What the gold price should be; this is not like 2008 says Peter Hug
Investors have to remember that the fundamental cause of this current recession is different from that of the last one in 2008 and should price gold in accordingly, said Peter Hug, global trading director of Kitco Metals.
“This is not the financial crisis of 2008, this is a health crisis. Gold did rally from the $1,500s to the mid-$1,700s and is now straddling the $1,700 mark and everyone’s anticipating that gold should be $3,000 an ounce because of the Fed stimulus,” Hug told Kitco News. “I’m just not convinced that massive inflation is imminent.”
Aggregate demand is simply not going to return anytime soon, Hug noted.
“There’s just no demand yet and it’s going to take a while for that demand to regenerate. People are basically deferring their rent payments right now and they’re trying to hoard cash. They’re not going to be chasing goods, except for necessities, so I don’t see the equation of supply and demand creating massive inflation in the short term,” he said.
Furthermore, the investor engagement that was prevalent in 2008 and 2011 that drove gold prices higher is currently not there in today’s market, owing to the fact that the average investors lack disposable cash right now to buy gold, he added.
However, inflation is due to set in eventually, likely by next year, Hug said.
“In that context, I’m very bullish the precious metals over the medium to longer term. Short-term, I wouldn’t sell gold. I just think you need gold in your portfolio given the risks to the equity markets and to the economy,” he said.
On high premiums for gold bars and coins, Hug noted that the bullion market is starting to normalize.
“They are starting to come down. Silver is a different story, silver is still backlogged,” he said. “For weeks, I’ve been hammering on the table, don’t be chasing these premiums, they’re ridiculous premiums.”
There are other gold products to buy instead of bars and coins, Hug added.