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Ongoing Federal Reserve assistance and seemingly unrestrained government deficit spending may be gold’s two best friends. But they’re by no means the metal’s only friends. And when new gold-friendly conditions appear on the horizon, you see the makings of a potential perfect storm for positive gold performance.
This week, a stunning wave of violent civil unrest and an uptick in U.S.-China tensions both helped boost gold. We were reminded yet again how responsive gold prices can be to bad news of practically any kind. Growth in the number of gold’s price-supporting factors – and even the possibility of additional gold-friendly factors – only strengthens its case as a valuable portfolio component.
Economist: Massive Unemployment Partly to Blame for Civil Unrest
At the beginning of this year, Greg Jensen, chief investment officer of Bridgewater Associates, the world’s largest hedge fund, made an eye-opening prediction. Jensen said he believed gold could reach 2,000 dollars an ounce, and he implied it would happen sooner rather than later. But just as important as the price target was Jensen’s justification for making the call.
In a prescient look forward into this year, Jensen said at that time, “There is so much boiling conflict. People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to.” Jensen named greater civil unrest and heightened tensions with China as influences he believed likely would provide support for gold through 2020.
Jensen acknowledged the recessionary economic forces already in play at the time he spoke, which means he already had been anticipating a dovish Federal Reserve this year. Even before the COVID-19 outbreak, the global economy was on the path toward recession. So, like other analysts, he saw great potential for gold on that basis alone. But, as Jensen looked elsewhere, he also saw the potential for increased volatility throughout global society and the geopolitical arena. Jensen concluded that even more positive energy for gold was developing.
Sure enough, gold knocked on the door of 1,750 dollars per ounce last Monday after a weekend of tremendous violence and civil unrest all across America’s cities. Gold’s price also was helped along that day by fears that Phase One of the China-U.S. trade deal was on the verge of coming apart. The possible catalyst is the growing rift between the two countries over Beijing’s decision to tighten the reins on Hong Kong.
In an analyst note referenced by CNBC.com, Carlo Alberto De Casa of ActivTrades suggested 1,750 per ounce is the next meaningful level of price resistance facing gold. “A clear climb above the previous highs ($1,747 on closing and $1,765 intraday) would open space for further rallies,” De Casa said.
Savers may remember that gold pushed through a longstanding resistance level of 1,350 dollars per ounce last June. The stimulant then was the Federal Reserve’s declaration that interest rates would go back down. The resulting move by gold upward through resistance triggered gold’s present 30% increase from the date of that announcement.
Economist Nouriel Roubini, nicknamed “Dr. Doom” for his persistently gloomy outlooks, is another who has predicted social unrest for months. A recent Business Insider article notes Roubini’s prediction in March that “outright violence and civil disorder” was in the nation’s future. At the time, Roubini cited public frustration over alleged foreign interference in U.S. elections as the reason for the civil unrest he predicted. A couple of weeks ago, the economist added widespread public frustration over the nation’s current economic woes as a reason for the upheaval he projected. Roubini said the following in a recent Intelligencer interview:
You’re going to start having food riots soon enough. Look at the luxury stores in New York. They’ve either boarded them up or emptied their shelves, because they’re worried people are going to steal the Chanel bags. The few stores that are open, like my Whole Foods, have security guards both inside and outside. We are one step away from food riots. There are lines three miles long at food banks. That’s what’s happening in America.
Last weekend, Roubini said the current civil unrest is attributable to two principal factors: (1) rage over the death of George Floyd in police custody and (2) anger stemming from the pandemic’s economic fallout. “There are now 40 million unemployed people in the U.S. who are rightly furious: white, brown, black,” he said. “As I predicted months ago, this crisis will lead to riots and violence.” Roubini’s assessment certainly is consistent with what gold mavens would see as being positive for the metal.
Surreal Quality to Civil Unrest in Today’s World
Will a solid push through 1,750 dollars per ounce energize the spot price of gold to the 2,000-dollar figure projected by Jensen? It’s easy to argue that conditions are ripe for such an outcome. We know how receptive gold can be to drastic accommodative monetary policy. If heightened geopolitical and social tensions continue globally, it makes sense to expect gold will strengthen for those reasons, too.
For many Americans, there is almost a surreal quality to life in the U.S. right now. Violent civil unrest is sweeping across the nation. A pandemic with no certain resolution continues to threaten the country’s economic health. We are suffering through the highest unemployment rate since the Great Depression. And a quickly deteriorating relationship with China is raising the specter of another Cold War.
All of this is unfolding as the Federal Reserve seeks to help the country fight for its economic survival with unprecedented levels of quantitative easing. If there was ever time to own gold, this could be it.