The past quarter caused investors to become uncertain about the allocation of money in the stock markets. This uncertainty stemmed from the unpredictability of COVID-19. The biggest extremes were also recorded in the gold markets in March 2020, where there was a historic drop in prices in one week, but then prices attacked higher highs than during the period of economic crisis in 2008.
The intervention of the US Fed and its mass issuance of additional trillions of USD had the opposite effect on strengthening stock markets and the economy, but indirectly supported the strengthening of commodities, primarily oriented to gold. The temporary decline in gold was caused mainly by the suspension of its physical mining and transportation. The pandemic has significantly crippled transport worldwide, but the disease seems to be gradually restarting the entire transport industry.
Rescue fiat money
The global press of so-called “rescue” fiat money is currently perceived by investors as a cheap solution that only intensifies their interest in gold commodities. After all, there has been a proven indirect relationship between gold and fiat money for centuries. If fiat currencies weaken, the price of gold rises. However, the prospects for a re-emergence of capital markets are low and it is therefore realistic to predict a significant decline in world currencies as well. Growing concerns about inflationary effects, especially in USD and EUR, and the negative impact of zero-yield fiscal expenditures, in turn, only support the growing interest in gold.
Advantages of gold vs. stocks and bonds
Another advantage of gold is its independence, despite the fact that it is not able to generate regular interest income or cash flow. But perhaps it is precisely this conservatism that currently pays off in comparison with stocks and bonds, which struggle with a high risk of potential bankruptcy of the issuers themselves.
So what development can we expect from gold? The resumption of mining and the associated transport will cause a further increase in its prices. By the end of the year, it is realistic to predict the price above USD 2,000 and at the end of 2021 also the potential overcoming of the new maximum above USD 2,950 / oz.