From Birch Gold Group
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold is the best shield amid a heated election, gold’s price pullback is a healthy one, and silver and copper offer cues on the global economic outlook.
UBS: Buy gold to prepare for a hotly-contested election
Within the context of this year’s events, the coming election is shaping up to be less of a political than an economic one. The U.S. economy has been in a state of recession for most of the year, and there is tremendous pressure on both candidates to remedy the issue, with each having differing plans on how to go about it.
Despite the heavy economic focus, the political flare-up is still very much present. The November election, now less than a month away, has been called the most hotly-contested one since the Civil War, and perhaps with good reason. Pervasive concerns over preserving the integrity of the voting system have given rise to the possibility of a delayed result, with President Trump stating he might consider contesting a losing outcome of the election.
Keeping this in mind, UBS chief investment officer of global wealth management Mark Haefele advised investors in a recent note to buy gold in preparation for what could very well be upheaval coming from the White House. The different agendas by both candidates, along with the likelihood of heavy tumult in the stock market following the outcome, boost gold’s allure as a safe investment during an exceedingly chaotic period.
In regards to more traditional drivers, the Federal Reserve’s commitment to keeping interest rates at or near zero until 2023 or further is a launching pad for a long-term bull market in gold. This, together with a worsening of U.S.-China trade relations and a sluggish economic recovery, are all tailwinds that should keep gold in its spot as a top performer for some time.
Why gold’s price pullback is a good thing from a broader perspective
Normally, a 4.6% loss within a week and a 10% loss since August might raise red flags for an asset. And, as Forbes contributor Frank Holmes points out, some have indeed been haphazard in their analysis as they question whether gold’s upwards momentum has reached a halt. Yet the further one looks back, the more one realizes investors can’t afford to entertain such a narrow outlook.
As Holmes notes, investors who bought the dip in March would have enjoyed a roughly 40% gain from their gold investment over the next five months and are still near that territory. Yet even this so-called dip represented a level that gold has been steadily climbing towards for the better part of 2019, largely due to nominal rate slashes. Now, real rates have turned negative, and Holmes isn’t expecting this to change soon.
During its 2000s run, it took gold several pullbacks, some of them exceeding 20%, to reach its previous all-time high of just over $1,900. With gold having already blazed past that high this year, it is perhaps better to ponder what level gold is inching towards amid these pullbacks.
The question is one that funds are certainly interested in, as they hopped on Monday’s 2% price dip to add a combined 1.2 million ounces to their holdings, the biggest daily institutional purchase so far this year. According to Wheaton Precious Metals president and CEO Randy Smallwood, gold and silver couldn’t be in a better spot right now. And with the aforementioned negative real rates, unprecedented money printing and ongoing concerns over inflation and wealth erosion, Holmes is eager to concur.
As the global economy looks to recover, silver and copper hint towards its state
With so many uncertainties surrounding the global economy, the prices of silver and copper can be seen as a reasonably accurate gauge of the strength of its recovery. In the third quarter, silver posted a gain of 26% with copper trailing with a 11% gain, pointing to a rising belief that the worst is over when it comes to the blow dealt to the global economy by the pandemic.
As Maria Smirnova, senior portfolio manager at Sprott Asset Management notes, silver’s prominent industrial component allowed it to outperform gold in Q3 as the latter is seen primarily as an investment play. While investors piled into both metals due to uncertainty, the global monetary stimulus also significantly increased demand for silver for manufacturing purposes.
Several analysts have pointed out that economic optimism from one side is being met with certain indicators from the other that suggest that the recovery could still experience bumps down the road.
“We’re not nearly as bullish on the commodity complex for Q4 as we once were back in June,” said John Caruso, senior asset manager at RJO Futures, adding that the quarter is likely to be “less friendly” to industrial metals than the quarter that just ended. On the flip side, expectations of a major infrastructure deal in Washington and a favorable outlook for the U.S. and Chinese economies should keep silver’s industrial demand strong throughout 2021.