Fire is the test of gold

Seeking Alpha/Talley Leger – Invesco/9-6-2020

“In a physical sense, gold is a tangible and quantifiable substance, given its limited supply on planet Earth. Gold is so rare, in fact, that estimates suggest the entire global stock of gold would fit into two to three Olympic-sized swimming pools.¹ Just like any other asset, however, its value can be influenced by forces other than mining and production, including human emotions.

Consumption represents about 70% of US gross domestic product (GDP) and roughly 60% of Canadian GDP.² Therefore, surveying consumers’ moods about the economy and their plans to make purchases is time well spent, pun intended. The University of Michigan Index of Consumer Sentiment measures how American households feel about their finances and the nation’s output.

If consumer sentiment is a vote on the health of the economy, it stands to reason that bad feelings and weak economic activity should coincide with firm gold prices (i.e., an inverse relationship). Given the history, psychology, and nature of the human experience, bullion has remained a safe haven in challenging economic times.

Understandably, fiscal policy gridlock in Washington has led to heightened uncertainty and a growing need for precautionary funds to offset lapsed relief programs (i.e., more saving and less spending). According to the latest Surveys of Consumers, challenging economic times are expected to persist not only in the year ahead, but most consumers don’t see a return to uninterrupted growth over the next five years.”

USAGOLD note:  More of Invesco’s rationale for gold ownership at the link – a solid overview for newcomers to the market.

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