Are you late to the gold price party if you didn't buy 6 months ago?
(Kitco News) Should you have bought gold six months ago before the world even heard of the coronavirus, which has triggered surging physical demand for gold and could drive prices to new historic highs?
Challenging times like these always draw new people into the gold market, said The Perth Mint global gold market advisor Kevin Rich.
“Gold is attracting more volume from existing gold investors—[But] times like these also always bring new people in,” Rich told Kitco News on Wednesday.
Even though some investors are now disappointed they didn’t buy gold six months ago, the precious metals market is cyclical and experienced investors will tell the newbies that there are still substantial gains to be made.
“Some investors might say: ‘I am late to the party and should have bought gold six months ago.’ But experienced investors know that these cycles come and go. It reinforces the safe haven and diversification benefits that savvy gold investors have seen over the years,” Rich said.
To calm the fearful buyers who are scrambling to find some physical gold bars or coins to purchase in what looks to be a very tight market, Rich said not to worry.
“For now, there is enough [gold] to go around,” he said. “Plenty of gold in different formats available.”
It is important to remember that eventually, all global COVID-19 cases will peak and things will begin to normalize.
“For now, any mining or refining closures I think are temporary. This is a historic one-off event that none of us have ever seen … For now, it seems that we are good, but it depends on how long this event goes on,” he noted. “I would anticipate that the curves will start to come down and things will normalize.”
Whether it will take weeks or months, there is still “probably enough gold above ground to make it through that period.”
The massive worldwide demand for physical gold is easily spotted through The Perth Mint’s own business. In March, the mint’s depository business topped $5 billion in value of the precious metals it has sold and is holding for people.
“That’s a record level for them. They are seeing strong demand from investors. A lot of it is coming from Europe, especially Germany. There is demand from U.S. as well,” Rich said.
And even though The Perth Mint is running low on some inventory items, it is adding additional shifts to its refining output to meet some of that increased demand.
“There has been enormous demand for small bars and coins. Some of the inventory has been depleted. They’ll work hard to re-stock,” Rich pointed out. “There is no shortage of the underlying metal behind the refining. It is really just the question of refining capacity right now.”
For now, the gold price action has mostly been about the financial markets than the supply and demand side of things, Rich added.
“Gold prices are really being set with what is happening in the financial markets relative to equities … But over time, as the dust settles, the physical side will have an impact as some refineries around the globe continue to close,” he said.
Both, the financial markets side and the physical side are very constructive for the gold price.
The COVID-19 outbreak has tested gold’s safe-haven status, which proved to investors how valuable it is to have the yellow metal in their portfolios.
“If you look at how gold has performed through the entire pulldown in equities, it performed reasonably well. There was some selling pressure as people were liquidating all assets to meet margin calls and deleveraging. Overall, it proved to be a safe haven,” Rich said. “The reason why people add it to their portfolios was proven once again as it held up through this period.”
Going forward, gold prices could be looking at another historic run higher, especially considering everything the Federal Reserve has been doing as well as the overall low-interest environment globally, Rich noted.
“These monetary packages that the Fed and other central banks are doing are similar to what happened in 2008. Down the road, nine to 12 months from now, there will potentially be an inflationary effect, which is good for gold,” he said.
The patterns of 2008 resemble today’s crisis — first equities sold off in 2008 and gold was selling off, then the Fed stepped in and gold ran up, which started the 2008-2011 historic gold run, Rich explained. “There are similarities to what is happening now,” he added.