In our latest blog, CSS Partners looks at the extensive In Gold We Trust report and also at the latest figures from the World Gold Council on investment levels into gold.
The In Gold We Trust analysis is an annual report on the gold market by Incrementum. The full report runs to 350 pages and is a detailed analysis of macro and micro economic factors and other fundamentals that may have an influence on the gold price going forward. The full report is available at www.ingoldwetrust.report
Below we try to summarise the key findings of the report and what we can learn from the recent strong performance of gold as an asset.
The report concludes:
- By a conservative calibration, our proprietary valuation model shows a gold price of USD 4,800 at the end of this decade.
- If money supply growth develops in a similar inflationary manner to that of the 1970s, a gold price around USD 8,900 is realistic by 2030.
- Given the unique combination of circumstances, we are convinced that the 2020s will go down in investment history as a golden decade.
Other Key Take-Aways:
The report considers that even without a coronavirus pandemic in 2020, major economies would have slid into recession with Germany, Italy and Japan, for example, already in recessions or quasi-recessions.
The coronavirus is the accelerant of an overdue recession with the debt-driven expansion of the US actually cooling off since the end of 2018. Measured in gold, the US equity markets peaked over 18 months ago. The coronavirus and the reactions to it will act as a massive accelerant.
The Covid-19 recession is likely to lead to inflationary pressures prevailing and inflation could well be the dominant investment theme in the coming years.
With the high level of national debts, gold could replace some Government Bonds as the safe haven of choice for investors. As a stateless reserve, gold could be seen as a less politically influenced asset.
Central banks and institutional investors in particular will generate greater demand for gold.
The high level of debt will limit the use of high interest rate increases to combat nascent inflationary risks. Under such a medium term inflationary environment, “it is not a matter of whether gold will reach new all-time highs, but how high these will be.” The report continues to predict that gold and gold-mining stocks will prove to be profitable investments over the next decade, adding stability and security to any portfolio.
In the last few months, major gold miners have been backed by institutional investors and other investors are slowly entering the sector again. M&A will continue to be an important driver for gold miners. Of the entire mining sector, gold is perhaps the most fragmented, and it is predicted that the gold industry and its investors would reap significant benefits from consolidation.
In a turbulent market, many investors will base their investment strategy upon market movements and which assets are performing strongly. Often, it is not until the dust settles and some normality returns to the market that analysts can rationalise with hindsight the fundamentals behind such investments and why they proved successful.
Investment into Gold- Backed ETFs reaches new records
The level of investment into Gold Exchange Traded Funds (ETFs) in the first 5 months’ of 2020 has exceeded any calendar year on record. A high inflow of investment into gold ETFs is generally seen as a positive short term indicator for the gold price.
ETFs are listed investment funds enabling investors to speculate on the future price of stocks, commodities or bonds without taking physical delivery. With gold-backed ETF funds, investors will buy the listed securities and the underlying fund will hold gold on their behalf.
Over the past year, investment in gold-backed ETFs has nearly doubled (+90%) with UK based gold funds prominent representing 48% of European Assets and 21% of global assets.
This trend has continued in May, despite significant stock market rallies in nearly every country with global stocks higher by 6%. In the US, shares were up nearly 40% from late March lows, the strongest two month performance since 2009.
Even with the bullish sentiment for other investments, large investments into gold propelled the gold price upwards. The gold price in May was 2.6% higher, ending the month at $1,728/oz.
In the first five months of 2020, gold is up by over 15% and has outperformed most major asset classes.
Gold trading volumes increased from $140 billion in April to $164 billion in May. The trading volumes remain well above the average for last year.
Whilst gold remains an alternative investment for many retail investors, gold mining stocks have traditionally been a favourite amongst private investors. A strong outlook for gold could raise the possibility of mergers and acquisitions within the sector as individual companies seize the opportunity to consolidate assets.
CSSP backed companies will often offer EIS Shares so investors can use the significant tax breaks of the UK Enterprise Investment Scheme to help mitigate the risk of venture capital and maximise returns.
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The information in this website is provided by CSS Partners LLP. This website has been approved for the purposes of section 21 of the Financial Services and Markets Act by Charles Street Securities Europe LLP (CSSE), which is authorised and regulated by the Financial Conduct Authority. CSS Partners is an appointed representative of CSSE.
Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.
In Gold We Trust Report 2020 – The Dawning of a Golden Decade – Ronald-Peter Stoferle & Mark J Valek 27 May 2020
Global gold-backed ETF flows May 2020 – World Gold Council 04 June 2020