The gold price has hit a four-week high against the U.S. dollar. As the Dow Jones continues to stagnate in a coronavirus recession, the spot price of gold hit $1,738 earlier today.
It will most likely continue to rise, passing levels last seen in 2012. Because with the coronavirus pandemic set to have lingering effects on the U.S. and global economy for several months to come, it’s the best hedge against a stagnating Dow Jones.
The gold price is breaking all kinds of records at the moment. Yesterday, it approached a three-week high, hitting $1,733.20, its highest since April 24. However, today at 03:44 UTC+1 it rose to $1,738, its highest since peaks of $1,788 a month ago.
In fact, this is approaching gold’s highest level in years. Back in September 2012, it stood at $1,749. Back in July 2011, it stood at a mighty $1,909, according to mining.com.
The price of gold is fast approaching these all-time highs. And as with the climb to $1,909 in July 2011, massive quantitative easing is fuelling its growth.
The Fed began a policy of near-zero interest rates and QE on 16 December 2008. Then, the gold price was only $837. Between then and August 2011, the gold price rose by 128%.
And in a case of history repeating itself, quantitative easing is pushing the gold price to new highs yet again.
Since March 23, when the Fed announced “unlimited” QE, the price of gold has risen by 16.4%. And compared to where the gold price was in August 2018, it has climbed by nearly 50%.
At the same time, while the price of gold has risen by around 18% over the last six months, the Dow Jones has fallen by 16.5%. Basically, there has been an inversion in movement, which is what you’d expect when the gold price and the stock market are negatively correlated.
And over the past couple of months, since the Dow Jones rebounded from its March lows, it has basically remained frozen. Because of the continued coronavirus shutdown, it has been “lifeless.” For as long as it remains zombie-like, the gold price will rise.
In other words, it’s likely that the gold price will push into $1,800 in the near future. And depending on just how long the coronavirus shutdown continues to dampen the U.S. economy and the Dow Jones, it may even break $1,900.
This is particularly the case for as long as stocks remain volatile and the Fed buys up assets like nobody’s business. With the U.S. economy likely to flatline for the rest of the year, gold becomes the most attractive alternative.
In fact, numerous institutions are predicting that gold will comfortably smash its all-time high.
Last month, Bank of America published a report titled “The Fed can’t print gold.” In it, the bank’s analysts set a target of $3,000 over the next 18 months. They expect the gold price to average $1,695 an ounce over the course of 2020. And they expect it to average $2,063 across 2021.
Of course, such forecasts all depend on just what the coronavirus and the U.S. economy does in the meantime.
At the moment, certain states have gradually begun easing their lockdowns. However, there is a little indication that things will return to normal anytime soon. Consumer sentiment is dangerously low, unemployment is still rising each week by the millions, and the coronavirus is likely to remain in the U.S. until 2021.
Put simply, the Dow Jones is likely to suffer a volatile few months. At the same time, gold is signaling a run to hit new highs.
Disclaimer: The author holds no positions on gold or gold instruments at the time of writing.