This Could Be the "Perfect Storm" that Pushes Gold to a New Record High

Frank Holmes
gold price returns to multiyear high as US dollar declines june 2020
click to enlarge

LLooking more long term, gold continues to find support from negative yields, both real and nominal. The amount of negative-yielding government bonds around the world rose back above $13 trillion last week for the first time since March. The high of $18 trillion was set in August of last year.

The real 10-year Treasury yield traded as low as negative 0.66 percent last Tuesday, a level we haven’t seen since May 2013. As I’ve shown a number of times before, gold trades inversely to bond yields, and when they turn negative, it’s like

A “perfect storm” of surging government debt levels, plunging real bond yields, rising coronavirus cases and deteriorating economic forecasts pushed the price of gold to an eight-year high last week, and some analysts now project the metal to top its all-time high within the next 12 months.

Gold touched $1,778 an ounce last Wednesday, its highest level since February 2012 and coming within striking distance of the psychologically important $1,800 resistance level.

What drove the yellow metal’s price action was not just an alarming rise in confirmed virus infections—U.S. cases hit a new single-day record of more than 42,255 on Friday—but also a weakening U.S. dollar. The greenback declined the most in three weeks as the yen and euro strengthened amid gains in global shares.

click to enlarge

LLooking more long term, gold continues to find support from negative yields, both real and nominal. The amount of negative-yielding government bonds around the world rose back above $13 trillion last week for the first time since March. The high of $18 trillion was set in August of last year.

The real 10-year Treasury yield traded as low as negative 0.66 percent last Tuesday, a level we haven’t seen since May 2013. As I’ve shown a number of times before, gold trades inversely to bond yields, and when they turn negative, it’s like rocket fuel for the yellow metal.

click to enlarge

IMF Lowers Its 2020 Economic Growth Forecast. More Money-Printing Ahead?

Meanwhile, the International Monetary Fund (IMF) lowered its economic growth forecast for 2020. The world economy is now projected to plunge nearly 5 percent this year, a downward adjustment of 1.9 percentage points from the IMF’s April forecast.

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” IMF economists wrote in the June 24 report.

This could spur even more monetary and fiscal stimulus from world central banks and governments, which is already unprecedented. The Bank of England (BoE) recently added to its bond-buying program, and the Federal Reserve has signaled that it will be keeping rates near zero.

Get this: As of right now, the Fed’s balance sheet stands at $7 trillion, or 33 percent of U.S. GDP. And earlier this month, the Treasury’s public debt soared past $26 trillion, an incredible 120 percent of the entire U.S. economy.

This isn’t sustainable, obviously, and some analysts now see dollar-denominated gold hitting a new all-time high in the next 12 months, even in a risk-on environment. Both Morgan Stanley and Citigroup maintain their call for $2,000 gold by mid-2021.

London-based research firm Edison goes even further. In a note dated June 23, analysts there commented that gold should be near $1,900, “with the potential for this to rise to in excess of $3,000.”

Gold’s Best Year Ever (So Far) in Dollar Terms

So far in 2020, physical gold is …read more

Source:: Frank Talk