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Gold breaks $1900 an ounce on July 24, 2020 and 1st American Reserve applauds the gain

Posted by 1st American Reserve on

This is an article that helps explain some of the reasons why gold is moving upward so quickly. The article was contributed by Mike Fuljenz for 1st American Reserve's blog.  There is a lot of good informtion here to digest.

“What’s Driving Gold” – Three Important New Tailwinds

Gold hits $1900 per ounceIn past years, we relied on a weak dollar, inflation, and some global hotspots as gold’s primary tailwinds. We don’t have all those “tailwinds” in gold’s favor yet this year, but we still have gold moving to within 5% of a new high on three new tailwinds, according to Giles Coghlan, writing for FX Empire on Yahoo!  These tailwinds are related to the Coronavirus outbreak. One is Rising Gold ETF Demand. Through May, gold-backed ETFs registered inflows totaling $33.7 billion, the largest-ever annual total, breaking the previous record ($24 billion in 2016) by almost $10 billion after only five months of buying demand.

 

The second tailwind is Supply Disruptions, not only in U.S. Mint production, which we have covered here, but in gold bullion bar production out of Switzerland and in jewelry production. Most importantly, new gold mining production is also way down. Last month it was estimated by Wood Mackenzie that in order to maintain 2019 gold mine production levels, the gold industry would have to invest $37 billion into roughly 44 new projects by 2025. In addition, many operating mines are in coronavirus “hot spots.”  Currency Risk comprises the third tailwind. This includes massive new printing of unbacked currency, combined with super-low (even sub-zero) interest rates, amid unprecedented deficit spending to fight the COVID-19 economic disruptions. Millions are forced out of work on every continent, which disrupts tax collections and corporate profits. On top of this, new geopolitical risks are arising from complex new trade tensions between China, the U.S., India, the Korean peninsula and the Middle East, just for starters.

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