About a year ago, gold hit its all-time highs. At some point, it was trading at about $2,063 an ounce.
Since then, it has been moving sideways. Some investors could make the conclusion that the gold rally is over.
We are going to tell you why they are wrong. And how to profit from one of the biggest gold bull markets in history.
As a reminder, here at The Financial Star, we bring to your attention the most important investment trends… the ones that, in our opinion, you should have on your radar today.
And gold remains one of the most misunderstood asset classes… which to us means that there are a lot of opportunities here.
Before we get into the details, here’s the bottom line: gold is not going anywhere. In fact, it could become one of the key assets for the coming years.
And you might want to put gold on your investment radar.
Inflation Is at Record Highs
Prices are soaring across the board. From gas to cars and even homes—they are all more than 20% expensive than they were a year ago, according to the US Bureau of Labor Statistics.
This explains why the total inflation in the US remains at multi-year highs.
And inflation expectations are very high. An August survey of over 1,300 households in the US showed that they expect inflation to hover around 5% per year in the near future.
Besides this, consumers have also said that they were worse off financially than a year ago… and that they expect financial issues like the risk of unemployment to continue.
This doesn’t sound like a robust recovery. And if the Fed thinks that it is OK to start pulling off its massive stimulus, the US economy could be in for a wild ride.
This is the on-the-ground reality that both the Fed and a lot of market commentators miss. They focus too much on the recovery and not enough on the fact that the Covid pandemic isn’t over.
On the contrary, we could be looking at potentially years of Covid endemic. This means that even if the world successfully deals with the current strains of Covid, the battle against the virus could take years, if not decades.
This is why investors who see this don’t sell their gold… In fact, ETFs’ gold holdings are still at record highs.
Investors hold over 100 million troy ounces of gold as of writing. And, in our opinion, this trend will only accelerate as more investors pay attention to the threat of a prolonged battle with Covid. Or whatever virus shakes the global economy next.
In China, demand for physical gold is soaring. Commerzbank analysts say that in the first half of the year, over 130 tons of gold were moved to China from Hong Kong.
Another 100 tons were shipped to China from Switzerland.
In May, China recorded the second-highest level of demand since December 2019.
In Europe, investors have been adding to their gold positions, too.
In July alone, they added almost $1 billion into gold ETFs.
This is the trend that we have been observing in the market. While the US investors are looking at the Fed, their peers overseas are holding gold and adding to their positions.
We do not know where interest rates are going to be in a year, let alone long-term.
But we do know this. The global economic recovery is still fragile. So if the Fed starts pulling the rug under the economy, it could trigger a downturn or a recession.
Which is a scenario where gold could shine as a safe haven.
Even if the Fed does nothing and inflation continues to run on the high side, a lot of investors will wake up to the reality that they also need gold.
These “stabilized” levels of inflation are still at multi-year highs. And even though there is some variability month to month, inflation hasn’t been this high in a very long time.
And it could run higher, especially if we are going to enter another “Covid season” this winter.
Another potential wave of Covid could trigger more lockdowns. Economic growth could become uncertain, and unemployment might start rising again.
So if you ask us, the most likely scenario for the end of this year is even more stimulus, lower interest rates, and higher gold prices.
The market doesn’t take this scenario into account yet. It’s too attached to day-to-day price fluctuations and month-to-month inflation numbers.
The bigger picture, however, is much more serious. And it could provide a perfect setup for gold for years to come.
Thank you for your loyal readership,
The Financial Star team