According to Australia and New Zealand Banking Group (ANZ), fears of inflation and other factors will launch the price of gold to as high as $2,100 per ounce this year.
Currently sitting below $1,800 an ounce, gold took a hit earlier this month while investors flocked to cryptocurrencies as an alternative to the U.S. dollar. In our previous blog, we discuss whether precious metals or cryptocurrency are better as a long hold. One of the main arguments for precious metals was that it has historically served as a hedge against inflation and has stood the test of time for over 5,000 years. Bitcoin on the other hand is relatively new, about 10 years old, and its major appeal is that it is digital, secure, and is currently benefiting from the hype around cryptos. Bitcoin, however, is extremely volatile and has no rich history to prove it a reliable asset to replace gold. Both Bitcoin bulls and gold lovers agreed on one thing, to diversify with both assets.
Another factor that will contribute to a precious metals boom is its practical and industrial uses. While cryptocurrencies are appealing with their portability and security during a growing age of government surveillance, they cannot be used to build solar panels, space suits, jewelry, or in any practical physical way in the real-world. Gold on the other hand is used in technology as small as a chip in smartphones to a film for spacesuits to reflect radiation. Another precious metal that will benefit greatly from the Green New Deal and other clean energy initiatives that are being discussed by the Biden administration is silver. Silver is the most versatile metal of all and will see tremendous growth as clean energy begins to take over during the next few years. Silver is one of the main components in solar panels, electric vehicles, and loved by retail investors for its affordability and potential for growth. The Silver Institute estimates that by 2025 the automotive sector will use at least 90 million ounces of silver annually and is predicted to become the second-largest source of industrial use in the next four years.
Inflation is something that has rung alarm bells for Americans as of late. Though still not discussed enough, it is something that looms over the U.S. in silence—for now. The Federal Reserve has already announced that inflation is not a concern to them. This means that the current national debt, 130% of the GDP, is likely to grow while fiscal stimulus to address the short and long-term pandemic-related economic impact will require even more government spending.
As stated by ANZ senior commodity strategist Daniel Hynes, “U.S. dollar strength in recent times has certainly been a significant headwind. The rising yields as well in the U.S. Treasury market. Also, buoyant equity markets. And you can’t ignore cryptocurrencies anymore. The cryptos are starting to affect as more institutional funds move into space. That is probably taking a dent of gold’s appeal as well.”
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