With fears of a coronavirus pandemic increasing and Wall Street seeing its worst week since 2008, one of the only bright spots in the markets is gold. Financial Sense Newshour spoke to Frank Holmes, CEO of U.S. Global Investors, about what’s driving this run higher in gold and what investors should be looking for in the weeks ahead.
For audio, see We're Due for a Correction, Says Ralph Acampora.
Coronavirus Fueling Gold
The outbreak of the virus and its potential to reach pandemic levels is stoking the fear trade. At the same time, PMI figures in the U.S. finally jumped into positive territory as trade war concerns have dissolved.
This may soon signal a change in U.S. policy, but the rest of the world appears to be out of sync. Holmes sees a lack of will within the G20 to use fiscal policy to stimulate job creation and economic prosperity. Instead, other countries are relying on monetary policy as interest rates head into negative territory.
“Whenever you have excessive money printing, and you have excessive use of debt to try to stimulate economic activity … real assets start to percolate and take off. As a result, I'm very, very bullish on gold. … I think that gold is a very important asset class and most of Wall Street still doesn’t get it,” Holmes said.
New All-time Highs Possible
Holmes believes gold could go above its all-time price record. Gold prices are naturally volatile and it’s not abnormal for gold to move up or down 20 percent in a year, Holmes explained. In the past 20 years, bullion has outperformed the S&P 500, but investors wouldn’t know this from listening to the mainstream media, which continues to have a negative bias toward gold.
“Right now, a 20 percent move from these price levels would take gold through $1,900,” Holmes said. “So it wouldn't be outrageous. Also, gold is not overbought right now, I remain very convinced that gold is an important asset class."
Cryptocurrencies Breaking Out
The cryptocurrency space is all about decentralization and they're a way to protect against currency manipulation. Holmes said governments like Venezuela and Argentina are destroying their currencies through excessive money printing. The citizens of these countries are turning to cryptocurrencies to fight the loss of value and central control of the state currencies.
Interestingly, the coronavirus outbreak is also impacting crypto supply as mining activity has been taken offline, Holmes said. This is all occurring against a backdrop in which governments are starting to talk more about cryptocurrencies and blockchain technology.
Holmes’ Thoughts on U.S. Presidential Election
Bernie Sanders appears to be the Democratic front runner as of now, but Holmes does not believe he is electable. Holmes doesn’t think that Sanders will be effective selling Socialist-leaning ideas in the general election and that Trump is more media savvy with a loyal following.
Overall, it will once again all come down to the economy.
“People vote for jobs, economic prosperity and opportunity for economic growth and safety,” Holmes said. “People have to feel safe. And I think that there's no doubt that Trump, with low unemployment and a rising stock market, can show that growth. If the PMI remains strong, I think the odds favor that he'll be reelected, but we’ll see how that unfolds.”