Gold has a long history of travelling in the opposite direction when traditional financial instruments fail. So, why are gold prices dropping instead of skyrocketing? The answers lie in a number of unique market conditions. First of all, China and India account for 1,000 metric tons of gold annually, but these transactions are typically conducted face-to-face and that’s not happening right now, due to the ease of coronavirus transmission. A second unique reason is the fact that large hedge funds that have profited greatly, particularly over the past several months, are trying to capture those profits in light of the stock beating that’s occurring. As general markets are selling off, some of the excessive gold positioning is being shaken out.
Another reason for volatile gold price moves recently can be found by realizing that equity traders getting market calls are scrambling to raise liquidity and most hold gold for just such an occasion, because it’s quick, convenient, and readily available. Oil is another commodity that can affect the price of gold. Timing is everything and another unique condition that occurred this week is the fact that Russia and Saudi Arabia conspired, under the guise of a price war, to torpedo global oil prices. The strategy is simple, for the first time in history the United States has been net exporting oil, due mainly to new fracking and shale production. But the cost is greater and the obvious goal of these countries is to shut down that new and competitive side of the American oil industry. Damage inflicted on the industry in Venezuela and Iran is just a bonus for the conspirators.
Ray Dalio and other knowledgeable economic guru’s have been anticipating this market collapse for the past six months. Moreover, they expect the stock market downturn to last longer than most and take more time to recover. The 2008 collapse took ten years and this they say will take longer, even substantially longer. But gold will recover far more rapidly and if summer temperatures help to squelch the coronavirus, the gold recovery could be quick and very substantial. As currencies, bonds and stocks continue to drop and ultimately languish at low levels, gold will have the opportunity to skyrocket to epic prices. The new U.S. oil production companies can’t compete at today’s prices, so they’re closing down. Once Russia and Saudi Arabia feel they’ve taught potential competitors a lesson, they’ll increase prices again. So within a couple of months, all of the pressures currently weighing on gold could be removed.
Today’s lower prices are providing a unique opportunity to buy gold nearly 20% below its all-time high. As current encumbrances are removed, the price will potentially rebound rapidly. Cancellations of major events, business trips, vacations and the like nearly ensure entrance to a recession. The stock market potentially has lots of room to a bottom. Gold however is poised to take exponential advantage of any relief provided. Don’t gamble with your future. Call the experts at American Bullion to protect your portfolio, assets and legacy. Call for professional assistance now at (800) 653-GOLD (4653).
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.