4 августа, 2020
This summer’s huge gold price rally could be an indication that the market is losing trust in the U.S. dollar as the globes reserve currency, as suggested by Nick Piquard Horizons ETFs portfolio manager.
Piquard told news outlets last week that “The rally is telling investors that the financial system with the U.S. dollar as the reserve currency, (might need) some changes.”
Worldwide debt and endless money printing are corroding trust in the U.S. dollar as the global reserve currency.
Piquard went on to explain that “The U.S. dollar system has worked so far. But we’re getting to the point where there’s so much debt in the world and with this new crisis, there’s even more debt, People are figuring out that maybe they will have to make some changes to how the U.S. dollar acts as a reserve system. The U.S. is probably going to have to print a lot of dollars to bail out all this debt. That’s really fuelling the gold rally.”
The market is understanding that the higher gold prices are unavoidable because of the circumstances the Fed and the U.S. government have been forced into.
Additionally, Piquard said that “Investors are seeing that this COVID crisis isn’t going to go away anytime soon. The cases keep going up globally. And the longer it takes, the more debt needs to be created, Congress is debating right now about how many trillions of dollars they’re going to have to spend on a new stimulus after having already spent trillions of dollars.”
Also, even once the Coronavirus pandemic is behind us, the economy will be weak for some time, Piquard pointed out.
“After all that money has been spent, it’s not like you’re going to be able to raise taxes to get that money back, or it’s not going to be easy to raise rates,” he said. “The market is anticipating that the Fed is going to have to do more. And all those things are just beneficial for gold.”
The Federal Reserve will not be able to just go back to normal. “That will just be negative for everyone. Nobody really wins in that scenario,” Piquard advised.
How to Tell the Gold Rally Is Over.
The gold market has not yet seen its peak with more upside possibilities still in the future for the precious metal, Piquard noted.
One significant indication of a market peak for gold is the price of silver catching up and hitting their record highs of 50 USD an ounce.
Piquard said that the “Silver price generally makes new highs towards the end of a gold bull market, The reason for that is because silver is more of an industrial metal, which is used more in the economy. So when the silver starts rallying, that implies that the economy might be picking up.”
Up to this point, silver has climbed, however, it is still a long way off its record highs. At the time publishing, September Comex silver prices were trading at 24.365 USD, up 0.62% on the day.
“Gold has made new all-time highs and I think we need silver to reach its old highs as well. Then, there might be an indication that the economy’s doing better. Once we see silver catching up, then maybe it’s a sign that the bull rally has less room to go,” Piquard added.
Another indication of a market peak is the economy rebounding and the Fed’s 2% inflation target being surpassed on a long term basis. Piquard noted that “The Fed said they’re only going to raise rates once inflation recovers above their 2% benchmark. That could take some time — a year or more.”
Fundamental Analyst for Global Markets
James has over 20 years of experience trading FX, cryptocurrencies and investments products for a range of investment banks and brokers
He spent the last 10 years analyzing and writing about foreign exchange, crypto-currencies and the global financial markets
He has also spoken at a range of conferences around the globe on various financial topics.