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LAWRIE WILLIAMS: Gold: Are we nearly there yet?

As millions of parents worldwide will know when driving the family to some destination, near or far, ‘ Are we nearly there yet?’ or its equivalent in whatever language said family speaks, is the almost universal question beloved by younger members of the group – sometimes incessantly.  Followers of the gold investment sector may well find themselves asking the same question as one, or other, pricing milestone is reached or seemingly disappears into oblivion.

The current milestone for the gold price is probably the psychological $2,000 mark.  This was indeed surpassed in a brief surge of gold optimism back in early August, but only temporarily before there was a sharp setback taking the price back down to the high $1,800s.  Since then the price has fluctuated above and below the $1,900 level and although there have been occasional signs of take-off, usually quickly dashed as those who would, for various reasons – usually financial because of big short positions held, but perhaps governmental as a rising gold price suggests a deteriorating economy - see gold lower and a cap seems to have been put on price rises above the $1,910=1,920 range, as at present.

We have gone on record, as have a number of other commentators, as suggesting that the gold price will indeed hit $2,000 before the year-end. Although we suspect, like the August peak, this level will only be maintained temporarily and we may have to wait for 2021 to see any kind of permanent break-through above $2,000. 

But why is $2,000 so significant?  We think that once this breakthrough is made sustainably the gold price will surge to a substantially higher range.  We are not talking the $5,000 of even $10,000 so beloved of the gold ultra-bulls here, but perhaps a further 10-20% rise during the year.

In around two weeks time hopefully there will be certainty over who will be the U.S. President for the next four years.  There should also be an agreed bi-partisan financial stimulus deal reached, possibly next week.  Without this those hardest hit by the virus pandemic would lose whatever unemployment protection they may have which would only serve to exacerbate the huge political divisions in the U.S. as each side blames the other for the breakdown, if it happens.  Some observers even feel that the U.S. faces civil war – or at least a huge upsurge in rioting – should a deal not be reached given the huge ideological gulf between the Republican and Democrat camps.  Even a settled election may not defuse some of the political and social tensions that are apparent.

Whatever one thinks of President Trump and his policies – some have indeed been necessary – he has perhaps been the most divisive President in living history.  Seldom has the U.S. been quite so split politically and ideologically.  Whether Trump or Biden is successful in two weeks’ time is perhaps immaterial given the divisions seem to run so deep.  Whether the losing side will accept the result, whatever it may be, has to be hugely uncertain.  We suspect it will result in more unrest in American streets as a huge section of the U.S. electorate will express their views and disappointments – perhaps violently.  The country is very much split down the middle and one side or the other will be extremely unhappy with either four more years of Trump, or a Biden Presidency.  The factions are so vehemently divided in their views that we feel there could be years of violence ahead for the world’s supposed leading proponent of the principles of democracy.  Totalitarian regimes will look on with amusement!

All this should be positive for the gold price given there has to be a large section of the wealthy in America’s divided society who will worry about anarchy resulting from the election result, and may turn to gold and gold derivatives in an effort to protect their monetary assets.  But so far this has not been apparent.  Even precious metals ETFs which represent the easy route into investing in them, are seeing somewhat mixed fortunes with deposits and withdrawals seemingly alternating day by day.

22 Oct 2020 | Categories: Gold

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