Can Global Coronavirus-Induced 'Gold Rush' Indicate Weakness in Dollar?

CC0 / / Dollar and gold ingot
Dollar  and gold ingot  - Sputnik International
The sudden rise in popularity of the precious metal comes as many global indices have dropped by over 20 percent since February as businesses wind down their activities due to measures introduced by countries around the world to slow the spread of the coronavirus.

Gold prices have taken a roller coaster ride recently as markets are shaken worldwide by the novel coronavirus pandemic, but overall the precious metal has been steadily gaining value accumulating 7.73 percent in the last three months and peaking at almost $1,700 per ounce at some point in March. Interest in the precious metal and the closing of mints around the world due to the outbreak have left the gold market dry of real physical gold in a time of new demand.

CC0 / / Gold bullion
Can Global Coronavirus-Induced 'Gold Rush' Indicate Weakness in Dollar? - Sputnik International
Gold bullion

The phenomenon has been dubbed a new 'Gold Rush' and described as "an honest-to-God doomsday scenario" by the authors of an article in The Wall Street Journal earlier this week. Then writers blame the shortage of gold on so-called doomsday-preppers - who place large portions of investment portfolios (if not all of it) into gold - for the "mess" on the market, but acknowledge that gold's increasing presence in portfolios makes sense now.

"Gold is popular with survivalists and conspiracy theorists but it is also a sensible addition to investment portfolios because its price tends to be relatively stable. It is especially in-demand during economic crises as a shield against inflation. When the Federal Reserve floods the economy with cash, like it is doing now, dollars can get less valuable", the publication said.

Financial analyst and Sputnik contributor Ivan Danilov suggests that the traditional disdain of the WSJ for those who invest in gold stems from the fact that its rise indicates the fragile position of the dollar. The analyst notes that similar sharp movements in gold prices were witnessed in the days of the 2007-2008 financial crisis, particularly after a key American financial institution, the Lehman Brothers bank, went bankrupt on 15 September 2008.

"Mass buying of gold is a typical sign of a panic. Because unlike some 'Lehman Brothers', a golden coin in a safe can't just cease to exist. Gold used to hold the 'throne' that the US dollar holds right now and surging investments in gold is a reminder that the dollar can be 'dethroned' at some point", Danilov said.

The analyst believes that decisions to shift investments from dollar assets to gold makes some sense, especially against a backdrop of concerns sounded by the Chinese media outlet Global Times. The latter suggested that the recent $2.2 trillion aid package signed by US President Donald Trump to support the American economy will result in money printing that will undermine the reserve currency's positions, with the aftershocks of this move to be felt most in other countries.

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Danilov suggests that the current crisis sparked by the coronavirus pandemic can hardly be called a "doomsday" and that the markets, as well as the dollar's positions, will eventually return to normal. He also stressed, however, that any greater economic shock than the current one, could actually "tear apart" the existing dominance of the dollar, which, as Danilov notes, is more fragile than the US federal reserve is willing to admit.

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