What gold price needs now to sustain this momentum

by birtanpublished on August 11, 2020

Welcome to kitco news i'm niels christensen the gold market continues to see surging momentum but can this momentum last in an environment where we're seeing a tug of war between inflation and deflation threats here to

Talk about this is steve dunn head of exchange traded products at aberdeen standard investments steven welcome back to the show thank you very much for taking the time

To speak with us today thanks nielsen obviously a great topic to have on the conversation considering its most recent activity so i appreciate the time well i think any topic on gold right now is

Is super timely i mean it's just so much uh so much focus is put on gold now that now that we're at record highs and i sort of wanted to you know not necessarily talk about the record but you know what's driving this

And i think a big part of this is this tug of war between inflation and deflation and you know deflation threats actually maybe aren't a bad thing according to your

Guys's latest report yeah i mean it's not as a deflation causes harm for gold it just it prefers a different type of environment in most situations and i think as you had suggested earlier

You do have this tug of war that's taking place you know everything that's taking place on the monetary and fiscal side would certainly suggest that at some point in time this stimulus should theoretically cause

Some type of inflation um putting the hands of in the putting money in the hands of consumers and asking them to go out and spend that money um that should lead to inflationary type

Of aspects but obviously we're teetering on the edge of some of the other challenges associated with covid19 and potential reversals and shutdowns and things along those lines so

It is that day-to-day tug of war that's taken place but i think if you if you looked at gold um specifically you know you you almost have created a perfect storm for gold to perform

Particularly well and i think that's what investors have um have have come to uh appreciate about gold and potentially holding gold within a portfolio and so certainly that run up

Over the last couple weeks um so i think you got some additional momentum into that so you got a jobs report that wasn't fantastic obviously you got some um you know some different opinions of whether that

V-shaped recovery is is really going to truly be v-shaped and then obviously the continued struggle with covet 19 some of those additional factors certainly uh

Certainly pushed the momentum in gold through some of those uh into that new territory well and i was gonna say i mean part you know like i mean if if the economy does continue to

Struggle you know if there are um uh demand side issues um you know and and deflation does rear its head that just forces central banks like the federal reserve to act

More aggressively i think that's you know that's something that we saw in in the in the um uh financial crisis in 2008 is that you know like they saw this this deflationary threat and they reacted and

Now it's just even so much more bigger yeah no you're exactly correct i mean um you know as i had indicated and as the fed has indicated they had they have suggested this point in time

That they're willing to do whatever it takes to keep this economy from going backwards um and so they've created that backstop um in the marketplace uh from from that perspective so i think

You know this this combination of monetary and fiscal policy um it's gotta drive some type of inflationary factors at some stage um and so i think you know will we continue to fight some of these issues

From a depletionary standpoint yeah i mean if you look at things like energy components right if you get another global slowdown then obviously that's going to have a huge impact to the

Energy and energy prices energy usage you know does that provide some you know deflationary factors that play in um perhaps but i think that is the challenge right and i think that's what

You've seen um the markets trying to understand and trying to to forward price which is um you know how can we build in this expectation around covet 19 when we just

Don't have a real good sense of sort of what it looks like but certainly um all the factors that are coming into play would suggest that you know we're trying to cause

An inflationary type of environment and certainly gold is going to be supportive in that type of environment there was some underlying factors that caused it um but like i said you know i wouldn't be terribly surprised if we see some

Some sideways trading for a little bit some profit taking that may um bring us back down to um sort of that 1900 level um it's sort of where we had suggested but um there's a lot to support

You know current prices um at its current level and so for folks that are holding gold uh from a strategic standpoint you know there's certainly enough there to suggest that that strategic hold is um it will will

Uh will benefit so okay so um do you how do you play the market then i mean are you d do you buy now do you wait for you know sort of that the dip the consolidation period or do

You sort of look down the the value chain you know we've talked about this before you know about you know silver and platinum maybe sort of replacing

Um gold as you know just sort of on that as a value play yeah so i think there's a couple things that can do from that standpoint i think the strategic holds should continue to hold i think there's enough

Of a case that would suggest that you will be rewarded for holding gold in that situation um i think if you're trading gold then obviously take advantage of any pullback in those types of situations because i

Think there is an opportunity for for more stretch and then for those folks that are looking you know may have the suggestion that value is the value associated with gold um has has sort of passed us by um silver's had

A huge run as well um and has actually outperformed gold over the last month three months anything along those lines so silver's had a fantastic run um and so even i would argue that some

Of the value has been taken out of silver but if you're following sort of the investment dollars um and that's what gold silver platinum have been driven by this year

Is not necessarily the industrial demand but it's the investor demand you've seen a pretty significant pickup in platinum from that perspective of the three metals that we mentioned platinum probably is of the

Uh probably the the most significant value and we have seen folks rotating um towards platinum from a value perspective you know obviously the questions with

Platinum there are some issues and obviously the factors that affect platinum are very different than gold and silver um but i think if investors are looking for more of a value orientation

Um then it's probably not there with gold any longer um silver it's moved away from and i think investors are looking to something like platinum perhaps um as a um as a as a value opportunity

So just going back to you know sort of the the the next catalyst for gold um does a fed announcement of a yield curve control get us there you know get us to

That next thing or does it have to be bigger and also too you know like i mean we look at um uh government stimulus the the fiscal side of it you know does a trillion dollar

Uh aid package get gold there or does it have to be you know sort of that three trillion that that democrats were were pushing for um you know so what how much is the market priced in and and sort of what's needed

To to get to that next level well i think certainly the market has has um has priced in that backstopping component um is a trillion enough i would suggest that you know the market is probably

Priced in something along those lines would three trillion be different to the market yeah i would i would argue that that may provide and so i think what the market is trying to understand is you know

As we're all trying to figure out is who knows a little bit more information than perhaps what i have um and so if the market is anticipating three trillion dollars is the suggestion that hey the

Recovery is going to take longer than thought um that the issues are deeper than what expected um and so therefore you know that hold of gold just becomes

Even more valuable i think the other factor that's starting to come into play not as much in gold although you're hearing it in gold you're certainly seeing it in some of the other areas is about scarcity right and so in the

And niels as you know covering commodities as long as you've covered you mentioned the word scarcity in any type of commodities market that typically drives some markets the investment demand for

Gold silver and platinum has been it has been extremely high not only this year but even extending into the end of last year and it's certainly taken up sort of the industrial components associated with

Silver and platinum but there is an element that in silver and platinum that is expecting you know sort of the industrial cycle to get back to it we'll see how that pans out we've

Started to see some green shoots in china around those items but i think um you know back to the stimulus is it does a trillion dollars make gold excited you know my

My guess is that it's probably pretty well baked into it um does 3 trillion start to move the dial my argument is yeah that that would certainly start to move the dial um you know from that standpoint and

Like i said if you continue to hear um these concerns around um scarcity because of the high investment demand um coming from different types of um gold vehicles not necessarily just

Gold etfs but you know gold coins and small bars and things along those lines you know you continue to hear that demand across the board is extremely high um and and obviously

Supply becomes tighter and tighter stephen thank you very much for uh sharing your comments today with us we'll we'll definitely have to have you back on and and see where gold prices are

Uh heading into into year end look forward to talking to you soon thanks thank you for watching kid code news for the latest in the precious metals markets go to kiko.com stay safe and stay

healthy you

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