Gold prices ought to have climbed higher given the amount of money printing that took place in 2020 and that is likely to continue. What happened?
Additional debt-funded “stimulus”, QE and accompanying asset inflation should have pushed gold prices higher. After all, gold is a safe haven. What gives? (view a chart of the spot price of gold HERE). There are likely several culprits.
- Physical vs. Paper Gold. Gold ETFs (see our Gold ETF table) and other gold-related equity and derivative securities are not the same as owning physical gold. Much like a bank does not keep 100% of its deposits on hand, gold-related securities are not necessarily tied to physical gold. If you were to purchase $100,000 of a particular gold ETF, the custodian does not set aside $100,000 of gold bullion in your name. Thus, purchasing paper gold does not necessarily drive the spot price of physical gold higher.
- Why own gold? Everything is fine, nothing to see here. Many investors incorrectly in my view only think about gold when they foresee a near-term hiccup in the economy. Instead, gold should be utilized as a hedge against expansionary monetary policy (i.e. inflation). Since many investors view the economy as on solid footing (it’s not, it’s standing on a floor supported by beams rotted with debt), they do not see a reason to own gold.
- Bitcoin. Back at $10-15 thousand perhaps investors were using Bitcoin as a store of value and therefore as an alternative to gold and other precious metals. However, Bitcoin now feels like speculators’ trading vehicle of choice along with EV companies.