There hasn’t been this much excitement surrounding gold in a decade. Surging demand, record-breaking prices, and safe-haven appeal have put the yellow metal on the front page of every financial media news outlet over the past several weeks.
Major institutions like Bank of America, Goldman Sachs, and Citigroup are all predicting gold prices well over $2,000 an ounce. And there are forecasts from independent analysts going up to $15,000 an ounce.
But everyone isn’t convinced the gold bull market is solid. BMO Wealth Management’s chief investment strategist Yung-Yu Ma was quoted in a Business Insider article yesterday saying a coronavirus vaccine could put an end to surging gold demand. Ma told BI:
While a number of factors have converged in support of gold, the picture around year-end may show cracks… If an accelerated vaccine timeline comes to fruition, the dark cloud over the global economy would begin to lift and the demand for gold’s ‘safe-haven’ quality would likely weaken.
And I think that’s true. A vaccine may lighten gold’s safe-haven demand.
But I don’t think there’s much that can stop the gold bull market in its tracks now.
The Gold Bull Is a Fire That Can’t Be Extinguished
People are buying gold for many different reasons right now. Expectations of a weakened global economy due to further COVID-19 shutdowns are certainly one of them.
But the damage is already done.
Let’s just imagine for one minute that both a COVID vaccine and cure are discovered tomorrow — that’s right, both at the same time.
And through some miraculous process the vaccine and cure are manufactured, distributed, and administered to every single human being on the planet by the end of the week.
So in short, we’ve completely eradicated the coronavirus by the weekend. Just imagine this fantasy world for one second…
What happens next?
Everything just goes right back to the way it was before?
We just pick up right where we left off and the rest of the summer is sunshine and ice cream?
Probably not.
The coronavirus left a scratch in the paint that can’t be buffed out. Back in May, a study from economists at the University of Illinois, Harvard Business School, Harvard University, and the University of Chicago showed over 100,000 small businesses in the U.S. had permanently shut their doors due to coronavirus. And that was three months ago.
I will grant that it’s likely a small handful of those businesses will come back. If the Rolling Stones have taught me anything, it’s that the final tour is never the final tour. But even those businesses that do come back will have suffered permanent damage.
Point is, a coronavirus vaccine (or even a cure) won’t fix what’s already happened to businesses.
Nor will a coronavirus vaccine do anything for the nearly 50 million people who were unemployed at one point during the pandemic, losing nearly $1.5 trillion in income.
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And then there’s this…
U.S. Money Supply (M2) One Year
To pay for the $3 trillion-plus stimulus package, the Federal Reserve added nearly 20% to the U.S money supply.
There was a period of nine weeks in which the Fed was creating $425,000 per second.
What would a coronavirus vaccine do to alleviate the inflationary pressure all this new money will create?
Nothing.
A coronavirus vaccine can’t erase the Fed’s ledger. And really, that’s the main reason you should be a gold owner now.
Like I said, a vaccine may lighten gold’s safe-haven demand. But the damage is done. There’s no recovering losses for businesses or workers who lost wages. Nor is there any way that the $3 trillion the Fed just added to the money supply is disappearing. So I really don’t think there’s much that can stop the gold bull market now — except itself.
As I mentioned on Friday, we’re just now approaching the final leg of the gold bull market that’s set to send prices soaring. This is the stage where people generally act irrationally, buying up gold to extreme prices. We’re past the point of no return.
The gold bull market is now a fire that can’t be extinguished. It’s just going to have to burn itself out.
Strap in.
Until next time,
Luke Burgess
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
