Forbes: Gold Prices to Continue Rising as Coronavirus Upends Global Economy

April 01, 2020

Article by Rainer Michael Preiss in Forbes

The coronavirus global pandemic is the black swan of all black swans.

Countries around the world are rolling out wartime-like emergency measures to fight COVID-19. Estimates by the OECD suggest that measures to curb the spread of the virus will cause economic output to decline between 20% and 25%. 

As investors have been clamoring for the safety of haven assets amid the recent market volatility, the U.S. dollar has been the king of the global foreign exchange market. But gold is actually outperforming against the greenback. According to Bloomberg data, gold has risen 5.3% so far this year and may go higher still.

The deadly virus is perhaps one of the worst things that could have happened to an over-levered credit system in a late stage economic cycle. Going into the pandemic, we had built an equity and debt bubble of historic proportions.

According to the IIF (Institute of International Finance), global debt is set to grow faster in 2020 and is estimated to exceed $257 trillion by the end of the first quarter in 2020, driven mainly by non-financial sector debt. This is roughly double the $130 trillion pool of global liquidity.

If there's a systemic banking system financial crisis due to coronavirus, gold will do incredibly well, because it's outside of the traditional fiat currency fractional reserve banking system. If there is a global debt deflation, gold will do extremely well.

According to World Bank President David Malpass, at least a few economies are likely to find themselves with debt loads well in excess of 150% of GDP during a global recession in the aftermath of COVID-19.

Mark Mobius, the veteran emerging-markets investor recently stated, “the trend for gold is going to continue to go up even after recent volatility as declining interest rates and money supply going through the roof is supportive of bullion prices”  

Investors should recall the old market adage: “He who has cash in a recession is king”

Kings and queens and even emperors over the ages often wisely preferred gold to (highly) indebted government issued paper money.

To read this article in Forbes in its entirety, click here.

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