A troy ounce of gold currently costs $1,793 US (about €1,587). Gold market expert Dimitri Speck assessed the current situation regarding precious metal.
"The gold price has grown quite well from the very beginning of the year, and has been very stable through the corona crisis, while the bitcoin rate has fallen by half, and stock prices have also seriously decreased," he said.
"July is a good phase for gold," precious metals expert believes. "Moreover, a good phase is coming for gold due to seasonal fluctuations," he stressed.
"And it is coming now, in the first half of July. The fact is that demand for gold is increasing since it’s the metal from which jewelry is made," noting, for example, that in India, summer is traditionally the wedding season, and in China, people also like to wear gold jewelry for the holidays. "These are factors that also have a positive effect on gold prices."
In particular, the industry insider specializes in seasonal and even daily gold price fluctuations.
"Gold prices fluctuate during the week. For example, the price seriously increases on Fridays. So it makes sense to buy [gold] until Thursday."
A Leader Among All Investment Classes
"In my opinion, despite manipulations, gold prices have declined rather slightly recently," the expert said. In addition, due to its current exchange rate, gold is the leader among all major investment classes. However, the coronavirus has caused serious economic turmoil, especially in US-Europe air traffic.
Speaking of precious metals manipulations, Speck means that participants in derivatives markets have been manipulating gold prices for decades.
"We have encountered a new virus that is affecting the already weakened financial system. We shouldn’t forget about this. Previously, we faced a giant “bubble” in the stock markets, real estate, etc. We are in a completely over-indebted global economy. With this in mind, the real interest rate should remain low. Thus, the interest rate that investors get after deducting the inflation rate will remain low – otherwise, the debtors will have problems. Such an environment has always been positive for gold." And the present moment is no exception.
Rescue Measures + “Cheap Money” = Good Prospects for Gold Rate
According to the expert, the current situation is such that the over-indebtedness of the global economy, the corona crisis, rescue measures taken by various governments, and excess of liquidity – “cheap money” – can cause “a real catastrophe in the financial system.” Almost any scenario is possible from account restrictions to galloping inflation (money depreciation). “Gold simply offers protection; many investors see it and buy the precious metal.”
The expert forecasts that in the short and medium-term, states and central banks will “pump” “cheap money” into the markets so that out-of-control debts will continue growing until there is a big “collapse.”
Measures that have been taken by states and central banks to save national economies, individual sectors and enterprises have already caused rallies in gold and other precious metals markets. “Physical demand has grown and is still growing; we can see this through monetary gold. This can also be seen through the so-called gold ETFs (exchange-traded gold certificates), in other words, through investment products that asset managers can buy and sell.” However, Speck pointed out that the demand for gold had been growing even before the corona crisis: “So you cannot blame everything on the coronavirus.”
“In Europe, the virus remains largely under control,” he explained, citing data from doctors and virologists. “If political circles want, they will keep this course and economic production.”
Gold mines and gold processing enterprises have resumed work all over the world. However, the situation is different in many developing countries where gold is mined. But even the suspension of gold mining and processing “ultimately leads to a reduction in supply; and this is also good for gold prices.” The demand for physical gold, especially for coins and bars, has increased, because “many investors understand that there is a risk of turmoil in the financial system.” Therefore, they are purchasing gold to be safe.
Silver: 'Maybe an Even Better Alternative'
“During the corona crisis, silver is much more volatile than gold,” Speck said. “At times, silver prices fell dramatically, including because it’s an industrial metal. At the maximum, the ratio between both metals was 125:1; a gram of gold was 125 times more expensive than a gram of silver. Or vice versa: silver was extremely cheap. Perhaps silver will fall again; I think this is very likely. But this is only a thesis.”
In the long run, silver is “perhaps an even more attractive investment alternative than gold, especially if gold prices soar especially high, as they did in the late 1970s and 1980s, or in 2011. Then, according to the expert, silver prices start growing disproportionately, including because investors are switching to silver. The fact is that there are significantly fewer land reserves of silver compared to gold.
"Therefore, I think that it’s better to buy silver than gold if you want to invest in precious metals in the long term.”
A troy ounce of silver is currently a little over $18 (about €16).
The views and opinions expressed in the article do not necessarily reflect those of Sputnik.