For the third time in as many years, governments around the world have declared a pandemic. What are we to expect, and is the virus likely to infect your portfolio? Gold pushed above $1,800 following the announcement, and not without reason. It was the conditions of last year that caused it to post a new all-time high of $2,070.
Since we’re already and again hearing the words like “lockdown” and “shutdown”, it pays to reassess the road so far. Especially considering today’s gold price is under $1800/oz.
Early last year, governments around the world shut down their economies and started printing money out of thin air to make up for it. It pays to note that most, if not all of these economies were already underperforming, nearing or having reached stagnation. There was a broad sell-off in all asset classes as the situation was unprecedented, and even gold wasn’t spared from the havoc. Nations, for that matter, were briefly selling their bullion as uncertainty peaked.
This time around, however, there is no broad selloff. But there was a marked one in stocks. After all, who wants to own stocks of companies that aren’t operating? Uncertainty is once again peaking, and it seems that gold is even better positioned to benefit from it.
Some present a short-term model that includes record low consumer spending, a lack of appetite for sending kids to school and a federal government that borrows anywhere between $2 to $5 trillion more to deal with this. The model might as well be titled “Economic Disaster”. Going back to the first half of last year, there were talks of how the global economy could take years to recover in a best-case scenario. We are either in, or steadfastly approaching, a worst-case scenario. Anyone touting economic recovery over the past two years was either easily duped or had other motives.
The companies were performing, but they were doing so in the same thin-air fashion as the economy itself, being propped up by newly-printed money handed to them. The same money printing caused inflation to spike to 6.2% this year, over three times the intended target, with projections that it will reach 9% and onwards to double digits next year. This is mostly the result of a $3 trillion stimulus.
The aforementioned model finds it plausible that the Federal Reserve alone could pump anywhere between $5 to $10 trillion more into the global banking system. That’s not counting other central banks, whose countries are also dealing with record inflation as a result of their own money printing.
Anyone who’s watching these inflation numbers soar can appreciate the value of a truly inflation-resistant investment. In a world where outrageous inflation and currency debasement are one of the few things that have emerged, physical gold is becoming less of an investment and more of a must-have household item.