Seven Reasons Why Gold Will Run in 2021!
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Seven Reasons Why Gold Will Run in 2021! Gold’s BULL RUN in the Post COVID Economy Call 1-(800) 892-0775 The World Has Been Forever Changed. “Covid-19 has disrupted our social and economic order at lightning speed and on a scale that we have not seen in living memory.” — Kristalina Georgieva - Managing Director of the IMF The notion that the U.S. economy, businesses, and households will return to normal in 2021 is not only wishful thinking, it reflects a fundamental misunderstanding of the degree of disruption caused by the economic and social events of 2020. The financial shock caused by COVID-19 was historic. The Federal Reserve printed massive amounts of money to support its deficit spending which included unprecedented securities purchases, loans to banks and corporations, small business assistance, and direct payments to American families. But millions remain unemployed, and experts suggest the recovery will be slower than previous downturns because the contraction of 2020 was unlike anything the U.S. or the world has ever seen. COVID-19 has driven global debt to record highs paralyzing economies across the globe. American households continue to grapple with unemployment, uncertainty, social distancing, shutdowns, and the struggles of remote learning. Experts predict that some U.S. jobs will never come back as various sectors of the economy have been forever changed. Inflation is also poised to return, and its effects could be exacerbated by a new President that plans to raise taxes and re-regulate the energy the labor sectors at a greater cost to consumers. And as lockdowns ease and the stay- at-home economy shifts, look for a massive economic disruption, as the most exuberant stock rally in history could finally tumble back down to earth. These are the precise monetary, economic and political conditions that have propelled gold for generations and should continue to fuel its upward trajectory in 2021. Here are the Seven Reasons to be bullish about holding gold this year. REASON #1: COVID-19 It is a scourge by any other name. To call COVID-19 a mere virus, doesn’t do it justice in the annals of social and economic history. It has been both a boiling point and a breaking point that has not only upended daily life for millions around the world but forever changed business, communication, human interaction, education, travel, and our sense of safety and security. The virus revealed the fragility of the U.S. healthcare system, disaster response, CDC guidance, global supply chains, small business infrastructure, social systems and the network of human relationships. It also exposed the disruptive power of fear and chaos as panicked buying triggered critical shortages of essential goods, foods and cleaning supplies. Despite the development of effective vaccines, some experts contend that COVID-19 may never leave us and could, in fact, become embedded in the population. Others suggest that it will only end when enough people have been infected or vaccinated — which could take years. An ongoing coronavirus threat is a rallying cry for safe havens that have historically maintained their value throughout the course of human history and there is perhaps no greater example than physical gold. Call 1-(800) 892-0775 2 REASON #2: Unprecedented Federal Stimulus In 2020, the U.S. Federal Reserve revisited the Great Recession playbook of slashing interest rates to zero and dusting off quantitative easing measures not used in over a decade. The Federal deficit and the national debt have both hit all-time highs. COVID-19 relief in particular, which includes the Coronavirus Preparedness and Response Supplement, Families First Coronavirus Response Act, the CARES Act, the Paycheck Protection Program and various Executive Actions signed by President Trump, totaled over $3.5 trillion. This does not include the $900 billion coronavirus relief bill signed by President Trump late last year. The government’s debt is now on course to exceed GDP in 2021. Excessive debt results in higher interest rate payments, tax hikes, cuts to public services, and a looming fiscal meltdown. Massive increases in the money supply can also spark inflation which would send investors flocking to gold, a known inflation hedge. REASON #3: A Very Slow Recovery A force as disruptive as COVID-19 will not dissipate overnight. It infected over 83 million people, killed close to 2 million, incapacitated the world economy, destroyed livelihoods, and pushed millions into government assistance and millions more into poverty. It also exposed the economic frailty of globalization. A United Nations Conference on Trade and Development (2020) suggests that the world economy contracted by 4.3% last year and the economic shock to global trade, investment, and financial systems could last for years. A McKinsey & Company report estimates that the most impacted sectors of the U.S. economy: Entertainment, Food Service, Transportation, Education and Manufacturing could take as long as five years to recover as scores of restaurants, factories, schools and retail stores were either shuttered or experienced limited activity through much of last year. Call 1-(800) 892-0775 3 This resulted in both a supply and a demand shock — namely a dramatic contraction in economic activity and a simultaneous upsurge in unemployment. With coronavirus cases now expected to remain high through early 2021, economists have slashed U.S. economic growth projections for first quarter. A reported two-thirds of American consumers have cut back on spending, and thousands of small businesses have closed for good. This translates to an economic recovery that will be both sluggish and uncertain which are ideal conditions for the safety and security of gold. Reason #4: A Supply and Demand Crisis It’s no secret that global gold supply took a hit in 2020. Mine production was either reduced or completely halted. During the summer of 2020, a COVID outbreak at the U.S. Mint caused a reduction in gold and silver coin distribution. The grounding of commercial flights also disrupted the movement and delivery of precious metals. As the economy faltered, the demand for gold soared and a critical bullion shortage ensued. Certain gold coins became unavailable, while others could only be obtained by paying a steep premium. One-ounce gold coins and bars quickly sold out as did larger gold kilo bars and 1,000 oz silver bars. Some mints sold their entire year’s supply of bullion during the crunch. Desperate dealers tried to buy back coins and bars for a premium while others compiled gold buyer waiting lists. Needless to say, the COVID-induced downturn caused bullion stockpiling which pushed gold prices up 25% and silver a whopping 45% last year. If economic conditions normalize in 2021, jewelry and industrial demand should pick up dramatically. If there’s a hiccup, however, investment hoarding could resume and if the mining sector has not regained lost capacity, the run-on precious metals could trigger a sizable price explosion. Reason #5: The Return of Inflation Monetary expansion causes inflation and the trillions of dollars spent on the pandemic’s economic carnage has increased chatter about inflation making a comeback in 2021. Inflation is not something that has been top- of-mind since the 1980’s when it catapulted to double digits. In the last ten years, however, it has barely broken 2%. While the Quantitative Easing of the Great Recession did not lead to a massive spike in prices, experts believe the federal coronavirus response is different. In 2020, the Fed made loans to security firms, banks, and large corporations. They unleashed massive lending programs for small businesses, propped up non-profits and municipal governments, and made direct payments to U.S. households. This has created a private sector flush with cash. As the world becomes vaccinated, the virus subsides, and the economy re-opens — a voracious U.S. consumer will be eager to shop and spend, causing severe inflationary pressure. Call 1-(800) 892-0775 4 It’s important to recall precisely what inflation is. Investopedia defines it as “a measure of the rate of rising prices of goods and services in an economy” which applies to things like food, cars, and clothing as well as housing, energy and medical care. Inflation reduces our purchasing power as everyday items seem to cost more and our money seems to buy less. It also lowers the value of pensions, decreases the return on savings, and typically triggers an increase in interest rates on loans. Inflation also causes economic uncertainty which can undermine both consumer and business confidence. Unlike paper money and equities, gold is resistant to inflation and has been a reliable hedge since it rises at the same rate as inflation. In other words, gold increases in value as the value of the dollar decreases. Reason #6. A Weakened U.S. Dollar The U.S. dollar ended 2020 down more than 7% and dropped precipitously from its highs during the coronavirus lockdowns which triggered a spike in demand for greenbacks. But rock bottom interest rates, historic money printing, and the economic hope brought by new coronavirus vaccines from Pfizer, Moderna and AstraZeneca have all contributed to the weakest dollar in three years. Forecasters are expecting more weakness ahead as investors gravitate toward riskier assets in search of yield. In a recent Reuters poll, two-thirds of analysts expect the dollar to continue to slide until at least mid-2021. Goldman Sachs, UBS and Société Générale are also forecasting more losses for buck. Much hinges on the world economy re-opening which is tied to the successful vaccine rollouts and the trajectory of infection rates. If COVID-19 finally does subside and the global economy rebounds, other assets will become more appealing.