The dollar has fallen more than 3% against other major currencies this year as the Fed cut interest rates to zero. They are expected to remain at that level for the foreseeable future.
“When rates are at zero, gold is better than having money saved in the bank,” Ed Keon, chief investment strategist and managing director of QMA, said in an interview with CNN Business. “Historically, gold is a good hedge in times of volatility and uncertainty.”
Fed stimulus has hurt the dollar and lifted gold
In that regard, much of the decline in gold has occurred since the Covid-19 outbreak halted the U.S. economy. The dollar has plummeted nearly 10% since the end of March.
Gold tends to do well when the dollar is weak. The collapse of the dollar has also helped boost long-term US government bond yields to record lows of around 0.6%.
The dollar and Treasury bills are often the safe haven for conservative and nervous investors.
But now that currency and bond yields are so minimal, many have turned to gold and silver, especially as concerns about the weakening global economy and more Covid-19 cases in parts of the US mount. USA
Gold has been “fueled by broader strategic interest as investors seek to diversify their portfolios amid negative real returns and high macro uncertainty,” UBS strategist Joni Teves said in a report this week.
Some investors may also be looking at the possibility of higher inflation. This is because the trillions of dollars in Federal Reserve loans and the additional debt burden that the US government is incurring due to its own Covid-19 stimulus programs could further weaken the dollar.
“The current debt degradation and accumulation sows the seeds for future inflationary risks even though inflationary risks remain low today,” Goldman Sachs strategists said in a report this week.
That’s the reason why Goldman Sachs increased its target price forecasts for gold and silver. The bank now believes that gold will reach $ 2,300 in the next 12 months, while silver will rise to $ 30.
Other pundits are also becoming more bullish on gold, even though the asset has been ridiculed by some of the top investors (especially Warren Buffett) as a fool’s gamble, as gold doesn’t make profit and cash like they do. publicly traded shares.
“We are likely to continue to add gold and other commodities. Essentially, we don’t think this is a short-term story, even if we are not currently prepared to go ‘all-inclusive’ in an asset class that doesn’t ‘pay no dividends or interest and it doesn’t make a profit, “Oakworth Capital Bank strategists said in a note to clients.
And as long as the dollar remains weak, gold could continue to outperform, Deron McCoy, SEIA chief investment officer, in an interview with CNN Business.
CNN Business’s Matt Egan and Julia Horowitz contributed to this story.
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