3 Reasons Why the Gold Price Will Shine in 2020

Gold's price has had a good start to the year, and there are at least three reasons why the rally could continue.
Posted in: MarketsOp-ed
Published:
February 27, 2020 2:54 PM UTC
  • Gold’s price still has room to climb after this week’s stock market bloodbath.
  • Long-term pressures from the ballooning U.S. budget deficit remain.
  • Bernie Sanders’ increasingly tight grip on the Democratic Party nomination is also a potential catalyst.

The U.S. stock market continues to shed value in what is panning out to be the worst week in years. Fears over the coronavirus have pushed the Dow Jones Industrial Average below 27,000 for the first time since October, and we may only be starting to see the full effects.

From all the talk of a global pandemic disease, you would expect the price of gold to be shooting the moon. Gold is supposed to be the ultimate safe haven asset, after all.

While we watched the Dow go from 29,500 points to under 27,000 in less than a week, all the gold price has done is hover around $1,650 an ounce – albeit following a fleeting spike towards $1,690.

Gold and Dow Jones. | Chart: kitco.com

If the stock market deteriorates any further in the coming days, weeks and months, it’s likely to jerk the inertia and put a rocket under the gold price in the ensuing flight to safety.

Underlying strengths remain for gold

Discounting the very real threats of the coronavirus, two other significant undercurrents of strength remain for gold.

The first is the ongoing disaster that is the U.S. budget. U.S. national debt now stands at approximately $23.39 trillion and is exponentially climbing. Servicing this debt into the future will necessitate either raising taxes and cutting spending, or otherwise debasing the U.S. dollar as a currency.

The latter is far more politically palatable and thus far more likely. A debased U.S. dollar translates into a long-term tailwind for gold.

Bridgewater Associates founder and billionaire Ray Dalio has said as much in recent public comments:

I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.

The second is the rise of Bernie Sanders’ candidacy for the Presidency. Sanders’ platform of “taxing billionaires” and “taking on Wall Street” isn’t exactly a tonic to ease nervous markets. After the senator’s crushing victory in the Nevada caucuses last week, the likelihood of Sanders securing the Democratic Party’s nomination is now more likely than not.

If Sanders’ political star continues to rise and propels him into the nomination or even into a favorable polling position against Donald Trump, it could spark further market panic and an even more pronounced appetite for the yellow metal.

Considering the above risks and a stock market into its eleventh year of a bull run, the case for gold has not shone so bright for many years.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered trading advice from CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

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Sebastian Bowen @SebastianTBowen

Sebastian is a freelance finance writer based in Sydney, Australia. He holds a Bachelor of Political, Economic and Social Science and focuses primarily on markets, business and investing as well as some politics. He can be reached at bowensebastian0@gmail.com.