by Jan Nieuwenhuijs, Voima Gold:

In my previous article “Coronavirus to Boost Gold Price” from March 5, I wrote, “Although I think gold has a lot more upside, it can be a bumpy road.” Since then, the US stock market has declined by about 21%, and gold took a beating too, having lost 10%. Many people question why gold is down, at the same time when stock markets are dropping at the fastest pace in history. In this article, I will set out my view on the developments that cause downward pressure on gold and what will happen going forward.

Short Term vs. Long Term View

Gold is a store of value. The media, however, frequently exaggerate short-term swings in the price of gold. This month they first wrote “gold lost safe haven status” when the price declined for a few days, only to report “gold gets groove back” when it was up for half a day. Due to gold’s inherent properties—it’s physical, can’t be printed, has no counterparty risk, etc.—gold has preserved its value like no other currency for thousands of years. Why question its safe haven status based on short-term volatility?

It’s true that from the moment we left the gold standard, gold has become more volatile. Still, in general, its purchasing power has increased ever since.

As gold doesn’t yield (unless you lend it out), it shouldn’t be considered as an investment, but as a store of value. And if you zoom out, you’ll see gold performance is robust.

Since 1999 (when it was launched), the euro has lost roughly 80% of its value versus gold.

Although gold can be volatile in the short-term, in the long run gold serves as the yardstick par excellence for monetary acceleration.

Gold and the Economic Impact of the Coronavirus Pandemic

The deepest financial crisis of our lifetimes is rapidly approaching us. As the world economy is grinding to a halt, we have never been this much in debt to begin with (global debt to GDP reached a record 322% in Q3 2019). Whatever happens, financial losses will have to be acknowledged—though governments will do everything to postpone the damage. Currently, stock markets are in the process of realizing these losses. So how does gold react?

As I’ve written in my previous article, “The Essence of Gold Supply and Demand Dynamics,” the price of gold is set by institutional supply and demand. The fact gold retail demand is high (which it currently is), doesn’t imply the price should rise. In the institutional market, different forces are at play.

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