Gold Eyes $2,000 Amid Greenback Exodus, Surging Government Debt

Gold is up 30% year-to-date, which is hardly surprising given the current macroeconomic backdrop.
gold, precious metals
Buying (and holding) precious metals is one of the safest hedges against economic ruin. | Image: REUTERS / Mike Segar
  • December gold futures peaked at $1,978.00/oz. Wednesday, just one day after touching $2,000/oz. for the first time.
  • The U.S. dollar index is trading at two-year lows.
  • A gloomy Fed outlook continues to boost demand for precious metals.

Gold’s haven rally continued on Wednesday, with futures eyeing an imminent return to $2,000 amid a slumping dollar and ultra-dovish Federal Reserve policy.

Gold Hits $2,000 Before Retreating

The gold rally peaked at $2,000 an ounce Tuesday before prices backed off from their intraday swings. Bullion ended Tuesday’s session at $1,963.90 a troy ounce on the Comex division of the New York Mercantile Exchange.

gold futures
Gold for December settlement, the most actively traded futures contract, is making new all-time highs. | Chart: Yahoo Finance

Futures are on the rise again, with December gold climbing 0.7% to $1,978.00 a troy ounce on Wednesday.

The yellow metal is up nearly 30% year-to-date and has returned 38% over the past year.

Silver is another precious metal that is outperforming. On Wednesday, the September futures contract rose 0.7% to $24.47 a troy ounce. The grey metal peaked at $26.28 earlier in the week, the highest since 2013.

The Precious Metals Rally Should Surprise Nobody

In a year of record volatility, gold’s ascent should surprise nobody.

Investors are dumping dollars and bonds for the safety of precious metals because they are losing faith in the economic recovery–and governments’ response to the crisis.

Central banks are printing trillions of dollars to keep the financial markets from imploding, and in doing so, are leading the world down a new inflationary cycle.

Inflation is usually framed as a rise in prices, but it’s really a loss of purchasing power as more dollars are needed to buy goods and services. Although government bonds are believed to be more secure than gold, record-low interest rates and ballooning budget deficits have become major disincentives. In this environment, gold is once again proving to be the best hedge against inflation (the inflation that governments say doesn’t exist).

us dollar index
Demand for the dollar surged in March during the liquidity crisis, but the rally didn’t last. A ballooning Fed balance sheet and expansionary fiscal policies only cheapen the greenback. | Chart: Yahoo Finance

Demand for gold is also being underpinned by a grim economic outlook, with the Federal Reserve raising doubts about a sustained recovery. The Fed’s gloomy outlook hasn’t impacted stocks yet, but that soon could change as a dismal recovery gets priced into the market.

$3,000 Gold Becomes More Likely

Strategists who have been following gold’s breakout say nothing is stopping the precious metal from shattering new highs.

As far back as April, Bank of America Corp said bullion could rise to $3,000 an ounce in just 18 months.

In a report titled “The Fed can’t print gold,” the bank said crumbling fiat currencies would underpin precious metals:

As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure… Investors will aim for gold.

While the global economy may have escaped the worst of the Covid-19 lockdowns, a new wave of infections is undermining the recovery. The global caseload is fast approaching 17 million, according to Johns Hopkins University.

covid-19 cases, global
The public health crisis doesn’t seem to be improving. | Image: Johns Hopkins University

More than 4.3 million cases have been confirmed in the United States alone. Surging infection rates in Brazil and India also cause for alarm.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.

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

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Sam Bourgi

Sam Bourgi

Financial Editor of CCN.com, Sam Bourgi has spent the past decade focused on economics, markets, and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance, and Forbes. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com or at LinkedIn. Visit his Muck Rack profile here. Sam Bourgi is a Trusted Journalist.

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