Shaun Djie: 3 Catalysts for Gold Price Growth

Election indecision pushed the gold price higher on Thursday (November 5) morning, with votes in key battleground states still being tallied.

An upward trend for the yellow metal set in late Wednesday (November 4) following a price dip to US$1,893 per ounce. In after-market trading a push past US$1,900 began after the morning bell.

By 11:20 a.m. EST on Thursday, the yellow metal had climbed to US$1,952.30, a six week high. That’s a trend Shaun Djie, COO of Digix, expects to continue.

“We’ve already seen some kind of volatility over the last 48 hours since election night,” he said in a late Wednesday interview. “We’ll definitely see a lot more volatility when the results are actually announced.”

The co-founder of Digix — a company that uses blockchain to tokenize physical gold — pointed out that the uncertainty seen since the polls closed on Tuesday (November 3) could last much longer.

US President Donald Trump has already filed several lawsuits in various states related to ballot counting, opening the door for a challenged election.

“I do think gold will likely see a lot more volatility in the next couple of days, or even the next 24 hours from now,” said Djie. He went on to note that gold’s use as a barometer of the risk-off environment will ultimately allow the metal to move higher.

“Investors who don’t want to take risks in the market, they go into assets like gold,” he said. “Gold’s probably trending in a very stable level at about US$1,900 … right now.”

While increased volatility from delayed election results will be a short-term catalyst for the gold price, the larger and possibly more significant factor will be how much stimulus is released and when.

“The stimulus will also create a rally (in) the stock market as people are viewing it as extra capital for retail investors to pump into the stock market, trying to make an extra buck,” said the COO. “So gold itself is naturally always a very priced-in asset.”

According to Djie, the gold market’s steady two decade uptick is indicative of the ballooning international money supply. This is likely to be compounded by more US stimulus.

“Gold has been trending upwards, not because the world is getting riskier or more dangerous, but rather (due to) the fact that there’s so much money supply in the system today. Gold has to be priced at a particular level given the  level of inflation that we’re seeing in a lot of economies out there,” said Djie.

The continued devaluing of the US currency will be an unavoidable by-product of another round of money printing. The weakening of the greenback also makes holding US debt less attractive.

Japan and China are the two largest holders of US treasuries, with the latter estimated to hold US$1,074 billion as of June 2020. As Djie noted, both nations “have recently been scaling down on their positions.”

He expects the US dollar’s descent to continue for the remainder of 2020.

“The US dollar itself will likely be a lot weaker towards the end of the year or even early next year, when the new stimulus is out,” said Djie. “So I would expect the US dollar to trade a lot lower, stocks to trade higher and gold a bit higher.”

US and European market reactions to a second COVID-19 wave, together with flu season, will be another catalyst to a higher gold price.

Contested election results, looming stimulus and a lack of a vaccine heading into North American winter “will likely trigger a lot of fear in the market at the start of 2021.”

These factors could move gold in to the US$2,100 range, added Djie, and the yellow metal has the potential to move as high as US$2,400 in the next 12 to 18 months. Gold’s push to US$2,400 would be facilitated by a trade deficit, as well as a debt crisis in developed countries.

On the flip side, the Digix co-founder sees a huge upside swing for markets when a vaccine allows airlines and the hospitality sector to regain normalcy.

“I feel like the entire world’s economy rebound will be one of the biggest we’ve ever seen in the entire history of stock markets,” he said.

“There is a huge upside in terms of market recovery, which may not be a good thing for gold, but it’s yet to be seen when and how this will happen.”

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.