“If all remains in the status quo, there are significant favorable winds for gold,” said Michael Ponikiewicz, a portfolio manager of Acadian Asset Management.
Monetary policies implemented in response to the pandemic have also pushed gold upwards.
The desire for safer investments could push gold up
Nobody knows for sure when the coronavirus pandemic – or its effects on the economy – will vanish. Experts say continuing global uncertainty coupled with corporate earnings expected to plummet for the rest of the year will continue to drive gold.
It’s oddly similar to how gold behaved during the Great Recession, says Steven Dunn, head of ETFs at Aberdeen Standard Investments.
Gold plunged in the immediate aftermath of the Lehman Brothers bankruptcy as fears of the global financial crisis sparked all markets. But once the panic sale subsided in 2008, gold then took off in an epic rally that culminated in its all-time high in 2011.
Dunn thinks history can repeat itself.
“There are huge parallels to 2008. Gold was first sold because it’s a liquid market and it’s a good thing to sell for money,” said Dunn. “But when you look at all the global stimuli and economic uncertainties, it’s a perfect recipe for gold.”
“There is still a lot of bad news coming,” said Dunn. “The prospects for gold are still strong with all these unknowns.”
Too fast?
However, there are some potential risks for gold in 2020.
Prices may be affected if the recent stock market rebound picks up momentum, in the hope that the global economy – and corporate profits – will recover faster than expected.
There is also the fact that gold is not just an investment. It is a physical asset that has some industrial uses and is also a key component in luxury items such as rings and necklaces.
A relatively strong dollar could also limit the rise in gold. Historically, gold prices have tended to thrive during periods of dollar weakness. But the US dollar index rose by about 4% this year.
Some experts believe the dollar will inevitably weaken as the Fed continues to print money and the Trump administration and Congress may try to spend even more on bailout programs.
“The dollar is going better than other currencies at the moment, but it may retreat as people fear inflation from the trillion-dollar press,” said Ed Moy, strategic advisor to the gold bar producer Valaurum and former director of Mint of the United States.
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