"Insanity is doing the same matter over and over once again and expecting different results"

Robin Newbould

Robin Newbould

Principal Operating Officer at Ravenscroft Group

Published May 10, 2020

Whilst information technology is not certain that he actually did, Einstein is famous for this way of defining madness (as well equally for knocking out some decent maths and science, of form). The line seemed nearly apt to use as I started crafting an answer to the post-obit question, posed to me earlier in the week:

- Why is gold rising and is information technology expected to continue rising even if the economy makes a swift recovery and lockdowns brainstorm easing?

Commencement of all, the phrase "even if" is of import hither, as a neither an easing of lockdowns, nor a swift economic recovery, are a racing certainty at this time. In fact, data from pretty much every country on the planet looks fairly bleak, to say the to the lowest degree. Perhaps a couple of little somethings from the International Budgetary Fund (International monetary fund) might help quantify the situation at hand:

"Under the assumption that the pandemic and required containment peaks in the 2nd quarter for almost countries in the earth, and recedes in the second half of this yr, in the April Globe Economic Outlook we project global growth in 2022 to fall to -3.0 percentage. This is a downgrade of 6.3 per centum points from Jan 2020, a major revision over a very curt period. This makes the Great Lockdown the worst recession since the Peachy Low, and far worse than the Global Financial Crisis."

No alt text provided for this image

Gold tends to do well in periods of economic slowdown, recession or depression. This is in part owing to its historic 'insurance factor' status, having been used as a store of value for a few one thousand years and long before bond and disinterestedness returns were fifty-fifty a affair. Gold also tends to do well when interest rates and fixed income yields are low or negative. This has been the case for some time, and not too many people are brave, or stupid, enough to say with whatever certainty when this volition terminate to be the case. Involvement rates are zero, or not far from it, in most countries and currencies for a reason: governments and central banks have been trying to get their economies 'going' for a long while prior to the global pandemic known every bit COVID-19, and, by setting rates low, take been hoping to deter savers and encourage borrowers and spenders akin.

This strategy has not actually been working though. So at present, faced with a viral threat that is entirely not of their making simply nevertheless which threatens ballooning unemployment and economic slowdown, governments and fundamental banks have resorted to doing the other matter that has not really worked to engagement: namely, printing and borrowing money. Taking the US as an example, massive rounds of fresh quantitative easing, huge debt raises, remarkable balance sheet expansion and eye-watering federal annual deficits that, combined, will see the many trillions of dollars are all now in play.

This should make the currency fall, as basic economics suggests that the more than there is of something, the lower its price and value should go. How does the US dollar continue to defy logic and remain strong so, in turn keeping a chapeau on the rise of the price of gold which has historically been inversely correlated to the fortunes of the greenback? Maybe considering the dollar is the best of a bad bunch when compared to other currencies in the world. Maybe because investors do non consider gold every bit a true alternative to fiat currency (and in some ways, they are right: information technology is non equally though we pay for our weekly shop with Krugerrands … yet). Maybe considering we accept lost context. Gilt cannot be created from thin air, it is counterparty-free and does not intendance for politics or economic science. It is the abiding. Then below is a nautical chart showing 120 years of gold, as that constant, against the value of major currencies. Tin I just leave it here? Cheers.

No alt text provided for this image

Should you have made information technology this far and remain unconvinced, or think I am paid to say all this stuff because I work for BullionRock, let me get out y'all with a final case of "do equally I practise and non as I say," to consider … and not in relation to my meagre savings, only those of the key banks themselves. This final chart illustrates the net sales or purchases of gold by central banks since the year 2000, taking in the 2008 global financial crisis and finishing with data to the end of 2019. The terminal two years have seen record net ownership since the abandonment of the aureate standard in 1971. What does this say to you about whether the price is expected to keep to ascension?

No alt text provided for this image