By Shan Saeed
Global Chief Economist
Juwai IQI, Malaysia
Gold market outlook is atrociously bullish as investors are feeling nervous about the US dollar and uncertainty prevailing in the global macroeconomic landscape.
The gold price has appreciated 15% since June 16 as investors are feeling wildly bullish on the yellow metal. Not to be outdone, silver’s price has increased by more than 45% since July 16/2020. That even sharper increase in value, likely due to similar reasons as gold. If the Federal Reserve cannot or will not steer the ship back on course, gold and silver bugs seem to be positioned pretty well. US dollar has lost 5% of its value in July while US Dollar index has depreciated 10% since March 23/2020 from 104 to 93 against a major basket of currencies. Making investors jittery.
Investors still have time to protect their wealth. Dollar optimism is eroding as investors understand the state of US economy, fiscal and trade deficit and above all political shenanigans in the Capitol Hill. Investors should prepare for financial market fragilities. Who knows what confused lawmakers or the Fed will do next to mitigate the uncertainty, unemployment situation, or dollar maelstrom? With gold and silver taking off, one thing you can start doing is make your savings more resilient in case the stock market goes sideways.
MAIN FEAR OF INVESTORS: WHY ARE THEY NERVOUS AT THE MOMENT
1. Global market uncertainty
2. Geopolitical and strategic risk
3. Dollar is getting debased
4. Policymakers are panicking
5. Low-interest rate regime till Dec 2022
6. US T-BILL gets a negative yield.
7. Stagflation in the next 2-3 years.
According to the Wall Street Journal dated August 9-2020: For years, the 10-year U.S. Treasury note has been every investor’s touchstone. Now some people are saying they can’t trust its signals the way they once did. The yield on the benchmark U.S. government security, long a key economic barometer for financial markets around the world, barely budged in response to Friday’s better-than-expected jobs report. It now enters the week parked near record lows around 0.55%, with investors preparing to parse stimulus talks, data on inflation and new tensions between the U.S. and China.
STRATEGIC ANALYSIS OF THE GOLD MARKET — WILDLY BULLISH
Gold has outsmarted and outclassed all other asset classes in 2020. Gold has appreciated since
TIME / APPRECIATION
June 2020 / 15%
Year to date / 35%
December 2015 / 87%
December 2005 / 297%
December 1985 / 526%
Sources: Economist, Wall Street Journal, Financial Times.
MAJOR BUYERS OF GOLD — UNDERSTANDING HISTORY AND ECONOMICS
Strategically speaking, investors who fathom history and economics have always taken the position in two asset classes.
1. Real estate
2. Gold.
More and more investors are heading gold and real estate. Massive buying is coming from 1. China, 2. Russia, 3. Turkey, 4. Sri Lanka 5. Poland, 6. Kazakhstan, 7. Pakistan, 8. Singapore, 9. Qatar, 10. Iran, 11. Germany, 12. Jordan, 13. Malaysia, 14. UAE, 15. India.
Gold demand is driven from central banks, big players, and above all, institutional investors want to have Gold in their portfolio. In 2019, 5 major countries were buying Gold from the market, making 83% of the total purchase.
Turkey – 24%
Russia – 24%
China – 15%
Poland – 15%
Kazakhstan – 5%
FOR THE NEXT 18 MONTHS — GOLD GETS INTO GLOBAL INVESTORS RADAR
With the low-interest rate regime, QE going global, the velocity of money going out of the roof and market bedlam, investors would be taking long term position in the gold asset class. Gold is heading for much higher gains in the next 2-3 years. I can foresee gold prices meandering around $3000 to $5000/oz in the next 12-18 months. Investors should be for more hiccups, bedlam in the markets as we head towards tempestuous times.
Investors should be ready for more hiccups.
