November 17, 2020

Understanding this gold run - Opinion Piece

Since the beginning of this month, we have seen gold prices drop from $1,950/oz to $1,860s/oz around the news of a new U.S. president and the development ofCOVID-19 vaccines that may be available in the near future by Pfizer and Moderna. As cases of the virus continue to sweep the world, some still on their first wave, others well into their second, it may still take quite some time for economies around the world to give their citizens a sense of certainty an security about the future.

This week I asked Craig Lilley, financial advisor of Lilley Financial Group in Ontario, for his opinion on where gold prices might be headed. He pointed out that he had misplaced his crystal ball, but he shared his two cents on the topic:

“In the last three months, we have seen the gold price break the $2,000 mark and fluctuate back to the $1,900s in September and linger around the high $1,800s

Gold has these periodic “runs” due to its overall market size and the rush of frantic investors clambering to seek its safety, or greedy to catch a geyser mid-way. I can never tell, and I know from history that when it peaks it can drop faster than an unopened parachute. And those left holding it often feel like the wearer of the unopened parachute.

Because of the vast unparalleled money printing of central banks and governments in the past 8 months, I am fairly certain that the peak could be significantly higher, and could be 1, 2 or even 3 years hence. However, all bull markets of such magnitude and volatility require intestinal fortitude to ride out as they never go from start to finish in anything like a straight line. Vaccine progress and any easing of U.S. – China tensions in the coming months would likely cause a sharp fall back, though likely only temporarily.

$2,500 gold is very conceivable if the pandemic continues to grow at or near current levels into winter, and government subsidies continue to be generated. Numbers of $3,000, $4,000 and $5,000 will likely occur, but when? 2025? 2030? 2040?

Global debt is staggering and unfunded liabilities, such as pensions and social programs are going to cause major problems in the coming decade, so longer term holding 10% or slightly more of one’s portfolio in gold/silver remains wise in my humble opinion.

But is it better to own physical gold or the equities, which tend to often follow the broader stock market more closely? Most of us hold very little physical gold. I know I sure don’t hold enough of the metal itself. My dilemma is that most of my portfolio is in the metals sector and it is the most fickle of all, even more so than energy in my opinion, as energy prices seldom stay depressed for more than a year or two, whereas metals can hold their breath under water longer than the average bear. But when they surface…. They come up like a released beach ball, with great velocity.”