103% gains on the table for savvy investors, thanks to this 15 June announcement. Here’s why…
Here’s what’s sending the gold price higher
Back in 2019 Citi Bank analysts noted that gold was heading for $2,000 in 2020.
“From a birds-eye view, low(er) for longer nominal and real interest rates, escalating global recession risks—exacerbated by U.S.-China trade tensions—heightened geopolitical rifts amid rich equity and credit market valuations, coupled with strong central bank and investor buying activity, are all combining to buttress a bullish gold market environment.”
If you consider the above statement it is still true. US-China tensions haven’t eased at all, and the world is in recession – albeit not due to the same reasons predicted by Citi Bank.
But what is important to note, gold was already on an upward trajectory even BEFORE Covid-19. The crisis created by Covid is merely boosting gold’s rise!
Covid-19 lockdowns across the world brought economies to a halt. In order to protect their economies central banks started buying bonds on a massive scale, pushing interest rates down.
South Africa’s repo rate, set by the SA Reserve Bank, was lowered from 6.5% to 3.75%.
The US Federal Funds rate has been lowered from 2.25% to 0.25%. Imagine borrowing at a 0.25% interest rate!
In Germany the interest rate is at 0% and Japan is actually PAYING borrowers 0.1% in order to borrow money.
Basically, when interest rates are this low, and inflation is higher than interest rates, we get investors rather buying gold than government bonds. And this is now providing significant upside potential to gold.
Gold will keep its upward momentum in 2021
It’s easy to think gold could drop back from its current high’s. But I expect it will keep upward momentum next year.
You see, when companies publish financial results early in 2020 there’ll be a lot of disappointments as these results will reflect the revenues and profits lost during the Covid-19 lockdowns. But share prices have already run up and ahead of these levels. So earnings results won’t reflect the sentiment in shares – probably leading to a stock market correction and a rise in price of gold!
The International Monetary Fund (IMF) lowered its economic growth forecast for 2020. The world economy is now projected to plunge nearly 5 percent this year, a downward adjustment of 1.9 percentage points from the IMF’s April forecast.
“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” IMF economists wrote in a June 24 report.
To try and recover from this could spur even more monetary and fiscal stimulus by governments.
The Bank of England (BoE) recently added to its bond-buying program, and the Federal Reserve has signalled that it will be keeping rates near zero.
Get this: As of right now, the Fed’s balance sheet stands at $7 trillion, or 33 percent of U.S. GDP.
Debt levels like these aren’t sustainable for long – and that’ll push bond investors into gold.
Both Morgan Stanley and Citibank has $2,000 targets on gold. Edison, a London based research firm, said in a 23 June report that gold has the “potential to rise to in excess of $3,000”.
How I am playing the growing gold price
The big rise in the gold price has happened – even though there’s still 20%-70% upside left. 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.
One gold miner I am particularly fond of is Pan African Resources. The company’s share price has lagged the rise in the gold price because it had a portion of its production hedged. However, the increases it’s seeing in production, as well as the higher gold price will start playing its part this year.
The company just added a project with 30,000 ounces of annual gold production to its bottom line. At the same time, it is paying off debt rapidly – and expanding production at a newly built surface gold treatment plant.
It could easily double profits in the coming year – if not more…
Here’s to unleashing real value,
Editor, Red Hot Penny Shares