The Currency of Last Resort: GOLD

Mar 24, 2020 | Gold

Goldman Sachs says now is the time to buy gold, the safe-haven asset, amid market panic over the impact of the growing coronavirus pandemic. 

The commodity, which is considered “the currency of last resort,” has slumped lately as investors sell the safe asset for dollars, according to a Monday note from analysts led by Jeffrey Currie. 

But Monday’s unexpected action from the Federal Reserve represents a turning point for the asset, as it “reverses these funding stresses and offsets the negative impact to [emerging market] wealth,” the note said. Goldman Sachs recommends buying gold at its currently depressed price. 

Gold’s recent slip is similar to what happened in 2008, when gold also failed to act as a safe-haven asset and fell about 20% due to dollar strength and a run into cash. 

The turning point for gold in 2008 came when the Federal Reserve announced quantitative easing, at which point the metal began to soar, according to Goldman. 

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“We are beginning to see a similar pattern emerge as gold prices stabilized over the past week and rallied today as the Fed introduced new liquidity injection facilities with this morning’s announcement,” Currie wrote Monday.

On Monday, the Federal Reserve announced unprecedented actions to boost the economy amid the coronavirus pandemic, including unlimited bond-buying and multiple facilities to aid companies and workers. 

“We are likely at an inflection point where ‘Fear’-driven purchases will begin to dominate liquidity-driven selling pressure as it did in November 2008,” Currie wrote. 

He continued: “As such, both the near-term and long-term gold outlook are looking far more constructive, and we are increasingly confident in our 12-month target of $1800/toz.”

Article originally appeared on Business

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