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The Current Gold Rush is a measure of our Economic Fear

The Current Gold Rush is a measure of our Economic Fear

After a lightning-fast advance, the gold price broke the old record on Monday. It shows investors' biggest nightmares.

"Gold is the canary in the coal mine." 

How did this crisis come about?

New Measures:

In early March, before the corona crisis reached a boiling point, the gold price hovered around $ 1,600 per troy ounce (over 31 grams). Less than six months later, the precious metal is more expensive than ever before, at 1944 dollars (1663 euros) per troy ounce. Anyone who thinks that is the reason for a party is wrong. After all, gold is not just an investment à la shares or bonds. It is known as the ultimate safe investment. Where investors take refuge when the economic waves make them too savage. "Gold is the canary in the coal mine," former US Central Bank chairman Alan Greenspan summarized.

The higher the gold rush rises, the bleaker investors look to the future. The previous 2011 record was set in the wake of the credit crunch. Now it is corona that instills fear. The number of infections continues to rise worldwide. One country after another, from Morocco and Hong Kong to the United States and Belgium, comes (again) with stricter measures. The hoped-for rapid economic recovery is becoming increasingly out of sight. The worst crisis since the Great Depression of the 1930s is feared.

Chinese-American Feud:

As if the virus is not yet providing enough uncertainty, tensions between the United States and China are also mounting. The two superpowers compete for political, economic and technological hegemony. After the Chinese consulate in Houston was locked on Friday, the Americans lost their diplomatic representation in Chengdu on Monday. The danger of a trade war continues to simmer in the background.

Geopolitical skirmishes always affect the gold price. Countries such as China and Russia have been among the largest hoarders in the world in recent years, according to figures from the World Gold Council. By buying more gold, they hope to become less dependent on the US dollar. The nervousness about the latest round of American-Chinese pinpricks does the rest. Not only the gold price breaks records, the silver price is also on the rise, just like the price of the Bitcoin. And the dollar? This was never worth so little this year.

Even More Cheap Money:

To limit economic damage, central banks keep interest rates extremely low and pump billions into the economy. On Wednesday, the US Fed will announce whether it will take it a step further. Due to all stimulus measures, the yield on government bonds remains nil. That makes gold a more attractive alternative.

Some enthusiasts, also known as gold bugs, even fear that governments will choose to let inflation soar in the future. That way, their mountain of debt will melt away like snow in the sun. In their view, the precious metal is the ultimate insurance policy against the financial flood. "Crisis or not, a gold bar always holds value," De Nederlandsche Bank, which manages the Dutch stock of 600 tons, also states on its website. "If the entire system collapses, gold reserves provide collateral to start over."

Critics point out that gold does not yield interest or dividends. It only costs money. To store it requires a sturdy building, an expensive safe, security guards armed to the teeth. And that value retention? The gold price can also collapse: in the early eighties it plunged from a sloppy 800 to 300 dollars. But for now, investors are looking up earlier. "When the record of a little over $ 1921 is reached," ABN AMRO precious metals specialist Georgette Boele predicted Friday, "the next $ 2000 psychological barrier will be in sight."

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