Gold Price Expected to Rally Despite Concerns About Lockdown 2.0
Gold industry players say the inevitable printing of new money by the U.S. will lead to an increase in the circulating supply of fiat currency. This increase, in turn, will further dilute the value of U.S. currency and thus diminish its perceived status as the world’s foremost reserve currency. The gold industry players also add that the resultant depreciation of the dollar will likely boost the price of the precious metal in the medium to long term.
New Money Boon for Gold
Gold, which went down slightly on the eve of the U.S. elections, is widely regarded as an alternative and a better store of value. In August, a few months after the U.S. government released stimulus checks to cushion American citizens and businesses, the spot price of gold touched a new all-time high of $2,058.
However, as Stephen Innes, a strategist at financial services firm Axi, explains in a report, there are expectations that a potential Biden administration to will approve a “substantial Covid-19 stimulus program.” According to him, this will “weaken the dollar and boost gold value in response.”
Similarly, Guido van Stijn, managing director of Aurus Technologies tells News.bitcoin.com that another round of stimulus checks is coming irrespective of the winner of the U.S. presidency. Stijn says:
With both [Biden and Trump] having expressed their support for various quantitive easing measures, (so) we can expect a bullish mid-to-long term gold price increase, regardless of who is elected.
However, the expected deluge of new money might not deliver the desired outcome, as some anticipate due to surging cases of new Covid-19 infections. As fears grow that a second wave of the infections will result in more fatalities, countries like England and France have since announced new lockdown measures.
Covid-19 a Potential Spanner in the Works
If more countries, including the United States, go the route of lockdowns, this will not be good news for gold as Innes explains:
Gold traders are worried that these lockdowns could lead to deflationary pressures … gold’s next trade is really for a reflation trade.
The previous lockdowns saw demand for some goods and services dropping which caused their prices to drop as well, as falling prices or deflation diminishes the appeal of gold as a store of value drops as well.
Still, it remains to be seen if more countries are going to reintroduce lockdown restrictions. Meanwhile, at the time of writing, the spot price for gold was $1,895.72.
Do you agree that more quantitative easing will boost the price of gold? Share your thoughts in the comments section below.
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