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The massive increase in monetary expansion initiated by the Federal Reserve in the wake of the lockdowns imposed to address Covid-19 is clearly a reason to own gold and, in the case of equity investors, gold mining stocks, on a long-term basis.
Remember M2 is rising at its most rapid rate since the monthly data series began in 1959, rising by 23.4% YoY in the week ended 18 May and up on a three-month annualised basis by 61.2% in the four weeks to 18 May (see following chart).
US M2 GROWTH
Source: Federal Reserve
…This is why any correction in both gold and gold stocks, which is quite possible in the short term, should be viewed as opportunities to add to exposure to both after the significant gains recorded from the March lows…
Global gold ETF holdings have increased by 603 tonnes so far in 2020 to a record 3,489 tonnes, compared with an increase of 404 tonnes in the whole of 2019, according to the World Gold Council (see following chart).
GLOBAL GOLD ETF HOLDINGS
Note: Data up to the week ended 22 May 2020. Source: World Gold Council
…[While] this writer would advise investors to purchase gold only via bullion or gold mining stocks, it is a practical reality that in a world of convenience shopping most will do so via paper gold ETFs. This is why gold ETF holdings need to be monitored closely…
In the short-term, inflation data will decline dramatically, potentially into outright deflation, as a result of the lockdowns and, if inflation turns negative on a Y-o-Y basis, the monetary theorists will argue for negative rates because real rates are rising but, hopefully, the insanity of negative interest rates will be avoided in America but, if not, that would be yet another bullish catalyst for gold…
Editor’s Note: The original article by Christopher Wood has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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