With problems escalating in the Gulf not least the odd-ball tactics of Iran in the strait of Hormuz and the Mexican stand-off between Saudi-Arabia and Russia, on 25th May I wrote an article titled
Is Gold still a resilient hedge to stem Geopolitical fallout?
[17 March 2020 Pegged: €1331.00 per oz.]
The article was to highlight my ongoing project to monitor the Geopolitical and Macroeconomic effect on Oil -v- “Spot” Gold prices and examine the resilience of Gold as the World started to feel the enormous Geopolitical impact of the Covid-19 Virus.
Oil prices have suffered terribly at the hands of multiple Geopolitical actors not least the madcap antics of the Iranians in the Strait of Hormuz and the Mexican stand-off between Saudi Arabia and Russia which of course hasn’t done Russia any favours let alone the price of Oil but over on the Gold chart its a completely different picture. Gold has shown itself to be the most resilient “bomb proof” hedge of all against future Geopolitical or Pandemic tremors.
As more and more Covid-19 related fallout was being recorded, Oil started to lose its lustre for me and with the help of pretty clever AI tools I managed to plot it against the coronavirus itself by creating a “Covid_Index” This makes for extremely insightful data recording the precise effect that each major Coronavirus benchmarking event had a direct impact on the spot price of Gold.
I have written literally hundreds of articles about Gold over the years for a variety of media and am considered a authority writer on the subject – however, I have never seen the price of “Spot” Gold more resilient than it is right now in my opinion there is more juice, much more juice in the commodity AU.
I pegged the price to at the start of the project at 1331.00 per oz on 17th March 2020 with the price of Gold trading at €1643.31 that represents a yield of 23.46% over that 22 week period – annualised that is a colossal 55%+
Gold and interest rates traditionally have a negative correlation. Although its not always the case, in general the gold price goes up when interest rates go down, and obviously vice-versa. This is because rising interest rates make stocks, government bonds and other investments become more appealing to investors.
Global interest rates are at an all time low. For example the global outbreak of coronavirus has forced the UK Government to take drastic steps to stem the economic downturn by slashing the base rate for the second time in a single month from 0.25% to 0.1% warning that the pandemic will result in a “sharp and large” economic shock. This may seem a pitiful return, but regard the Euro-area where today’s rate is 0%. Across the pond in the US, the FED (The Federal Reserve Board) has the current base rate at a comparatively attractive 0.25%.
However, these historical generalisms have been totally turned on their head by the Coronavirus pandemic and gold is moving higher as strategic hedging protocols kick-in ahead of equities going the same way as oil, collectively all these factors are breathing new life into gold markets as prices look primed to move significantly higher.