly ignore gold’s outperformance this year, one that saw the metal rushing to a new all-time high and sticking around it ever since. In the current environment, the absence of havens and gold’s price appreciation has greatly expanded the scope of investors. With estimates that institutions will double their gold holdings in the near future, there is plenty of solid ground to expect more of this appreciation.

For Bitcoin, the entrance of institutional money has not only legitimized the asset, but also offered some much-desired stability. Now that institutions are essentially holding the reins of the crypto market, investors have less reason to fear massive price drops that linger for a prolonged period of time.

This has likely played a key role in the correlation between gold and Bitcoin steadily climbing over the past months to reach the highest-ever one-month point of 76.3% on September 19. A risk-off and risk-on asset are now close to moving in tandem, and there aren’t many indicators that this will change any time soon.

The uncertainty that the global economy faces has compelled institutions to review their course of action. The lack of counterparty risk that both assets boast has come into prominence as several countries have already experienced currency depreciation eerily reminiscent to that of Venezuela, while most nations are now asking their bond holders to pay a monthly fee, painting quite a bizarre picture. In fact, prominent funds like the Grayscale Bitcoin Trust are increasing both their gold and Bitcoin allocations, highlighting the shifting view of what makes a good safe-haven.

Bitcoin’s biggest benefit from these developments will likely come in the form of the aforementioned price stabilization, making investors across the board less hesitant to allocate some of their money to it. For gold, however, the story appears to be one of price gains. The metal’s outperformance this year cast a shadow on the 2008-2011 stretch, and its plunge during March’s broad selloff still left it above most assets. The growing distaste for risk and the sheer amount of money that institutional investors are set to pour in has driven many notable forecasters to expect new highs for gold’s price, both over the short and long-term.

The ECB May Give Gold Its Next Big Boost Higher

Finding itself with a relatively strong currency, the European Central Bank is considering further loosening monetary policy, which could send the yellow metal to new heights. See why here.

When the Federal Reserve slashed interest rates last summer, central banks around the world were quick to follow suit, with some thrusting their bonds into negative territory. Even though gold has had an explosive performance this year, careful market watchers will likely peg this event as the catalyst that started a steady climb in gold prices. And now, according to various experts, this kind of Fed-policy-echoing could happen once again, albeit in a slightly different manner.

Right now, the Fed sports a landmark 2% inflation rate policy, allowing Powell’s team to up the rate past their desired target as-needed to adjust to economic conditions. Another thing of note is that, prior to the pandemic, President Trump voiced that he wouldn’t mind a weaker dollar due to trade disputes and China’s currency manipulation.

Now, the European Central Bank (ECB) finds itself in similar territory. The euro has recently shot up against other reserve currencies, a situation that ECB officials aren’t particularly thrilled about. A strong euro places eurozone exporters on shaky grounds, risks inflationary spikes in individual countries and threatens to slow down the European economy, which has already been stagnating prior to this year’s events.

Mechanical Engineering Industry Association’s chief economist Ralph Wiechers and Natixis strategist Dirk Schumacher both agree that the euro’s strength has become an issue for the ECB. And while some experts note that the ECB lacks straightforward tools to devalue the euro, BNP Paribas expects the central bank to state its desire to depreciate the euro and perhaps introduce some loose monetary policies to support this.

Former ECB vice president Vitor Constancio said that the bank would indeed follow the Fed’s policy on inflation, one that is seen as a significant long-term boon for gold. While the metal has pulled back from $2,000, it has remained above what looks like significant support at $1,940. It now appears to be entering a phase of price normalization as it waits for the next trigger that could send it flying past its new record high.

Prominent investors like Peter Schiff believe inflation will be the next big price driver in the gold market, especially over the longer term. With both the Fed and the ECB issuing massive amounts of stimulus in recent months, it would be difficult to argue against this view. Adding to this the stated willingness of central bankers to subdue the strength of their currencies, gold should have no issue finding the next step on its upwards journey.

Why Gold Is One of Few “Safe” Bets Ahead of Election

Why Gold Is One of Few "Safe" Bets Ahead of Election

Heading into one of the most heated elections since the Civil War, one fund believes that gold can help to protect from the tumult that is likely to follow. Here’s their strategy for the coming months.

The Dynamic Precious Metals Fund has been one of the best-performing funds so far this year, having gained 63% since January. The fund’s focus on precious metals in its portfolio allocation allowed it to outperform 82% of its peers, as gold surged to a new all-time high in an unprecedented bid for safety.

While gold’s climb has been powered by numerous red flags that persist, Dynamic’s portfolio manager Robert Cohen sees one factor in particular that should prompt investors to stick to the yellow metal. The 2016 U.S. election was especially hotly-contested, but the tumultuous events of this year have driven Cohen to label the coming November election as the most heated one since the Civil War.

With some expecting the election to stir the markets irrespective of the outcome, Cohen elaborated that investors might want to tighten their portfolio and lessen their exposure to various assets as November approaches. Despite this, Cohen sees gold as the one asset that looks to be a safe bet heading up to the election and onwards. Although the metal has fallen off from its August high of $2,000, it has continued to trade within a range above its previous all-time high, set in 2011.

According to Cohen, the bullish sentiment that currently surrounds gold is much more than a passing trend. General uncertainty might have been the overall theme as gold soared, but it was the historic stimulus issued by the Federal Reserve and the dip by real yields into negative territory that ultimately drove investors towards the asset. Even if the uncertainty dissipates, these factors will remain as powerful drivers, especially when one considers that the global bond market’s downfall has been inching gold up ever since last summer.

Cohen concurs, pointing to both the devaluation of currencies and the issue of sovereign debt as reasons why gold investors shouldn’t swerve too far off course. Prior to this year’s events, the U.S. was already dealing with a massive amount of debt that some economists were claiming to be near a tipping point. Now, the U.S. and countries around the world will need to up their government spending in order to reinvigorate their economies, causing the debt bubble to expand further. As Cohen points out, a sovereign debt default isn’t a likely or a plausible scenario, leaving money printing as the only remaining option. With a guarantee that nations around the world will erode their currencies through money printing, gold’s ability to protect one’s wealth and preserve purchasing power is bound to be displayed in full force, especially over the longer-term.

The Fed Has Cemented Its Place as a Powerful Driver of Gold

The Fed Has Cemented Its Place as a Powerful Driver of Gold

Having already provided a tailwind for gold prices prior to the pandemic, the Fed’s latest announcement may drive the metal even higher. Find out why here.

Before the pandemic hit, gold had been on a steady upwards trend since the start of last summer. Although the metal rested on plenty of solid fundamentals, the momentum shift occurred as the Federal Reserve decided to slice interest rates in succession, joined by central banks around the world. The massive amounts of stimulus issued in response to the crisis, along with a prolonged zero-rates policy, also played a key role in helping gold breach its all-time high and climb above $2,000.

Considering the latest announcement by Fed Chair Jerome Powell and gold’s response to it, the Fed’s place as an exceedingly powerful driver of gold prices appears well-set. On Thursday, Powell announced that the Fed’s inflation rate could exceed 2%, a revelation with numerous positive implications for gold.

Inflationary expectations were already running rampant before the trillion-dollar stimulus, and the announcement that Fed officials aren’t too concerned about possible spikes in inflation are likely to play heavily into that role. Likewise, the purpose of the statement appears tied to the Fed’s desire to keep interest rates low, which some consider to be perhaps the most powerful tailwind for gold.

Having held onto the $1,940 support level for the better part of the past two weeks, gold was quick to respond, hitting a high of $1,973 during Friday’s trading session. Delano Saporu, founder of New Street Advisors, shared some of his views on gold’s current state, as well as what investors can expect from the markets moving forward. As Saporu and many other analysts noted, those looking for a safe-haven asset, be it as a hedge or otherwise, have nowhere to turn with the bond market being in dire strides. These investors are likely to pour into gold, not only as a source of safe returns but also due to concerns over the ever-increasing money supply.

Nancy Tengler, chief investment officer at Laffer Tengler Investments, echoed Saporu’s sentiment, highlighting that the strong fundamentals that have drawn investors to gold are still in place. Besides the addition of a sluggish economic recovery with plenty of concerns, negative real rates and ballooning government debt have been sticking out as red flags. The need to spur an economic recovery is likely to worsen the sovereign debt issue, which is generally viewed as a problem without a palatable solution.

Furthermore, Tengler also pointed to the uncertainty in the stock market, stating that only a few tech stocks aren’t high-risk plays right now. Noting that her firm called for a pullback when gold breached the $2,000 level, Tengler advised investors to buy the dip in gold whenever possible.

Why Central Banks Are Increasingly Buying Gold

Already consistent buyers for decades, why has there been a groundswell of renewed interest among nations in recent years? Find out their motivations here.

On the face of it, central banks might not seem all that interested in gold. Barring a select few economies, one will rarely hear central banks praising gold as a cornerstone of their nation’s prosperity. Yet a closer look into who’s buying gold bullion, along with the why, tells quite a story about the interest central bankers have in hoarding the metal.

While the gold market may come off as driven by investor and retail purchases, it is in fact central bankers that have been the strongest under pinners of gold’s price over the past decade. Since 2010, central banks around the world have turned into strict net buyers, purchasing bullion by the ton on a monthly basis.

Central bank purchases of gold have taken center stage in 2018 and 2019, when the official sector bought an annual record of 650 tons of gold during each respective year. The ramped-up purchases were especially curious to market watchers, as various countries that have either been absent from the gold market for years or haven’t shown much interest in it suddenly jumped on the train with multi-ton purchases.

As GraniteShares’ CEO Ryan Giannotto recently noted, central banks now own an astounding $2 trillion of gold bullion. According to experts like Max Castelli, head of global strategy at UBS Asset Management’s Global Sovereign Markets team, and Leigh Goehring, managing partner of natural-resources investment firm Goehring & Rozencwajg Associates, different central banks have different reasons for accumulating bullion.

The case of Russia’s double-digit tonnage purchases on a monthly basis has been well documented. Russia’s desire to move away from the U.S. dollar and shield itself from possible sanctions by acquiring an asset with no counterparty risk is a matter of public domain. And while Russia has been spearheading central bank gold purchases by a wide margin for years, it has recently been joined by China, which not only became a regular buyer but also overtook Russia in terms of purchase weight. Not coincidentally, China’s reemergence in the gold market happened right as trade relations with the U.S. plummeted and threats of levies and sanctions became prominent.

Goehring believes that Turkey, another persistent top buyer, is also spurred to hoard gold due to deteriorating relations with its Western allies. However, Turkey has an additional powerful motive to buy gold, as it is currently in the midst of a currency crisis.

In a broader sense, the reasons for central bank gold buying are fairly straightforward. While nowhere near as strong as in the case of Russia, a desire to move away from the dollar has been made clear by central banks around the world. For many nations, especially emerging markets, owning heaps of gold serves to legitimize their own currency. And, as has often been stated, gold hoards have historically served to solidify a nation’s footing on a global stage, perhaps best exemplified by the Federal Reserve’s massive gold reserves that far outweigh those of gold-loving Russia and China.

As Castelli and many other experts noted, with their long-term outlook, central banks also view gold as a bargain purchase at current prices. Gold’s price bottomed out in 2018, the very same year when official-sector purchases began to double. And, despite gold’s recent climb above a new all-time high, Castelli and his firm believe that the trend of central bank net buying is one that will stick around for some time.

Gold’s Rally Just Getting Started, Say Numerous Analysts

Gold's Rally

Currently, prices are moving up alongside those of stocks, but a bevy of analysts agree that the yellow metal still has plenty of upside. Find out why here.

As U.S. and Chinese stocks recover after massive amounts of stimulus was pumped into both economies, some are surprised to see gold doing just as well as equities. Although the two have traditionally had an inverse correlation, it has been severed for some time now.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, pointed out the differences between the respective rises in gold and stocks. In the case of the latter, the equity market’s upswing seems to rely heavily, if not exclusively, on expectations that stimulus programs will translate to corporate earnings and pave the way to an economic recovery. Prior to the pandemic, many analysts were tapping their feet as they waited for a correction in the longest-running bull market in equities’ history while warning that valuations seem to be heavily overblown.

In contrast, gold has been on a steady rise since summer last year, when central banks around the world began slashing interest rates. While a major factor, gold also had plenty of other drivers that facilitated a slew of price gains until March, when the metal briefly dipped before going on to breach $1,800 for the first time since 2011. Although the pandemic was a big reason for this move, and persistent concerns about the coronavirus are fueling gold demand, there is much more to be said about gold’s gains over the past year.

Michael Novogratz, CEO and chairman of Galaxy Digital, believes the current macro environment is a perfect one for gold to breach its all-time high. Although Novogratz took note that investors have been quick to jump on optimistic sentiment, the CEO believes things will ultimately boil down to the unprecedented amount of money printed by the Federal Reserve and other central banks. With gold having traditionally acted as the primary guard against inflation and a way of preserving wealth, Novogratz expects the metal to move past $1,950 fairly soon. The price target doesn’t look too far off, as gold has been touching and passing the $1,810 level throughout the previous trading week.

Michael Howell, CEO of Crossborder Capital, expressed very similar opinions, stating that investors should look for diversification and pegging gold as the one asset that is guaranteed to keep climbing. Like Novogratz, Howell said that stimulus programs are the best news that the gold market could receive, forecasting a climb to $2,500 within the next 18 months.

Along with being exceptionally well-positioned in both the short and long-term, a deeper analysis suggests that gold’s price should already be much higher. Peter Boockvar, an analyst at Bleakley Advisory Group, places gold’s inflation-adjusted all-time high at around $2,600 when taking into account the metal’s 1980 high of $850. Boockvar, too, believes this price adjustment is well on its way.

Is the Fed About to Become a Major Gold Buyer?

Due to a new round of fiscal stimulus and waning global confidence in the dollar, Guggenheim’s Scott Minerd argues the Fed may resume buying gold in a big way.

In a recent note, Scott Minerd, chief investment officer of Guggenheim Investments, outlined a possible scenario that could manifest as a result of the Federal Reserve’s massive pandemic-related stimulus. The U.S. dollar has held a tight grip on its status as a global reserve currency over the past few decades, yet recent years have seen talks of that status potentially being usurped by another sovereign in the not too distant future, with the Chinese yuan as perhaps the most aggressive candidate.

Minerd doesn’t believe that the greenback’s place as the reserve currency has been placed into question so far, but he already sees concerning signals in the form of the dollar losing its market share. These are a clear result of the Fed’s attempts to deal with a massive government deficit while also staving off a recession.

In his note, Minerd expanded upon a sort of vicious cycle that the Fed could soon find itself in. As the CIO explained, the Fed’s current rate of asset purchases is outpacing the rate of bond issuance, and the central bank is likely to try and solve this problem by upping its asset purchases to a massive $2 trillion annually.

Although the Fed’s recent pumping of trillions of dollars into the economy represented the biggest stimulus to date, Minerd thinks that an official (and even greater) quantitative easing (QE) program is on the way. With a budget deficit exceeding $3 trillion and the Fed’s commitment to boost the economy at any cost, Minerd expects the central bank to keep interest rates zero-bound for a minimum of five years, if not longer.

Needless to say, any environment of low or negative interest rates greatly benefits gold, and the yellow metal has been reaching all-time highs in numerous countries whose central banks have adopted similar policies. But there are more reasons why gold could be the refuge investors need moving forward. A commitment to zero rates, especially over a protracted period of time, would likely raise inflationary expectations and potentially pave the way for a sudden spike in inflation.

Along with weakening the greenback on their own, intrusive measures such as these could reduce confidence in the dollar and intensify speculation in regards to its place as the reserve currency. In return, the Fed could attempt to offset its risky policies by accumulating even more gold, despite its reserves already far exceeding those of any other central bank. As Minerd notes, the historic tendency of sovereign nations to hoard gold in order to maintain economic leverage is well-documented, and Minerd would not at all be surprised to see the Fed becoming a major gold buyer in the near future to avoid losing dominance on the global stage.

Gold Stands to Soar in Midst of “The Great Lockdown”

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Global economic growth is projected to fall below -3% this year, and it’s exactly why Frank Holmes argues that more people must own gold. See his argument here.

As Forbes contributor Frank Holmes points out, “The Great Lockdown” isn’t just a colloquialism used to describe the current state of affairs. It is a term that the International Monetary Fund (IMF) itself has come up with to describe the economic picture, along with such dismal outlooks as predicting that the world is headed towards the worst recession since the Great Depression. And, with global economic growth projected to fall below negative 3% this year, they have no shortage of data to back up their forecast.

To Holmes, this is a wake-up call that signals it’s time for every individual to focus on preserving their savings. As evidenced by the action in the gold market so far, plenty of people around the world have indeed recognized this ominous signal. Gold has climbed roughly 13% so far this year and quickly made precious metals one of the best-performing asset classes. A look into this month’s top searches on search engine also shows that gold has piqued more interest than it has at any point over the past decade, including when the metal reached its all-time high of $1,900 in 2011.

With its exceptional performance thus far, many experts and analysts have been calling for prices that even the bullish forecasters wouldn’t have dreamt of a year or two ago. Bloomberg commodity strategist Mike McGlone recently noted that gold seems to be aiming for a reversion of its long-term mean versus the S&P 500 Index, a move driven largely due to the unprecedented amount of monetary stimulus currently taking place. If true, gold would undoubtedly move on to new highs, with Holmes highlighting a range of $2,800 to $3,000 based on the S&P 500’s current mean.

Perhaps the most notable part of this analysis, however, is that a mean reversion of this kind is far from a hypothetical scenario. In May 1990, gold and the S&P 500 were both trading inside a range of 330 to 360. For a more recent example, March 2013 also saw gold and the S&P 500 trade within a 1,500 to 1,600 range, a roughly one-to-one ratio. This makes the scenario of gold climbing to $2,800 and above in the short-term a very realistic possibility backed by historical precedent.

Yet despite the clear flock to gold and extremely bullish indicators such as this, Holmes thinks far too many people remain severely underweight on the metal. A study done by the World Gold Council (WGC) last year showed that commodity indices have a minimal gold weighting, meaning that investors whose exposure through gold comes by way of funds only receive a meager amount of benefits from an outperforming asset.

Instead, Holmes recommends a much more direct approach to owning the metal, one that involves at least a 10% allocation within a portfolio with a sizeable emphasis on physical gold. While some people might feel as if they already missed their entry point due to the strength of gold’s gains so far, Holmes notes that both price forecasts and economic predictions suggest that this is far from the case.

Jim Rickards Warns of Complete Economic Freeze

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If we reach an “Ice-9” scenario that he has alluded to in the past, here’s what the analyst says may be in store for the financial markets and precious metals.

In a recent interview with Kitco, renowned finance author Jim Rickards spoke about the state the world currently finds itself in, both economically and in an all-encompassing sense, and what individuals can do to preserve their wealth during a time of panic and when faced with shutdowns across the board.

Rickards’ books frequently feature a warning theme where the expert cautions investors that the usual band-aid methods applied by central banks to fix ailing economies, such as pumping liquidity, are just that and aren’t going to work indefinitely. The coronavirus, however, represents a threat to the global economy that neither officials nor investors are prepared to deal with.

Rickards cites prominent immunologist Anthony Fauci to highlight the fact that the markets are trying to price in a crisis whose magnitude they have yet to be made aware of, resulting in cases like the stock market’s ongoing search for a bottom. Making matters worse, Rickards thinks we might be nearing an “Ice-9” scenario that he sometimes refers to in his books, alluding to a complete economic freeze. And although some fund managers have already requested a 30-day shutdown, Rickards notes that measures like these would prove completely ineffective.

A NYSE shutdown would trigger a collapsing effect, says Rickards, with investors trying to get their hands on cash from money markets, brokerage accounts and banks as each shuts down after the other. Before long, the global economy would be in complete lockdown and no interventions by the Federal Reserve or other central banks would have an effect.

This brings Rickards to the inescapable reality that owning physical gold and silver is one of the few reliable ways of preserving access to liquidity, especially if things progress to a point where moderate-scale evacuations begin to occur.

Rickards dismisses economic views that owning bullion in these scenarios is a bad idea due to potential deflation, pointing to the stretch between 1927 and 1933. As Rickards notes, this six-year span was the most deflationary period in U.S. history, yet gold rose by 75% during that time. Furthermore, gold’s prices were still fixed in 1933, making Rickards believe that a similar deflationary bout in present day would usher in far greater gains.

Regardless of how the situation develops, Rickards urged people not to wait when it comes to acquiring precious metals, saying that many are already having difficulties trading in contracts. On the flip side, Rickards said that the keenest of traders are still waiting for gold’s price to bottom out before going all-in, as they expect the precious metals market to have a prolonged bull run similar to that between 2008 and 2011. Rounding up his advice, Rickards also suggested that people keep some of their gold and silver easily accessible to maintain flexibility in a highly uncertain environment.