The coronavirus's impact on mining not only prevents an expansion of supply, but may actively shrink new production at the very moment gold demand is surging.
"Another Firm Predicts $2,000 by Year's End"
By Dave Allen: Another major trading firm is riding the gold bull. This one comes from TD Securities, which is projecting a near-term move to $1,800 an ounce followed by a jump to $2,000 by year-end.
Gold prices rallied along with risk assets this week (not counting today). At one point on Tuesday, April Comex gold futures even returned to $1,700 before settling down some.
All told, for the week, spot gold is up about $128 or 8.6% at just shy of $1,621 as of mid-afternoon today. That's gold's best weekly performance since March 2016.
There are a number of factors driving gold at the moment and, once the COVID-19 outbreak peaks, constructive price conditions will remain, according to TD's head of global strategy Bart Melek.
Melek believes, "Normalizing liquidity conditions, negative real rates, low cost of carry and concerns surrounding fiat currency debasement...likely mean gold price could move toward $1,800 per ounce in the not too distant future."
He continued, "A move toward $2,000 is also a distinct possibility into 2021," adding, "as the global economy normalizes, monetary contentions remain loose while fiscal deficits surge."
Monday's announcement by the Fed to provide unlimited liquidity and Congress' bipartisan decision to approve an unprecedented $2 trillion stimulus bill turned things around for equities (at least temporarily) as well as gold (despite today's minor sell-off).
Ryan Giannotto at GraniteShares said the Fed decision "signals there is a new sheriff in town as the Fed committed to unlimited asset purchases."
Giannotto added, "This amounts to a systematic destruction of the dollar as has been known, a fact plainly beneficial to gold's potential."
Melek added, "Once the funding stresses that drove prices lower are alleviated further...investors are likely to continue to pivot their focus towards gold."
In fact, we are seeing similar gold price movements around the 2008 financial crisis and now, which suggests that gold will likely beat its previous record highs reached in the aftermath of the last crisis.
"Negative interest rates will likely be the order of the day...which make gold relatively cheap to hold. And, since it's nobody's liability...gold has a clear path towards $2,000 per ounce," Melek noted.
In the meantime, the ride may be fairly bumpy over the short-term; thus, higher volatility for gold and silver will intensify the rollercoaster ride - especially considering some of the weak macroeconomic data the markets will be seeing in the coming months.
At the same time, an estimated 6 million ounces of gold mining production will be on hold because of COVID-19 measures.
That will result from three of the world's largest gold refineries-Valcambi, Argor-Heraeus and PAMP-suspending production in Switzerland for at least a week because of the mandatory closure of non-essential industry there.
Together, those refineries process around a third of total global annual supply. Those and other mining shutdowns will only serve as an additional catalyst for breaching the $2,000 level.
Gianotto said, "Gold mining shutdowns are a whole other factor the market is only belatedly starting to factor in- whether Mongolia's Oyu Tolgoi mine or now operations in Ecuador, Mexico and the U.S affected."
The coronavirus's impact on mining not only prevents an expansion of supply, but may actively shrink new production at the very moment gold demand is surging.
Bubba Horwitz, chief strategist of BubbaTrading.com, is also bullish on gold. He said, "Remember, we're still 20% from our all-time highs in gold and certainly 90% from our all-time highs in silver."
"I think that a lot of the big commercials are actually shorting paper and buying the physical, and that's why you're seeing the pressure on futures gold versus the physical," he said.
The moral of the story, once more, is stay committed to the long term, ladies and gentlemen. Gold won't let you down. It simply can't - it's the only real money around.