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LAWRIE WILLIAMS: U.S. gold price could skyrocket on political unrest and COVID under new Biden Administration

Although gold ETF accumulations and central bank gold buying both look as though they may be declining, there are signs that global gold demand may actually be back on the rise again.   In particular it looks like gold consumption may be picking up in China, while gold imports into some other key consuming nations like India and Turkey may well be beginning to increase too, while gold consumption looks to be remaining strong in North America and Europe.

Let’s first take a look at China.  Our estimate of gold consumption there last year at some 1,200 tonnes is around 1,000 tonnes lower than it was in the record 2015 year.  But there were signs that gold demand there was picking up at the end of 2020 and there is anecdotal evidence that January 2021 could see a big further demand increase ahead of the 2021 Chinese New Year, which falls on February 12th.  2021 is a Metal Ox year under the Chinese zodiac and given that Metal and Gold are synonymous in Chinese characters it could also be described as a Gold Ox year.  Whether that is a sign that gold will come to the fore in 2021 remains to be seen, but an Ox year is generally positive and should represent a year of rebuilding after the coronavirus affected Rat year of 2020.

Perhaps key to the gold market in 2021, though, is the U.S., particularly if the metal’s fundamentals remain strong.  At the moment COVID-19-affected deaths are running at around 4,000 a day there but equities markets do not yet seem to be affected.  This is primarily down to government handouts to try and allay some of the adverse economic effects of pandemic counter-measures and continued downplaying of the virus by the current Administration.  A good proportion of this government issued money seems to be finding its way into the equities markets where tech stocks in particular have been doing well.  While this may be justified as far as the tech sector of the market is concerned, other market constituents have been relatively unaffected, which is not really a logical reaction given the huge deleterious effects on large parts of the U.S. economy and rising unemployment statistics.  So far the government largesse does not seem to have been finding its way into safe havens like gold, probably because the apparent strength in equities markets, and perhaps in bitcoin, has been diverting monies away from low risk investment strategies, but it would not need much of a reversal in sentiment to change this.

The new U.S. Presidency, which begins on Wednesday, faces huge political and economic challenges,  Some believe that political divisions are so intense there could even be insurrection with heavily armed right wing militia groups, seemingly egged on by the outgoing U.S. President, challenging the status quo.  While any escalation of such activity beyond sporadic unrest seems doomed to failure, it does cast an unfavourable light on the world’s leading economy after four years of what we forecast what was perhaps likely to be the most divisive Presidency in U.S. history four years ago when President Trump assumed office.  The outgoing President will be leaving in a degree of ignominy, fighting a unique second impeachment call.  This could well only further incite the political divisions, whether or not it is successful.  The outgoing President will also be leaving the country in the throes of a rapidly escalating virus pandemic about which many of his supporters are in denial.  This difficult combination will certainly mean there are huge threats which will need to be overcome by the incoming Biden Administration.

Even if things run relatively smoothly, which we fear they will not, the weeks ahead should see a change in sentiment in the U.S.  The approach from the Biden Administration will be different from that of the Trump one in that it is unlikely to play down the virus threat and will suggest enhanced protective measures which should help bring home the likely serious effects of virus spread.  One suspects that the more preventive measures which will likely be implemented will probably add challenges to small businesses and the U.S. economy and these enhanced restrictions, and their effects, will affect continuing equities market growth – indeed will increase the likelihood of market falls.  At the same time this may at last drive investment into safer havens like gold and silver.

Of course if the Biden accession leads to further deep political divides and unrest, the likely impact will be even more severe, dragging the dollar and equities markets down sharply.  In such a scenario there could well be a big flight into assets like gold which could make our positive forecasts for gold price growth extremely conservative.  Let us hope it doesn’t come to that.  If it does the ongoing consequences for U.S. and global stability could be far reaching indeed.  Keep your fingers crossed that the American people will not allow the worst case scenario to develop.  But some investment in safety related assets might be wise, just in case!

16 Jan 2021 | Categories: Gold

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