Gold different scenarios, one main outlook (bullish)

Seeking Alpha/Rothko Research

“In the past few months, the threat of a potential deflationary depression caused by the global supply and demand shock due to COVID-19 forced governments and central banks to massively and constantly intervene in the market. As a result, one of the most important charts in the current environment has been the annual growth in central banks’ assets, which reversed from -1.5tr USD in March 2019 to nearly 5tr USD in July 2020 and generated a tremendous rally in gold. Figure 1 (below) shows that the annual change in assets in the major 5 central banks (Fed, ECB, BoJ, PBoC, BoE) has co-moved significantly with the change in gold prices. With gold up over 25 percent year-to-date, investors have been questioning if the recent consolidation was announcing a temporary pause.”

overlay chart showing G5 central bank assets and gold year over over 2012-2020Sources: Eikon Reuters, RR calculations
Courtesy of Seeking Alpha/Rothco Research

“To conclude, our main three scenarios (combining a total probability of 95 percent) shows a positive outlook for gold prices. Gold is not only a hedge against inflation but is also considered a zero-beta asset that usually rises in periods of equity drawdowns (figure 3) and a hedge against political risk. There is a high chance that the COVID-19 shock and the persistence of social distancing rules will ‘force’ central banks to continue their monetary debasement to prevent any deflationary pressures from happening.”

USAGOLD note:  Bottom-line analysis from Rothko Research at the link above ……

Repost from 8-24-2020

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