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Breaking news: This move by government could send the gold price past $2,000

by , 15 April 2020
Breaking news: This move by government could send the gold price past $2,000
Just in: The South African Reserve Bank just lowered interest rates by another 1%, the second time in a month.
 
This puts the South African repo rate at a historic low!
 
We can write essays about what the lower interest rate means for business and consumers. But in short - lowering interest rates historically has meant one thing for gold. Its price goes up!
 
And as you can see in the chart below - the price of gold is going parabolic right now.
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Gold’s parabolic rise could continue thanks to interest rates and fear


Back in January 2020 I told investors I expect the price of gold to hit R26,000 an ounce within mere months. Back then it traded at R23,721 per ounce – having already increased 44% from its 2018 low of R16,000 an ounce.
 
As we speak the price of gold sits at R31,618 per ounce ($1,725). The rise in the gold price has been both in dollar terms (global factors) as well as in rand terms (local factors).
 
Three Gold price profit drivers
 
 
Gold price driver #1 – Unprecedent global stimulus
 
World governments and central banks are conducting the largest stimulus programmes EVER seen.
 
In less than a month the US Federal Reserve Bank has already increased its balance sheet by buying $2 trillion worth of bonds. It’s ‘money printing’ programme is being called QE Infinity (quantitative easing to infinity) because there are apparently NO LIMITS being set to how much stimulus the central bank could provide.
 
The European Central Bank (ECB) has injected €750 billion – if you’re unsure of the scale of that it is twice South Africa’s annual GDP.
 
And China has done a number of measures from decreasing bank reserve requirements, to extending credit to business and decreasing interest rates.
 
Even the South African Reserve Bank, which elected not to buy bonds even in the 2008 financial crisis, is now in the market buying bonds and working to stabilise our currency.
 
As interest rates in developed countries hit 0% (and even go negative) investors will pile money into gold as the only store of value over the long run.
 
Gold price driver #2 – Post-Covid inflation
 
You’d think a lack of demand would cause deflation – and in the short term this is possible. But following worldwide lockdowns the opposite is likely.
 
You see, there are a number of things that could prove inflationary:
  • Countries will insource critical manufacturing to avoid long-term dependence on imports
     
  • Bankruptcies will leave production gaps that could cause shortages
     
  • Long term interest rates will rise – and the increased lending cost combined with necessitated lending during lockdown will raise costs for companies.
Higher inflation, especially when combined with money printing and stimulus (as explained above) will certainly drive the gold price in dollar terms as investors look for a store of long term value.
 
Gold price driver #3 – The ever-weakening rand
 
A strong dollar gold price is great – but the rand weakening boosts the rand price of gold even more.
 
Right now the rand is around R18 to the dollar. With lower interest rates locally coupled with SA’s downgrade to junk status the rand could easily hit R20 to the dollar.
 
Simply put – further rand weakness is in support of a higher rand gold price – big time.
 
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  1. An opportunity to make as much as 70% with the high gold price right now
     
  2. You could pocket up to 30% from this ‘sure thing’ amidst market chaos
     
  3. A coal miner is keeping the lights on during the corona crisis and is profiting big time!
     
  4. A buyout is imminent – if you act quickly you could make a sweet 60% in gains
     
  5. This transport company is booming thanks to the lockdown

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How I’m playing the higher gold price
 
The big rise in the gold price has happened – even though there’s still 10 – 20% to go. So if you want to make money from it now you need to invest in something that’s lagged this rise.
 
Gold mining companies are a great way to profit from rises in the gold price. That’s because of their operating leverage – their profits increase multiple times what the gold price rises by.
 
I am particularly positive on DRD Gold and Pan African Resources. DRD’s surface operations means it is better able to continue full production even during lockdown.
 
Pan Af just launched a new project which will add 30,000 ounces of gold production to its bottom line in 2020. At the same time it is paying off debt rapidly – and expanding production at a newly built surface gold treatment plant.
 
Here’s to unleashing real value,
Francois Joubert,
Editor, Red Hot Penny Shares  
 
P.S. My top 5 defensive play preview is available for another 5 days only! Claim your copy here



Breaking news: This move by government could send the gold price past $2,000
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