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Gold and bitcoin are the ‘top candidates to advance in 2020’

Gold and bitcoin — one of the few assets that have posted solid gains in 2020 — remain the “top candidates to advance” this year, according to Bloomberg Intelligence’s latest commodity outlook.

“Among the few assets up in this tumultuous year, gold and bitcoin are building foundations for further price appreciation. The metal and the crypto remain our top candidates to advance in 2020, with added rally fuel from Covid-19,” Bloomberg Intelligence senior commodity strategist Mike McGlone said this week.

Both gold and bitcoin have been busy building a strong base and securing positions above $1,700 an ounce (gold) and above $9,000 (bitcoin), McGlone stated.

“Our graphic depicts gold consolidating above what had been key resistance of $1,700 an ounce before the March swoon. Every day that passes above this level builds a firmer base for the metal to make the next move in its stair-step rally. Bitcoin is in a similar consolidation between $9,000-$10,000. We view the benchmark crypto as a resting bull that likely needs something to change significantly in its 10-or-so-year history to not just resume doing what it was doing: appreciating. If the stock market rolls over, gold and Bitcoin should gain buoyancy,” the strategists said.

Gold also has the upper hand versus everything else in the commodity space. It has room to move higher and eventually hit new record highs, added McGlone.

“Gold should be a primary beneficiary of more aggressive fiscal and monetary stimulus needed to arrest commodity price deflation … Depression-like global conditions should press the BCOM below the 2016 trough and gold above its all-time high, about $1,900 an ounce,” he said. “There’s little to stop the gold [going] up.”

One of the main drivers for gold long-term will be global deflationary forces, the report added.

“Enduring U.S.-China trade tension and an unlikely V-shaped global economic recovery keep our price view as unfavorable for broad commodities and favorable for gold. We see little to prevent the metal from reaching all-time highs and the Bloomberg Commodity Spot Index from extending its 2016 low,” McGlone noted. “The coronavirus is creating almost perfect conditions for commodity price deflation, central-bank easing and rising gold prices, in our view. An elusive end in sight for global quantitative easing should eventually spur commodity inflation, and most end-game scenarios point to gold as a primary beneficiary.”

Gold will also maintain its upper hand versus silver as the yellow metal continues to outperform this year.

“Pulling back some from the highest gold-to-silver ratio in history is typical trend-retracement, as fundamental underpinnings remain solidly in favor of gold,” McGlone explained. “Government bond yields are a good leading indicator of demand-pull economic and inflationary forces, to which silver typically has a high beta sensitivity. Until central banks can boost economic growth, gold should outperform silver.”

For silver to really breakout, the metal will need to see a much lower U.S. dollar, which is looking unlikely at the moment, added McGlone.

“The most aggressive Federal Reserve stimulus in history, accompanied by a strengthening dollar, portends gold continuing to outperform silver, if history is a guide. It typically takes a declining greenback for the metal — sometimes referred to as leveraged gold — to outperform the other precious metals,” he said.

 

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