Last year’s sales of US gold bullion coins sprung up by 258% compared to its prior-year sales.
And the demand for physical gold is continuing this year. Big banks like Wells Fargo are sharing their insights for the precious metal in 2021.
“Investors could still see some of the strongest price action in gold this year, according to Wells Fargo, which sees signs of a developing rally.”
“The driver behind this new spark in prices is diminishing supply growth. And it could get gold up to $2,200 an ounce this year,” said Wells Fargo’s head of real asset strategy John LaForge.
Aside from supply, the bank believes gold will be driven by other factors including money printing, low real interest rates, and a weaker US dollar.
If gold and silver have historically been the go-to asset to preserve wealth in times of economic turmoil and widespread pandemics- and if we are “almost” clear and back to normal, then why are banks flocking to these assets?
You have heard a lot about the answer, one which some say is a more significant threat to our economy than COVID.
The answer is inflation.
According to the latest Bank of America Fund Manager Survey, investors now fear inflation and the Fed more than COVID.
The worry is that the Federal Reserve may rapidly raise interest rates and in turn will short-circuit the economic recovery and the market boom.
Many are under the impression that with interest rates so low, meaning more spending by Americans, that ultimately everything will continue as usual, and things will eventually stabilize.
But that’s not what happened in the 1970’s and early 1980’s when the Paul Volcker-led central bank subdued inflation with aggressive interest rate hikes.
Currently, the Federal interest rates are hovering between 0% to 0.25%.
If the Fed attempts to raise these rates any higher, the interest payments on our debt will become insupportable compared to our tax revenue.
Not to mention that our average interest rate is around 5%- quite a ways away from its current range of 0-0.25%.
So, why gold and silver? What about the stock market?
For one, the price-to-earnings ratio for the S&P alone is nearing its third-highest peak out of its 150-year history. This equates to being 2.5 times higher than its historical average.
A retracement or pullback to its average levels would mean a loss of 60% of the current market cap.
Could you imagine turning on the news and seeing reports of up to 60% losses in the market?