3 Gold Takeaways from Experts During the COVID-19 Outbreak

As the coronavirus continues to impact global markets, engaging online is quickly becoming the norm for communities around the world. 

The mining space is no exception. Speaking in a Wednesday (April 1) webinar put on by Metals Investor Forum, Jay Taylor, Eric Coffin, Gwen Preston and Brien Lundin shared their thoughts on what’s happening in the wider economy and in the gold space specifically.

Each speaker discussed their own topics individually, but below the Investing News Network has gathered three main takeaways from the set of presentations as a whole. Read on for the experts’ thoughts on the yellow metal during these uncertain times.

1. Today’s economic crisis will get worse

Taylor, a newsletter writer and radio host, kicked off the talks, honing in on the economic impact of COVID-19. He spoke in particular about the US, where dire numbers are due for release.

“If I use the word cataclysm, I don’t think that that’s out of place right now with what we’re seeing in the jobless numbers,” he said. “You can look at all the other crises that we’ve had going back … nothing compares with this jobless claim number, and there are those who think it will be no better, probably worse, in the next report.”

He added that Goldman Sachs (NYSE:GS) is calling for GDP in the US to fall by 9 percent in Q1 and 34 percent in Q2. “These are numbers that just make your head spin.”

Similarly, Resource Maven’s Gwen Preston noted that even though the US has taken extreme measures to support its economy, there is a significant amount of negative data that has yet to come out.

“Just because (those measures are) there, I don’t think we’re anywhere near out of the woods yet. Right now we have this excitement over infinite quantitative easing and that has markets rising, but I do not think it’s possible for markets to keep rising through the flood of terrible data that’s coming,” she said.

2. But it’s a perfect storm for gold

During his segment, Coffin, who is the editor of Hard Rock Analyst, explained that the market is in a deleveraging phase, meaning the focus for individuals, companies and funds is maximizing their cash reserves and try to get as liquid as possible. He eventually expects a transition into an insolvency phase.

“This scenario going forward is the best possible scenario you could possibly come up with for the gold price and the gold market. If you were going to try to design from the ground up the best market conditions that you could possibly have for the gold market, this is pretty much what you’d end up with.”

That’s because he expects people to move into gold and other assets that are outside the financial system. “I think as we come out of this liquidity phase into the insolvency phase, as people recognize the scale of increases in the balance sheet and the money supply that have to be made to come out of the other end of this — I’m expecting much larger gold prices to be the ultimate effect of this deleveraging.”

On the same note, Preston described the current situation as a “perfect storm” for gold, saying that there are three main reasons she thinks that’s the case: gold always bottoms first in crises; infinite money printing and negative real rates are bullish for gold; and finally, miners are making money at the current gold price, meaning their performance should only improve as interest in the yellow metal grows.

3. And following a plan will be key to success

While all four speakers expressed optimism about gold’s future, they also emphasized that it won’t be a smooth path forward for the precious metal.

Lundin, who is the editor of Gold Newsletter, reminded the audience that gold saw “very significant volatility” in the initial stages of the 2008 crash, rising precipitously one day only to fall the next.

“That was a phase that the metal went through that was a liquidity crunch — a liquidity crisis within the greater financial crisis,” he said, explaining that market participants wanted or needed to go to cash and as a result were selling “anything that wasn’t nailed down,” including gold.

“We’ve had a liquidity crunch, we’ve seen the gold price plummet and rebound and plummet again — we’ve seen that kind of volatility,” he continued. “The point here I think is that we shouldn’t be disheartened by this kind of volatility in gold.”

Why? According to Lundin, in 2008 it wasn’t long before investors started to pay attention to monetary stimulus from central banks. “The result was that over the next couple of years gold more than doubled in price … and mining shares by and large leveraged those gains,” he commented.

For Preston, the path forward for investors is to make a plan and keep to it. “If you’re an investor (and not a day trader), you should develop a plan for how and what to enter based on your broad outlook, and then you should execute that plan,” she said. “That alleviates you from the stress — from worrying about these daily ups and downs.”

She added, “(gold) is a tiny sector … prices really rise when generalist dollars arrive … So precious metals and precious metals stocks will shine, but I think each person just has to really come up with a plan for how they want to participate in this, and then really stick to that plan.”

Metals Investor Forum also recently held a webinar featuring Joe Mazumdar, co-editor of Exploration Insights — click here to learn what he said. 

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.