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How a New “New Normal” Could Benefit Gold

Isaac Nuriani    |
Dec 12, 2020

It appears the COVID-19 pandemic will be neutralized in the foreseeable future. When that day comes, life presumably will return to normal. But what will “normal” look like in the post-COVID era? Will it be the spitting image of life in America pre-outbreak, complete with a return to an energetic economy fueled by a 3.5% unemployment rate?

We’d like to think so. But according to some, that’s not going to be the case. In fact, they suggest, Americans will have to get used to a different kind of normal – a new normal. One characterized by a society so economically weak and fearful that it effectively demands the Federal Reserve maintain a highly accommodative monetary policy posture in perpetuity.

Back in May, Rich Miller of Bloomberg is one of many who began to discuss the specter of a post-pandemic “new normal”. He called it “new normal 2.0” to distinguish it from the premier edition of the “new normal” said to have debuted after the 2008–2009 financial crisis. According to Miller, the new “new normal” will be characterized by even greater societal comfort with higher deficits and debt. It also will feature regular and more significant Federal Reserve monetary policy adjustments.

We all know by now that a growing array of COVID-19 vaccines will be available relatively soon. Still, there are signs that the vision Miller and others have of a more fragile and more economically helpless post-pandemic America could come to pass. The potential resulting challenges for retirement savers could be profound.

Analyst: “Caution” and “Insecurity” Will Guide Behavior in the New “New Normal”

In Miller’s updated version of the “new normal,” society will persist in a condition composed of equal parts shellshock and chronic sense of foreboding. He writes:

Households worried about their health and finances will save more and spend less. Companies will be less efficient and less global as they rearrange supply lines and bring production back to the U.S. to improve resiliency rather than to cut costs. Government involvement in the economy will be greater as officials place a premium on domestic supplies of medical equipment and other products deemed essential.

Miller implies the pandemic has reminded Americans of the concept of economic vulnerability – a condition, like smallpox, they thought had been eradicated. And the defensive manner in which they respond will be part of what characterizes the new “new normal.” As highly respected global investment strategist Ed Yardeni told Miller, “Everybody is going to be more insecure, more cautious.”

Lower Employment Could Be a Standard Feature of the Post-COVID Era

Underpinning this insecurity and caution would be a poor employment outlook in the new “new normal.” Steven J. Davis, an expert on job loss and economic uncertainty at the University of Chicago, emphasizes this ominous prospect. In a Futurity article published in May, Davis estimated that “42% of recent pandemic-induced layoffs will result in permanent job loss”.

For his part, Miller suggests “more companies will downsize permanently or go out of business” in the “new normal,” and that “more Americans will leave the labor force, robbing the economy of vitality.”

Exacerbating this possible eventuality could be the pandemic-cued discovery by some businesses that they can do more – or at least as much – with less. In an article he wrote last month for Seeking Alpha titled “A Vaccine and the ‘New New Normal,’” RIA Advisors chief investment strategist Lance Roberts opined that many companies may have uncorked a cost-cutting genie that will never go back in the bottle:

The lockdowns accelerated the “work-from-home” mentality for many companies and employees. That trend will not reverse quickly, if ever.

Corporations are now seeing the benefit of reduced labor forces, less office space, and increased productivity through technology. All of these are significant “cost-savings” to the corporation’s bottom lines.

All in all, if you judge by these reports and opinions, it seems a very worrisome economic picture of post-COVID America is being painted right before our eyes and the consequences to personal economic behavior could be both significant and lasting.

“People will hoard the money because they’re so nervous,” Nobel-Prize-winning economist Joseph Stiglitz told Miller, who notes this behavior is likely to “restrain growth and hold inflation down, at least for a time, in spite of trillions of dollars in fiscal and monetary support.” Former International Monetary Fund Chief Economist Olivier Blanchard suggested to Miller the overweighted savings accounts of Americans will result in interest rates remaining “very low for a very long time.”

Gold-Favorable Fed Policy Could Be Key Feature of New “New Normal”

It’s worth considering what the future might look like for gold in the new “new normal.” No one knows for sure how precious metals will respond in the new “new normal” that Miller, Roberts and others propose lay ahead. However, in our opinion, there is a lot to suggest it could be positive.

For one thing, when society has been plagued by a similar economic anemia in the past, it has given rise to the kind of uncertainty gold sometimes finds appealing. We saw what gold and silver did in a similar environment 10 years ago, in the wake of the financial crisis. From 2008 to 2011, against the backdrop of two rounds of then-unprecedented quantitative easing and record deficit spending, gold surged 160% and silver soared 400%. There’s no shortage of analysts projecting gold will continue to strengthen for years to come.

At the foundation of that assessment is the expectation that dovish monetary policy and government stimulus will continue in an effort to free the economy once and for all from the pandemic’s grip. Some people, such as Miller, seem to think the aggressive, long-term postures of dovish monetary policy and spendthrift fiscal policy could be prominent features of the “new normal 2.0” for some time. The Federal Reserve has said publicly on several occasions this year it expects both generous monetary and fiscal assistance to be standard for at least several years.

So … what if we are on the verge of a “new normal” where regular Fed intervention is the constant companion of chronic economic fragility? Then it’s understandable that some people are projecting the potential for an even more open field for precious metals in the years ahead.

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