For years, gold bugs were relegated to the fringes of financial markets. Often viewed by mainstream investors as tinfoil-hat conspiracists with basements full of beans and bottled water, their warnings sounded apocalyptic: a coming collapse in financial assets, widespread devaluation of paper money and global disasters that erode civil liberties.
Welcome to 2020.
As the COVID-19 pandemic brings economies around the world to a standstill, gold is rivaling US Treasuries and the US dollar as the best-performing major asset this year. The metal proved its haven status with a 6 percent rally as almost US$16 trillion was wiped off global stock markets and oil plunged.
There has also been a scramble for physical metal as investors in exchange-traded funds build the biggest stockpile in history and dealers say they are struggling to find gold to sell.
“We’ve been trying to warn people that something like this would happen,” said Jim Rickards, the author of several books that predicted a coming financial reset.
Rickards, who spoke from a New England mountain compound, has long recommended holding gold as a precaution for wealth preservation.
“I’ve been saying it for years,” he said. “I’m not happy about being right.”
There are echoes of many of the typical gold bug predictions in today’s crisis: Besides the obvious economic and financial market upheaval, social interaction has become taboo and in some places soldiers are telling people not to leave their homes.
Even the so-called paper market for gold is showing cracks and a squeeze last month on New York’s Comex, the largest gold futures exchange, added fuel to another of the prophecies: that when the crisis came, there would not be enough gold to go around.
“We have written more than 3,000 pages of research about gold and mining stocks in the last 14 years and it is pleasing to see that many of our theories have come true,” said Ronald-Peter Stoeferle, managing partner at Incrementum AG, a Liechtenstein-based investment and asset-management company.
Of course, some of the predictions were always a bit vague. The Armageddon survivalists see gold more as the ultimate haven against generalized risk. As a hard asset, it acts as an inflation hedge. It has deep, liquid markets in which to trade, has kept its value over centuries, and, most importantly, physical metal stored in a vault has no counterparty that can default, not even a government or central bank.
“Central banks have officially lost control of their most powerful policy tools,” said Roy Sebag, chief executive officer and founder of Goldmoney Inc, a precious-metal investment firm with US$2 billion in assets. “It is against this macroeconomic sea change that gold will thrive as the money par excellence.”
Gold rose for a sixth straight quarter in the three months through last month and spot prices traded at about US$1,612 an ounce on Friday, down 0.8 percent for the week.
While that is still well shy of the record US$1,921.17 reached in 2011, predictions are mounting that the metal will scale new highs in the coming years.
Even those in the mainstream are climbing on board.
Analysts at Citigroup Inc see gold climbing to a record above US$2,000 an ounce next year.
Merk Finck and Co chief strategist Robert Greil has predicted it will rise to US$1,750 and Cesar Perez Ruiz, who manages SF236 billion (US$243 billion) at Pictet Wealth Management, has been buying metal on dips near US$1,500.
“Gold might be one of the few things that diversify your portfolio,” Ruiz said. “It’s moved quite fast very recently, so I’m waiting for a pause.”
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