There are many reasons to buy gold, both to better protect the real value of the assets and to take advantage of the surrounding pessimism. More and more analysts fear a traumatic event for the stock markets in 2020. Someone even said that the ‘black swan’ is about to come.
Overview of the gold trend in 2019
2019 has been particularly positive for those who have decided to buy gold in past years. The gold price from $1,280 / ounce at the start of the year rose progressively to the point of breaking $1,560 in early September. As for the price in grams, the price went from 36 euros per gram in early 2019 to 45 in early September.
2019 was certainly a golden year for gold. The year was particularly positive for the listing of the yellow metal which, from January onwards, did nothing but generate profits. The new policy of central banks and, in particular, that of the Fed which has returned to cutting interest rates after the 4 hikes in 2018 was decisive. Over the past summer, the price of gold has suddenly risen, far exceeding $1,500, reaching a peak of $1560 / ounce. Last September, however, the price slowed slightly and gold started trading again at around $1,450 / ounce.
The determining factors for further big hikes in 2020
Let’s start by examining the factor of the monetary policies of the most important Central Banks. The price of gold also depends a lot on them. Above all, the American Fed will be in the spotlight. At the last meeting, the Fed broke the cycle of money cost cuts, but did not do it entirely. Once again, an expansionist way out has been reserved. Now, as is known in the world of international finance, expansionary monetary policies automatically favor the appreciation of gold prices, making the investment in gold advantageous. Another factor that has counted and will continue to count is that of trade wars. In the last months of the year there were agreements between the US and China and the more relaxed climate caused a slight correction of gold prices from September onwards, but the presidential elections of 2020 are in sight and with those also new tensions in US domestic politics. Even Brexit, now very close after Boris Johnson’s victory, could become a factor capable of causing a sustained rise in gold prices.
The opinion of the major experts
Independent Strategy analysts were among the first to make interesting forecasts on the gold price for the coming year, who made known all their optimism regarding the listing. According to estimates by David Roche, the company’s president and global strategist, the precious metal will fly to $2,000 over the next year due to central bank monetary policies that will prompt investors to seek “alternative currencies” to traditional ones. The purchase of physical, but also financial, gold was also recommended by the largest Swiss bank, UBS, which gave birth to new and interesting 2020 forecasts on the price of gold. According to UBS, the quotation will certainly reach over $1,600 in the coming months as it will continue to play the role of safe haven par excellence. Compared to the autumn 2019 estimates, therefore, the prospect for gold has returned to being very positive. For example, Morgan Stanley analysts, in their report dedicated to raw materials, set the target of the gold price at $2000 / ounce.
Warning signs from the US financial markets
Another factor of the utmost importance to try to predict the future of gold prices is that constituted by the relationship between gold and the US dollar, between which there is an inversely proportional relationship. Generally (not always but almost always) if the US dollar strengthens gold prices go down, while if the US dollar weakens simultaneously the prices of the yellow metal rise. It follows from what has just been said that forecasts on the US dollar can also be useful for deciding an investment in physical gold during the first part of 2020. The forecast of many Forex specialist operators (the largest financial market on the planet) is a slight weakening of the dollar which should reach a ratio of 1.14 with the euro and this could also be an incentive to buy gold.
The ‘Gold Remonetization’ and the ‘dedollarization of the world’
The decision of the BIS (Bank for International Settlement based in Basel in Switzerland) is to equate physical gold with money, making it risk-free: these are the so-called “Gold Remonetization”. Over the past year, global central banks have started buying gold again to secure their wealth. Much gold and a lot of cash are disappearing from circulation and these are certainly not reassuring factors for the world. And then, last but not least, there is an underlying reason that will support physical gold prices for 2020 and many more years. This reason is called the “dedollarization of the world”, the geopolitical strategy implemented for several years by Russia and China. These two great powers, which are also such that they are militarily very strong nations, are in latent and continuous conflict with the United States. The accumulation of gold, which takes place for years and which will continue for years from Russia and China, has a specific purpose; it takes away from the United States that great privilege deriving from the fact that the US dollar has been the international reserve currency since the second post-war period.
The plan of Russia and China in detail
The plan of Russia and China is very serious and very dangerous for the United States, also in light of the financial crises that are always looming over the western financial world dominated by the United States. Russia and China will not stop buying gold and will not stop doing it until the day when, few say, but the logic of events leads exactly to that result, they will not believe they have a sufficient supply of a raw material with limited quantities (gold is not like the dollar or other currencies that can be printed indefinitely). To do what? Why Russia and China buy gold? The answer is simple and very complex at the same time; they accumulate gold continuously to create a new currency guaranteed by gold and which can supplant the US dollar as a new exchange currency and international currency reserve, which would have historical geopolitical and financial consequences of unimaginable scope.
The consequences of the ‘dedollarization of the world’
The first consequence would be to return to an international monetary system again based on the Gold Standard (as in the 1940s with the Bretton Wood agreements, subsequently overcome in 1971 by the overthrow of Richard Nixon’s table). The signs of international financial and monetary crises have already been many in the past fifteen years and the two antagonistic nations of the USA want to take advantage of the growing weakness of the capitalist countries of longer tradition. Hence, they will continue to buy physical gold for a long time by raising quotation prices. Finally, it must also be said that many countries are bringing their gold back to their homeland and when such a thing happens, that is, when a central bank decides to strengthen its gold reserves, there is never much to be at ease. At best, in fact, that central institution is aware of something that others do not know or is afraid that something may happen that the public opinion has little perception of. The situation worsens further if it is China and Russia that bring gold home, or two antagonists from the United States.