Gold a quintessential hedge against currency erosion: Precious metals investor
High Ridge Futures director of metals trading Dave Meger discusses the rise in gold investment amid coronavirus fears.
Gold prices spiked Thursday after the Federal Reserve announced a $2.3 trillion lending program to cushion Main Street from disruptions caused by COVID-19.
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Gold futures for April delivery climbed 4.25 percent to over $1,736.20 an ounce to close at their highest level since December 2012.
“In the last six weeks we've seen very significant injections of cash into the economies and it's very good for gold,” Mark Bristow, CEO of Toronto-based Barrick Gold, the world’s no. 2 gold miner, told FOX Business in a recent interview.
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The Federal Reserve has taken unprecedented measures in recent weeks as actions used to slow the spread of COVID-19 have brought the U.S. economy to a near standstill.
Aside from slashing interest rates to near zero, the central bank has promised to buy an unlimited amount of Treasury securities and launched a number of lending facilities to ensure financial markets are functioning properly.
The Federal Reserve’s action has caused huge demand for gold.
Bristow said there’s a “tightness in the gold market” as physical retail purchases are happening at a pace not seen “in a very long time” and the exchange-traded funds are making “record purchases of gold.”
The surge in demand has driven the price of an ounce of gold up 10 percent since March 3, when the Fed first cut rates in response to COVID-19.
While the price of an ounce of gold has surged, shares of the miners have seen an even bigger gains.
Shares of Bristow’s Barrick gold have rallied by 12 percent to $22.33 since the Fed’s rate cut on March 3 while rival Newmont Corporation has gained 20 percent to $56.43.
With Wall Street strategists forecasting for higher gold prices, the rally in the miners may just be getting started.
In a note sent to clients last month, Deutsche Bank analyst Chris Terry noted his firm has a yearend forecast of $1,800 an ounce. His model shows that for every $100 gain in the price of gold, Barrick shares will jump by 16 percent and Newmont’s stock will climb by 13 percent.
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“We remain very constructive on precious metals equities with our view on the underlying commodity pointing to upside,” Terry wrote.
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