“If everything stays the status quo, there are significant tailwinds for gold,” said Michael Ponikiewicz, a portfolio manager with Acadian Asset Management.
The monetary policies enacted in response to the pandemic have also pushed gold higher.
The desire for safer investments could push gold higher
No one knows for sure when the coronavirus pandemic — or its effects on the economy — will wane. Experts say that continued global uncertainty, coupled with corporate earnings that are expected to plunge for the remainder of the year, will continue to boost gold.
It’s eerily similar to how gold behaved during the Great Recession, says Steven Dunn, head of ETFs at Aberdeen Standard Investments.
Gold plunged in the immediate aftermath of the bankruptcy of Lehman Brothers as fears about the Global Financial Crisis roiled all markets. But once the panic selling subsided in 2008, gold then took off on an epic rally that culminated in its all-time high in 2011.
Dunn thinks history could repeat itself.
“There are tremendous parallels to 2008. Gold sold off at first because it’s a liquid market and it’s a good thing to sell in order to raise cash,” Dunn said. “But when you look at all the global stimulus and economic unknowns, it’s a perfect recipe for gold.”
“There is still a lot of bad corporate news to come,” Dunn said. “The outlook for gold is still strong with all these unknowns.”
Too far too fast?
Still, there are some potential risks for gold in 2020.
Prices could suffer if the recent stock market rebound picks up steam, on hopes that the global economy — and corporate profits — may bounce back more rapidly than previously expected.
There’s also the fact that gold is not just an investment. It’s a physical good that has some industrial uses and is also a key component in luxury items like rings and necklaces.
A relatively strong dollar could also limit gold’s upside. Historically, gold prices tend to thrive during times of dollar weakness. But the US Dollar Index is currently up about 4% this year.
Some experts think the dollar will inevitably weaken as the Fed continues to print money and the Trump administration and Congress could seek to spend even more on bailout programs.
“The dollar is doing better than other currencies right now, but it could pull back as people fear inflation from printing trillions of dollars,” said Ed Moy, a strategic advisor to gold bar producer Valaurum and a former director of the US Mint.