The price of gold is rising – to an extent and at a rate that exceeds even upwardly revised estimates by many analysts. However, this development is not surprising. It is a direct function of the gigantic expansion of global money supplies, additionally fueled by the currently weak dollar and continuously falling interest rates.
Gold promises protection
In uncertain times, gold promises protection against systemic instability, negative interest rates and inflation. The globally synchronized, far-reaching response to the Corona crisis with both monetary and fiscal policy programs of historically unprecedented proportions has the potential to bring about the inflation rate that has long been politically desired. Investors would do well to include such a scenario in their portfolio positioning. Despite the recent price increases and the associated short-term rise in correction risks, many arguments in favor of precious metals remain in the portfolio.
Very negative real interest rates
Real interest rates are very negative and the money supply continues to expand. As long as the rush of cheap money continues, the gold price will also remain structurally supported. Should inflation not occur and instead “Japanese conditions” set in – permanently no growth, no inflation, no interest – this would provoke further desperate acts on the fiscal and monetary side and give the gold price a further boost.