The US Federal Reserve – central bank to the world - is turning Japanese. The Fed’s historic and unlimited stimulus and the political consensus to do ‘whatever it takes’ to replace collapsing aggregate demand will unleash the Great Commodity Bull Market of the 2020’s led by gold.
We believe the unprecedented fiscal and monetary stimulus deployed to fight the Covid 19 virus will push inflation higher, interest rates deeply negative and send gold over US$3,000/oz – compared to current prices around US$1600/oz - before the end of 2021.
We are not ‘gold nuts’ or ‘perma-bulls’ on monetary metals but keen students of history. This research note compares the United States Federal Reserve or ‘the Fed’s monetary and fiscal response to the Global Financial Crisis versus ‘the Corona Crisis’ and reviews how many of the Fed’s tactics have recently been tested; in Japan.
If you get all the way to the end of this note we will mention an Australian gold producer we just bought for ourselves we like a lot. Isn’t gold supposed to be a safe haven??? Figure 2: The Corona Crash: Dow v Gold. The Dow Jones Industrial Average (the Dow) recently peaked at 29,551 points on 12 February 2020. Gold peaked a month later at US$1,700 per oz. but then dropped 14% in 6 trading days. Isn’t gold supposed to do the opposite to other risky assets? What does history tell us?
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