Gold patient recovers

In the course of the Corona crisis, the gold price also came under pressure at first. Investors sold their gold to compensate for losses in other asset classes. Liquidity was in great demand. In the meantime, however, gold has developed a corona immunity. The gold price has risen by almost 18 percent since its low for the year.

The most important medicine was administered to the gold patient by the Fed. The launch of an unlimited bond purchase program and the massive interest rate cuts showed their effect. Memories of 2008/2009 are coming back. At that time, the gold price also reacted very positively to the expansion of the Fed balance sheet. Since the Fed balance sheet has expanded by more than 45 per cent since the beginning of the year, there is much to suggest that the price of gold will continue to rise in the current environment. Investors are targeting the precious metal as a currency or money alternative. ETF investors alone have increased their gold positions by 343 tonnes in the year to date.

The economic consequences of the Corona crisis are historic, as are the measures taken by central banks and governments. Extensive fiscal packages are being put together worldwide to mitigate the negative corona effects. As a result, the debts of individual countries will increase massively in the future. In this context, gold will benefit as a tangible asset in the future.

For physical gold investors, the corona crisis has yet another dimension. The lock-down also affects mining companies and mints. As a result, the volume of gold is falling and at the same time fewer coins and bars are being minted. The disrupted supply chains lead to sometimes high price mark-ups compared to the cash market. Here it is important to remain calm and not to panic. With an incipient easing of the measures taken, the price premiums will also quickly return to normal.

We take a positive view of gold in the long term, but the upward momentum of the last few days should not simply be continued. There will also be temporary small corrections. It should not be forgotten that the demand for gold from the central banks of the emerging markets has come to a standstill for the time being, partly due to the sharp drop in oil prices. Only with a view to the second half of the year will the situation brighten up again, which could then give the gold price a boost again.

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