Unlike in prior years, it’s not just the ‘gold bugs’ who feel confident about this investment’s potential

Gold has surged more than US$330 per ounce since March and is now trading above US$1,800 per ounce for the first time in nine years.
Gold has surged more than US$330 per ounce since March and is now trading above US$1,800 per ounce for the first time in nine years. DAVID GRAY/BLOOMBERG

Gold’s rally has been nothing short of historic, but 2020’s rush is still far from over, according to the investors who bought into it and the analysts being forced to continuously change their price targets.

The yellow metal’s price has surged more than US $330 per ounce since March and is now trading above US $1,800 per ounce for the first time in nine years. Miners have also benefited from the run and watched their stocks rally, while perhaps the sector’s most popular exchange-traded fund, the VanEck Vectors Gold Miners ETF, has doubled in value.

The growth potential shown by the sector is a stark reversal from the minimal returns it offered investors during the past decade as bullion was, for the most part, stuck in a range between US$1,100 and US$1,300.

One thing pushing the investment thesis for gold in 2020 has been the macroeconomic impacts of COVID-19, iTrustCapital Inc.’s economist-in-residence Tim Shaler said.

“Gold is being driven higher for two reasons,” he said. “One is it’s a hedge against future inflation, so as the risk of future inflation goes up, you’ll expect more people to want that hedge and to buy gold. The other set of gold buyers are the armageddon buyers.”

Since global central banks continue to pump the equivalent of trillions of dollars into their economies and print money to bail out their respective economies, raising interest rates is not realistic, Shaler said, so inflation becomes a risk.

The so-called armageddon buyers, meanwhile, are gobbling up the yellow metal as a play on the COVID-19 pandemic causing even more havoc for global economies and investors rushing toward bullion for a safe haven.

A second unlikely scenario they’re investing on, Shaler said, is one where countries run out of cash and have to temporarily switch to gold.

Unlike in prior years, it’s not just the “gold bugs” who feel confident about this investment’s potential.

For example, Bank of America Corp. in April raised its 18-month price target on gold to US$3,000, citing the pressure that fiat currencies may come under due to central bank activity. Goldman Sachs Group Inc. last month raised its 12-month target to US$2,000 due to similar concerns about currency debasement.

Shaler said it’s reasonable to expect a US$2,000 price point by the end of the year, because the futures market is already pointing in that direction.

David MacNicol, president and portfolio manager of MacNicol and Associates Asset Management Inc., has kept about 10 per cent of his clients’ portfolios in gold — both physical and in mining stocks — over the past several years.

The prolonged rally, however, has convinced MacNicol to boost that exposure to about 20 per cent per portfolio. The metal’s performance has even allowed him to convince one client, a long-time holdout who wanted no gold in his portfolio, to finally accept the standard allocation.

“People are finally starting to clue in now,” he said. “If you lined up all of the world’s currencies … which would you rather have? The U.S. dollar or gold? I personally think gold is the currency of choice.”

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