EDITOR NOTE: Fears of market volatility coupled with the temptation to pursue short-term profit opportunities can often distract investors from their longer-term strategies. Closing one’s gold position or, even worse, going “short” the metal may prove a fool’s play in light of the fundamental factors facing the economy. In the wake of COVID-19, high unemployment, inflationary pressures (virtually guaranteed by the Fed), a declining dollar, US election uncertainties, escalating tensions with China, and the upcoming October SDR rebalance (which threatens to exclude the dollar), are you sure you want to wager against the only monetary sanctuary left standing?
Investors would be ill-advised to make financial bets that the price of gold will fall, according to a recent video report from commodities consulting firm CPM Group.
The video, hosted by Jeff Christian, founder, and managing partner of the company, notes that anyone with an outlook longer than a couple of weeks should be long. In other words, investors should bet on higher prices for the yellow metal.
The advice comes just weeks after gold prices hit an all-time high of $2,064 a troy ounce on August 6, according to data from Bloomberg. Since then, they’ve drifted back down to $1,939, recently. The SPDR Gold Shares exchange-traded fund, which tracks the price of the metal, has performed similarly.
Still, don’t count on bullion prices to continue retreating in anything but a temporary way.
Don’t Short Gold Now
In the video Christian quotes CPM’s research director, Rohit Savant as saying, “I wouldn’t advise anyone to be short gold at this point.”
Christian elaborates that investors who expect to hold their position for more than a couple of weeks want to be betting on higher prices, not on lower ones.
The reasons are multifaceted. But most investors are increasingly worried about a slew of different matters.
Number one of the list should be the obvious economic problems facing the world in the wake of the coronavirus crisis. With most economies seeing rising unemployment, investors will likely continue to pile into gold as a safe-haven investment instead of financial assets such as stocks and bonds.
Worries that inflation will rise are also prompting investors to buy gold. The value of the U.S. dollar has retreated significantly since late March and such moves are often linked to rising inflation. Gold performed well during the inflationary burst of the 1970s and is believed to hold its purchasing power over long periods.
The dollar has weakened since the spring and that's also making gold look more attractive as an investment. The dollar index, which tracks the value of the greenback against other major currencies, was recently 92.7 down around 10% from 102.8 on March 20.
The reason for the dollar decline is that investors have become increasingly concerned about the massive government spending programs, especially in the U.S., and are ditching the greenback in favor of gold.
U.S. Election Has Investors On Edge
Political worries about who will win the U.S. presidential race in November are also driving people to seek gold. The two candidates — Biden and Trump — have starkly different policy agendas, which means that different parts of the economy stand to gain or lose significantly depending on who wins or loses the race.
Rising tensions between the China and the U.S. are adding to the uncertainty felt by investors as well.
All of these uncertainties are likely to push gold prices higher in the coming weeks. That said, it will likely be a bumpy ride. CPM’s Christian warns of coming volatility in precious metals markets.
Originally posted on Forbes