The gold bullion market passed two major milestones in July. Thanks to the impressive strength of the market, gold broke both the $ 1800 threshold and the absolute gold price in US Dollars record of $ 1921. These thresholds are important technical resistance levels that came about a decade ago.
The second important milestone in July was the new weakness of the US dollar. Dollar weakness is characteristic of most gold bullion markets. But in the current cycle, the gold price has so far increased despite a flat dollar.
Gold mining Companies
Gold stocks were on the rise and the vast majority of gold mining companies released second-quarter figures that met or exceeded expectations. The companies also reported on corona-related costs. We believe that we can conclude that they have solved their operational problems very well.
A gold price of $ 2000 is not only related to the pandemic
Gold came close to $ 2000 an ounce earlier than we expected. We think this is not only related to the pandemic.
Slower recovery. In July, two regional Fed chairmen, a Fed governor and the Fed chair all warned of a slow road to economic recovery. The number of claims for unemployment benefits has stagnated in the past eight weeks around the level of 1.4 to 1.5 million. While during the credit crisis, claims for unemployment benefits, within the same timeframe of seventeen weeks after the height of the recession, fell steadily to a level of 587,000. JPMorgan said it expects the unemployment rate to remain above 10% through 2021 and GDP to recover more slowly than their economists expected three months ago.
What could push up the gold price even further?
The pandemic has been a deflationary shock to the economy and the massive accumulation of debt that has arisen since the credit crisis has crippled productivity. As a result, economic growth will lag behind for decades to come. Real interest rates that are negative, the economic prosperity at risk, and the weak dollar are all factors that could push 18K gold price up to $ 3,400 an ounce in the coming years. This may be a conservative forecast in light of the 180% gold price increase since the bottom of the credit crisis. Various scenarios are conceivable that can drive up the 14K gold price even further:
Collapse of the financial system as the financial markets are inundated with new debt issues.
An inflation cycle set in motion by: a) the trillions of dollars, euros, yens and yuan pumped into the global financial system, b) governments stimulating inflation to ease their debt burden, c) implementing the Modern Monetary Printing theory or other forms of money to finance government spending without issuing debt.
A dollar crisis. America is facing debt, political division, social unrest and disrupted international relations on an unprecedented scale. Other countries may have similar problems, but these will not affect the global reserve currency. America has higher standards and a crisis of confidence can weigh heavily on the dollar.