The term “no-brainer” is defined as something that requires little or no mental effort. While investment in any asset is very rarely a simple, highly probable win, it’s not the case with an investment in gold in the next few months. In my opinion and in the opinion of many large US investment houses, gold is now the no-brainer investment option. The trigger to the gold’s projected short-term rise in value lies in our government’s options when responding to our crushing unemployment.
May 28, 2020
The CARES Act—our government’s response to the unemployment
Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, our unemployed workers receive more in benefits than they would receive had they been working. Among them are 11 million workers who would have received no benefits at all if the CARES Act had not been enacted. However, the increased benefits are set to expire on July 31, and the extended eligibility period for benefits will end on December 31.
What will happen when the CARES Act expires?
Are you confident that when the CARES Act expires this year, the economic pain unleashed by the virus will be over? Probably not. Then would you agree that over 40 million recently unemployed Americans will return to work this year?
If you replied with a resounding ”no” to both questions – and if you consider Fed Chair Jerome Powell’s comments last week that our economic recovery will last for more than a year – then you would agree that, at a bare minimum this year, both the economy and unemployed workers will still be in need of significant support. Right?
What will our government do when the CARES Act expires?
During this election year, our government can respond to the expiration of the CARES Act with one of two actions:
- Sit idle and not extend the CARES Act provisions or add additional stimulus of any kind and let the markets and Americans suffer extraordinary pain—as we experienced during the Great Depression—until the economy corrects itself. While this option is theoretically possible, I am sure you would agree that it seems highly unreasonable considering everything we have seen from our government’s response so far.
- Extend the provisions of the CARES Act or come up with other stimulus plans to help Americans go through these hard times. This is most likely what we will see unfold.
How will the CARES Act response affect the price of gold?
If you think the government will sit idle as the markets tank and millions line up in front of soup kitchens, then you are forecasting a historic stock and bond market collapse. In market crashes of smaller magnitude, the price of gold skyrocketed as investors were fleeing from the crashing financial assets to the safety of gold. So, option A—the government letting the CARES Act expire—boosts the price of gold to the stratosphere.
However, if you think the more reasonable option B will occur and the government will continue to pump trillions in stimulus into the struggling economy, then you believe our government’s money printing will continue. Just to make you feel good about your choice of option B, you are in good company with most large investment houses in the US, including Goldman Sachs and J.P. Morgan, who foresee a continuous cycle of stimulus, at least throughout this year.
Whenever our government prints money, the dollar is debased, and the price of gold skyrockets. A few months ago, I wrote in detail why and how the Fed’s money printing, throughout the last two decades, caused the price of gold to rise. Money printing is directly correlated to an immediate price rise in gold as the institutional ‘Smart Money’ investors understand and act on the dollar losing value. The same happened over the last few months as the price of gold went up by over 15% as a result of the recent stimulus provided to the market.
This means one thing only: We will soon hear from our government, that they are continuing to stimulate our economy this year, the dollar’s value will go down and the price of gold will go up.
So, you have the facts in front of you in a story that is simple to understand. Heck, I even brought you the supporting opinions of Jerome Powell, J.P. Morgan, Goldman Sachs, and Bank of America. One last question remains: What are you going to do about this “no-brainer” gold investment opportunity?
I wish you to be healthy and safe during these trying times.