Resource Maven Gwen Preston outlines five fundamental reasons for sustainable gold gains
SmallCapPower | March 5, 2020: At Sunday’s Letter Writer Presentations For Investors during PDAC 2020, Resource Maven Gwen Preston said she believes there’s a strong fundamental setup for the gold price and the impact of the coronavirus will lead to an even stronger setup for gold. She noted that the gold price in 2019 rose 18%, while the S&P Gold Index surged 49% – which was the best yearly performance since 2016 and 1993 before that.
Gwen Preston outlined five fundamental reasons for gold’s gains to continue:
Real interest rates – Began to decline with the U.S. Federal Reserve rate cuts. It’s now negative in the United States. Gold tends to generate outsized returns historically when real interest rates are negative. And, lower global interest rates appear to be here to stay. Coronavirus chaos has the potential to encourage inflation due to supply-chain disruptions.
Bond market – Is a complete mess, in her opinion. Globally, $17 trillion worth of bonds carry negative interest rates. U.S. 10-year bond yield has dropped below 1%. There are huge pools of low-risk money that have always invested in the bond market, but low-risk yields aren’t there anymore. Gold can step forward in that vacuum as a safe haven.
Global uncertainty – Trade wars, stock market volatility, U.S. election outcome, Iran/Middle East, Brexit, overall relations with China … and now Coronavirus (COVID-19).
Central banks are buying – It has provided a nice baseline support.
Currency competition – It is a race to the bottom as countries devalue their currencies.
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