There are analysts who believe that the gold price could hit the $4,000 mark. The reason the say has to do with how gold historically behaved whenever the Federal Reserve in the U.S expanded its balance sheet.
The balance sheet did expand by more than $3 trillion when the Coronavirus was first declared a pandemic and now that we are in the throes of it, the balance sheet has ballooned to $7 trillion. It could still balloon to $10 trillion before the virus abates.
So what has gold done in the last couple of years to prompt analysts into believing it could rise higher? Gold began to make significant gains between 2008 and 2011. In those years gold rise from $750 to $1,900. If the forecast that analysts make is based on the fact that the same balance sheet is being expanded and if the cycle remains the same, then the gold price could very well go up to $4,000.
There is a difference between the 2008 financial crisis and what the current crisis has been. G20 finance ministers were pro-growth as well as pro-trade before 2008. However, after the 2008 crash, policies shifted more towards taxation and regulation. Now countries are ramping up synchronized monetary and fiscal stimulus.
When we look at the United States of America’s Fed before the end of Alan Greenspan’s, tenure we see that the balance sheet was no more than 6% of the GDP, this year it has gone up to 33%.
The current global Covid-19 pandemic has created a global recession. This has caused revenue streams that are based on foreign markets to fall. When this is all over millions of people working in the travel industry will find themselves without a job. Millions of shops, restaurants, bars and other small businesses who had small cash reserves when government shutdowns were ordered, and those who lacked access to government aid given to medium and big corporations, may not be able to open again.
The Corona virus and the synchronized shutdown pretty much changed everything and in response to the global economic shutdowns, the government’s central banks have been throwing money at the problem. This and maintaining interest rates low is meant to keep the economy going. A global pandemic and flooding the market with money might be bad in the long run but it has proven to be good for gold. By all accounts the impending dollar crisis makes the case for gold reaching $4,000 possible.
There was an uncharacteristic change in the relationship between the price of gold, the stock price and the recession during the first 6 months of the year.
If an investor bought gold before the breakout occurred, let’s say on the 14th of February 2020 he or she would have made 10.5% more if he had invested in gold than he would have made had he invested in gold.
If one were to look at actual numbers, the investor would have made 10% more by the 24th of February, 20% by March 6th, and a whopping 46% off on the 23rd of March had he or she chosen gold over stocks. This shows that in the long run gold can be more valuable to investors than stocks. Michael from Brisbane Gold Company said after unprecedented demand in bullion sales since April the market has finally started to slow down. He went on to say that now might be a good dip to enter in the market before the next mad rush into gold begins while stocks are making record highs.