Gold price smashed to record high
It seems that gold price has upturned the downturn. Amid the devastating impacts of COVID-19 pandemic, gold price climbed to a high of USD1,900 per troy ounce. At this level, gold price surpassed the previous high last seen in 2011. Is this a bubble in the making or the start of a multi-year bull run for gold price?
Against the backdrop of soaring gold price, a member enquired what should be the investment strategies that one could undertake amid the downturn. Indeed, it is almost 6 months since the outbreak of the virus. In view of this, I do think that it is time opportune to take stock of the situation and the investment strategies to undertake.
On 2 February 2020, I wrote an article, “Wuhan virus offers three opportunities to build wealth”. In that article, I had doubts that gold price would hit USD1,900 per troy ounce. Instead, I predicted that the on-going uncertainties would lead to an increase of gold price by at least 10%. However, the current form of gold price had proven me wrong. Nevertheless, if investors had bought gold at USD1,580 per troy ounce back in February 2020, they would be sitting on handsome profits now.
Apart from gold price, I wrote that one could buy medical stocks like Top Glove, Medtecs and Riverstone Holdings. Another of my suggestion was to adopt a value buy strategy and bought SGX stocks which had been severely impacted by COVID-19, such as Genting Singapore and Wilmar. Both companies have potential catalysts – Genting Singapore is in the race for winning a casino license while Wilmar is listing one of its China units.
I also wrote that one might choose to short counters impacted by COVID-19. An example I cited was Singapore Airlines (SIA). Indeed, SIA share price had been roiled by the travel bans, fuel hedging losses and a massive rights issue. Those who had shorted SIA share price would have made much money.
With the exception of Genting Singapore, I think most of my February forecasts had been pretty good. Question now is: where should we go from here? Is it the right time to be greedy in the stock market or buy gold given that gold price is on the ascend again? In this article, I will share my insights and my investment strategies.
Gold price at threshold of new era
COVID-19 has unleashed an unprecedented damage to global economy. Six months have passed and we are still not seeing any light at end of tunnel. Many countries had reopened their economies, only to suffer second and third wave of infections. At this point of writing, USA has the highest of infections numbering 4.3 million and almost 150,000 deaths. To tackle the virus fallout, the US government implemented the quantitative easing approach last used in the Great Financial Crisis (GFC) of 2008, causing gold price to rise again.
With USD4 trillion of stimulus, the US government is releasing gigantic amount of hot money. At the same time, the US Federal Reserve has also slashed interest rates to near zero. This means that the saving rates is near to the abysmal levels last seen in GFC, leading to “cash is trash”. In fact, US dollar Index plunged to 22-month low of 94.60 on 24 July 2020. These factors caused gold price to sky-rocket once again.
Given the extremely low saving rates, hoarding cash may [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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Thanks for writing this! The said member must be a smart person to ask such as question! 😀
You mentioned you expect Gold to continue rising, maybe even up to USD2.5k – how do you (and others) come up with such a number? I’m an engineer by training and I always struggle to understand how these predictions work! If we had to predict, say the expected failure of a component, we would look back at the life test data, look at similar components, run some simulation etc, but we’ll never be able to say it will last 20 years when our test data only goes up to 10 years, for example. I have no idea how we can put a number to how low/high a particular stock will go. I think I’m thinking about it from a wrong perspective. Maybe it will be interesting to write a series on how to as if it were for someone who is completely new to investing – where to find the numbers, how to read annual reports.
Back to the topic of the current economy, it would be interesting to hear your thoughts on a global level – is this current economy sustainable? People are pumping money into pharmaceutical companies because of the fear of missing out the COVID-19; people are beginning to lose jobs, even in big companies. On the other hand, the COVID lock downs earlier this year resulted in a huge backlog of orders that weren’t delivered out of Asia, but now that these Asian countries are opening up, western (looking at US) are reporting record number of cases and show no sign of easing. No one knows how bad the situation will get, right? Some companies are reporting recovery since the relaxation of lock downs globally, but I wonder if there will be a lag in the hit taken by the economy, because some people stopped working during the lock down (i.e. they still have a job to go back to after lock downs), but more and more are losing their jobs (i.e. sacked, no job to return to), which I think is alarming.
Whoops! Looks like I went on for a while. I wonder if you have any thoughts on the above?
Hi Mr Teo,
Thank you for your insightful comment. My estimate for gold price is based on a 25% upside for coming months. The driving factors would be escalating conflicts between US and China, US Presidential Election, Covid-19 damage and plummet of US dollar.
DBS CEO described current crisis as the biggest of our generation. I fully agree with him on this. Government stimulus can only buy time and not sustainable at all. Once these reliefs are rolled back, plenty of companies will start to fold, especially the weaker ones. Those big ones will have to reduce staff to survive.
In light of the above, I do agree with you that the worst has yet to come. This is probably due to the delayed effect of the government stimulus. The stock market may give a false sense of reality but when mass retrenchments begin, people will start to panic. With no active income, the last thing one would think about is investing in stocks.
Thus, my strategy is to be defensive: hold more cash, invest in growth stock with no debts, continue to service my life insurances/endowment plans, SSB and SRS.
Regards,
Gerald
https://sgwealthbuilder.com
To the person who wrote this – your article is chock full of grammar mistakes. Run it through grammarly and see how many mistakes there are.
Hi Vrad,
Thank you for taking your time to provide the feedback. I will strive to improve and enhance the reading experience for readers. Have a great day!
Regards,
Gerald
https://sgwealthbuilder.com