The Gold Rush Isn't Over

Lots of room for growth in 2021

(December 23rd 2020 - Collin Plume)

Have you ever heard that old saying, "the show's not over 'til the fat lady sings?"

Although it's a well-used and well-known phrase, its origins are obscure. It is supposed to have come from opera where large women tended to sing the final aria in a powerful and all-encompassing summary of the show.

It means that you should not presume to know the outcome of an event if it is still in progress. The phrase is often used when something is reaching its conclusion, but someone has doubts as to whether it is finished or not.

This is much the case with gold at the moment.

After a 2020 which has seen gold rise from $1,518 to hit $2,076 - scoring a 36% increase - before falling back recently, many commentators are predicting that the gold price has gone as far as it's going to go.

We’re going to take a look at the predictions for gold in 2021 and see whether the pessimism about the gold market is warranted or misplaced.

There are legacy events that will spill into 2021 – of which, the global COVID19 pandemic, the Saudi Arabian/Russian oil price war, the Brexit question, and the fallout from the US presidential election, are just a few.

There will be rising economic and political uncertainty going into the start of 2021. With record levels of unemployment, debt, and money printing by central banks, gold is taking up its usual safe-haven stance by being the go-to asset for investors looking to diversify their portfolios and reduce the risk of exposure to the stock market, in particular.

With new records being set this year for gold, silver, and Bitcoin, the question has to be whether this rise is sustainable or whether these price levels are just a symptom of the current situation.

From the point of view of gold, historically, the yellow metal has always been a beneficiary of rising uncertainty. Political or economic turmoil is always positive for gold. Investors tend to hedge their portfolios against falls in other markets. Exchange-traded funds, gold, and gold mining stocks, as well as physical gold bullion and jewelry, have all lifted the value of the commodity higher.

The biggest danger for the world economy is the worry of inflation brought about by the injection of trillions of dollars, by governments, trying to prop up their COVID ravaged economies.

All governments will be hit by the double whammy of having less tax input to compensate for the expenditure, leaving them little choice other than to borrow or print the money. With central banks all on the same page, lending is not a feasible option – so it falls to the printing presses to make up the shortfall.

This, "quantitative easing," (money printing) is how the fiscal stimulus and furloughing is being paid for – and at some point, it is going to have to be paid back.

To put the amounts into perspective, even before the year 2020 has ended, McKinsey has research which shows that the 2020 stimulus has overtaken the measures of the 2008 to 2009 global financial crisis. This would seem to indicate that the current financial crisis has only just begun.

Usually, when monetary easing happens, investors switch to gold from the US dollar to hedge against the possible inflation – this adds value to gold.

The problem, this time, is the specter of COVID 19. At the time of making this video, a second wave is well underway in many countries. This means more lockdowns, curfews, and other restrictions. For economies that are already struggling this is another burden that will increase tensions geopolitically and disrupt international trade even more than it already has been.

Governments will have no choice but to roll out new monetary and fiscal stimulus – with all its attendant dangers.

On past performance, precious metals can only gain from such a scenario.

Let's put some numbers on this.

Goldman Sachs has forecast gold at $2,300 for 2021.

Bank of America went even further and is predicting $3,000 for gold next year.

The well-known financial journalist, Paul Garner, went all out, predicting $5,000 for gold by 2023.

Garner's reasoning is:

1. the official US national debt
2. the price of crude oil
3. the S&P 500 index

He explains the process by which he came to his conclusion by averaging the price of gold against those three variables, which are used to measure economic growth,

Another variable that will have an effect is the march of cryptocurrencies onto the scene. Bitcoin has done especially well this year – climbing to near its previous all-time highs at around $20,000.

The volatility and risk of Bitcoin Is something of an advantage for gold, which has a track record going back thousands of years, and a reputation as a reliable store of value for wealth.

In the US, the Federal Reserve is in overdrive trying to keep pace with the money printing. It has coupled this with an obsession in keeping interest rates low to stimulate growth.

The problem with this approach is that it invariably leads to inflation. More and more money chasing the same goods and services.

While the rest of the world moves nearer to financial independence from the dollar, all the money the US has lent to other countries will be worth less in repayments as its relative value decreases.

The decline in the value of the US dollar is directly related to geopolitical concerns and policy by the US worldwide. Capital controls, Fed policies, and military intervention, if seen as a threat, could move the price of the dollar and metals quickly and forcibly.

A post-Trump and post-COVID-vaccination administration in Washington will completely alter the landscape of American politics - indeed world politics. Talk throughout the globe is of a “Great Reset,” a time of massive change for everyone.

By starting a “fourth industrial revolution,” and combining this with “inclusion, equity, and social justice,” like an earthquake, this reset will shake the accepted way of doing things to its core.

It is this uncertainty that will drive the need for safety and certainty in investments.

The brave and inexperienced will probably face volatility like never before - precious metals have inherent stability and safety - and it’s this that will see you through 2021 and beyond.