Sustained low interest rates, coupled with large levels of debt and an eventual return to inflation will be the dominant drivers of gold in 2021, said Kevin Rich, consultant to the Perth Mint.
2020 was a great year for gold. What investors would like to know is whether or not the same drivers from this year can still be prevalent in the next year. Kevin Rich consultant for the Perth mint joins us today. Kevin, we spoke many months ago, right at the start of the pandemic. Welcome back to the show.
It's good to see you again. Thanks. Thanks for having me back. Yeah. Yeah, it was, I think in April and it seems like a lifetime ago, me, it seemed like yesterday a time flew by during the last couple of months when you're in lockdown, it's good to speak with somebody who has worked with, um, the Australian side of them.
And we've had people from the North America minutes before, but, uh, it's always good to have Australian perspective. Now, Kevin, we've talked a lot about, uh, the drivers of gold this year on our show. What do you think will be the most dominant drivers next year? COVID is still with us. Yes, but we have a vaccine now that's rolling out soon.
Yeah. Well, I think, um, I think depending on when the vaccine, um, reaches the, uh, kind of the mass, uh, in the United States in the world and we get the herd immunity and things, things will get back to normal. And then I think the things that normally drive gold will come back into the. Um, forefront, you know, gold had record inflows this year based on, uh, based on fear, people were, it was a safe Haven asset and people were rushing into it.
And I think, um, going into next year, the main drivers are going to be back to some of the fundamentals. And one of those is interest rates. It's we anticipate it's going to be a very low interest rate environment, um, you know, well into 2021, and that's always good for gold. Um, and there's a chance, you know, with all the, um, The debt overhang from the stimulus that's gone on that, uh, inflation could rear its head again.
And so again, that's also positive for gold. So we think those will be the main drivers of, um, what's happening and, and, and also pick up in GDP you'd will help gold in the, on the industrial and the physical. Consumption side as well. Right. So Kevin, so, uh, like you said, the interest rate is a very important component or one of the very important factors of a gold price.
Now, if inflation were to pick up, like you said, and if the economy were to return or to head back towards normality, why would interest rates still be low? Well, I think, um, Yeah, I think in flight, they wouldn't be in that case. So I think if, um, if the, um, the, I think the government, the fed always targets, they want like a 2% inflation rate, but they've struggled to come up with that.
And then I think, so I think inflation is up. Well, I, I, I'm not predicting inflation for next year. I mean, I think it could occur, but I think that the markets are going to be, you know, GDP is not going to come at GDP has come roaring back from where it was, you know, second quarter GDP in the U S was horrendous down 31%, I believe.
Third quarter. Yeah, it came back and, you know, w came back to the 33% and, um, there were don't, you know, some optimistic projections about how it would, uh, you know, GDP would grow through the end of the year. A lot of that is being pared back now by the latest rage and the COVID. Um, so I think Goldman Sachs just lowered their forecast through the end of the year.
So the V-shape recovery, everyone was looking for, I think, you know, may be elusive. Um, and, and so I th I think we're going to have, uh, you know, Janet Yellen, uh, Biden's pick to be, you know, how the treasury will work well with the fed. She's very dovish, but you know that she, you know, so I think they're going to keep interest rates low.
To stimulate growth. Um, and again, inflation is, uh, you know, w when I look at inflation, you know, coming in before the COVID, we had a very tight labor market. Um, and we had, uh, you know, we had all the, everything was set up for inflation, but we weren't getting inflation, like allowed to be common was predicted.
And I think a lot of that is because, you know, labor and pricing and things are now such a global, um, A global issue rather than kind of local. So, you know, w um, to get true, like, you know, in, uh, intense inflation, you need very tight, very tight labor market. Um, I mean, we just don't have that, and I don't see that happening next year.
Well, do you think momentum will be sustained on the upside or would it be more for the downside after, after gold breached all time highs this year? A lot of the concern from the, uh, gold investment community. Was that a can't sustain that level. And actually, if you looked at the past few months, it hasn't.
So is this a repeat of 2011? You think Kevin, when gold hit its then high and just never saw that again? I, I don't think so. I think what's happened this year is, you know, we entered the year at somewhere a little over 1500 an ounce. Um, you know, w when you and I spoke in April, we were probably up to 16, 1700, 1700 an ounce.
And, uh, but the, uh, equity markets were selling off badly. Know, vault equity vol was that I think 75, it was just a tremendous level. Um, and then what happened? The fed stepped in to support the markets and you started to see, um, and stimulus came. And so you started seeing pressure on the dollar. So the dollar started trending down and gold started trending up.
And that, that happened all the way through the summer, but then. I think people realized in the summer was, you know, equity vol is very low relative to the 75 are wise, it's in the low, lower twenties. And, uh, there is such, there's such support from the fed to the markets that, um, gold as a safe Haven is, you know, the story's a little bit like, um, You know, on the back burner right now because, um, you know, you can, you know, there's so much more opportunity in the equity markets and there's not that much risk because of the, uh, the support and the Fed's giving it.
Yeah. Uh, let's take a look at the, uh, physical market now for the Perth mint. Did you observe an increase or decrease in buying volume of the last couple of months? Uh, so, uh, earlier in the year, uh, in Perth, you know, produced a lot of gold and silver coins and bars, large bars, um, and small retail bars. Um, so we were just out of, we, we were out of stock for most, most of the spring into the summer.
We saw strong buying going into late summer, but now what we saw in, you know, starting in August and going through up to the U S elections was a slowdown in the, um, in the gold coin purchase, um, that, uh, not, not, um, A tremendous lowdown burns, uh, somewhat of a slow down on the silver coin side though. We we've, um, we continue to sell every silver coin we make.
So we still see strong demand in silver. And that's because that's probably because silver, silver, the silver gold ratio usually kind of. You know, walks in tandem, they're highly correlated, but I think gold got out a little bit of a head of silver. Um, and so it's, you know, silver, you know, was in, in more demand.
And so I think that it's, I think some of the predictions you saw in the silver coin market probably were very high earlier in the year and they come down. They've come in quite a bit. I think, I think the slow down that you've mentioned in the physical coin market is consistent with the slowdown in other facets of the gold sector.
So there's a slowdown in the coin market. There's a slow down in raising capital for the, uh, junior and senior mining sector. There's a slow down in ETF inflows for gold-backed ETFs. And of course there has been a downward trend of gold. I'm just looking at all these variables put together. It seems to me that people are losing interest in gold.
Is that true? I think they, uh, again, we were at such a feverish, uh, growth pattern, you know, the first half of the year a slowdown was inevitable. Um, and, and I think if it was a broad reversal, um, you wouldn't see a gold have pulled back to 1800. I think you'd see a deeper trend down. So I don't think people have lost.
I think people are going to in a little bit of a wait and see, and again, um, if you think about it, you know, the, where we're going to have a lame duck president through the end of the year into January, the, the vaccine is the vaccines are great news, but they're not going to be rolled out until, until then.
So we have several months to go. And again, I think everyone knows that the Fed's going to support the market. So I think they're comfortable, like, you know, Yeah, no one seems to be in cash right now. You know, cash is a worst place to be, and I think they're fully invested and I think, you know, people are still allocated to gold, but they're, um, they're not, they're not, uh, they're not, they're not scared of equities at this point and, and spelling equities and buying gold, but that scenario could return once.
Yeah. What? So once the population gets vaccinated and you know, everyone's traveling again and, you know, masks are, you know, less prevalent. Um, I think we're gonna, you know, the, the harsh realities of what's happened is going to come. And so we're gonna have this huge debt load on the U S government and governments.
Globally, uh, corporate bankruptcies. I can, the spring corporate bankruptcies, um, applications where we're like through the roof and then they slowed as well. And again, why is that? That's because the fed was there supporting them. So those companies aren't are not, some of them are not in better shape at all.
And so I think once the fed pulls out support, we're going to see bankruptcies on the corporate side, you know, so it's just, it's not all a rosy picture going forward. And that's that bodes well for gold, you said something very important. The fed pulling support, why would they pull support? Well, because the only reason the fed is supporting the markets is because it's a global pandemic.
And so it's not that it's, it's not that people wanted to stop working. They were told, stop working. And so the fed had to jump in with stimulus and support, you know, there was no choice and that's different. That was different in the fact that. Financial crisis. And he supported the banking sector and things like that.
But you know, not a lot of people take pain in the real estate side and things like that. They're not letting people take pain yet, but they can't do that forever. At some point, they're going to have to, you know, they're going to have to, you know, slow their purchases and then kind of reverse their purchases and the markets will feel it feel the pain point.
Yeah. I mean, we saw what happened with the taper tantrum earlier this decade. That, uh, really spiked of all activity. So some economists were saying the same thing you are, but I'm thinking, well, look, this is, this is not just supportive life supportive. They pulled the plug. The economy is just kind of the economy's going to tie it.
They can't survive without stimulus. What do you think. Well, I mean, this could go off into a, are we headed towards socialism? You know, what is the government's responsibility for supporting it? And we, and you know, so the new Biden administration is definitely going to have more of a progressive, uh, agenda on that, you know, on, on helping people out.
So I don't think, uh, you know, I think in the Biden administration, you're going to see more support getting money in the hands of people who are unemployed and less. Support for the treasury buying, you know, assets to support the markets in a bit. Again, Janet yelling and Powell have worked together in the past.
And I think, I think that they're, you know, they're very capable. Um, I think it's just going to be a question of, uh, W w one key thing is this Georgia, these two Georgia runoffs in January. Um, if they, uh, you know, most people think they're going to go at least one or two or both to the Republicans and the Republicans would control the center, but if they don't, if for some reason the Democrats win both of that, and it's a 50 50 tie and, you know, vice president Harris breaks that tie in the Senate.
Uh, then I could see a very progressive, uh, Uh, agenda coming out of the white house. Were you surprised at how gold and the equities markets reacted to the November 30 election? We're nearing the end of the month now. And we've had a month of solid gangs in the equities markets. The Dow just hit all time.
Highs, gold has kept tumbling, but, uh, you know, prior to the election, I've heard basically the reverse for prognosis, which is basically that. Us as a new president takes the white house. Uh, if that were, that president were to be Biden, we would see a sell-off inequities given his, you know, plans for raising corporate taxes, uh, capital gains taxes and so on, but actually the reverse has happened.
You know, people got Biden as a Democrat would be worse for the markets and spanned there. But I think w the reality is both, uh, both Trump and Biden were, neither of them are fiscally responsible. They both, one is you don't want to spend and re you know, raise the stimulus. And I think all of that is good for the markets.
So I think, you know, the, the Trump administration was in the traditional Republican, you know, fiscally conservative, Um, administration. In fact, neither was George Bush. We haven't had a fiscal group, so I haven't spoke with president for some time. What do you think about volatility for the markets then next year, given, uh, given who's in, you know, who's in charge of, uh, the white house, uh, coming in no January and given, uh, the economic conditions, uh, be set by COVID.
Yeah, I think again, depending on, uh, how the nature of the stimulus payments are they, are they big projects, big infrastructure projects with trickled into the consumer's hands or are they, are they cash payments to people who have lost their jobs? And so I think there's going to be more focus from this administration on supporting.
Uh, the people who have been affected, uh, and less on supporting, um, the, the markets, which would be an income. So I could see equity, volatility, like, you know, you know, spiking, um, if that were to occur. So if that were the case, would you, would you anticipate goal to retrace all time highs again in 2021? I don't think it's out of the question.
I think, uh, I, if I, if you had to ask me, where's it headed, is it headed for 2200 or. Or 1501st. I, I say higher. Um, I, yeah, we don't make price predictions or forecasts from the Perth mint, but I do watch the forecast that the banks are putting out there on Bloomberg. And I was just looking, you know, where it's a consensus right now.
And if you look over the next. Um, six quarters. The consensus from, I think, 20 banks and research houses is that there's a high of 2,400, an ounce to a low of 1600 an ounce. So there's no consensus out there in the bank among the banks about, you know, where, you know, what's going to happen in the markets and what the impact on gold.
But I think, um, again, this, the, the about trillions and trillions and trillions of dollars added on an already overburdened, um, debt load. So that's, that's going away on currencies and it's going away and it's going to be constructive for them. Uh, news from this week, the bank of America has issued a downgrade to its goal forecast from 3000 to 2000.
Following coven news are starting the vaccine news rather. And so they are still optimistic, but less. So I would say that's a big jump 3000 to 2000. Yeah. Exactly. It's basically, it's basically a little bit higher than today, so flat. And, uh, I spoke to an analyst major SPC. His forecast was just over 2000 as well, or actually, no, just, just under 2000.
Sorry. So, uh, I think the banks are, you know, they're, they're cautiously optimistic, I would say so. Uh, well, okay. I think, uh, they share your view. It was more or less, the fundamentals are strong, but you know, we're not going to see gold through the roof. Is there anything else you're looking out for in the markets that could potentially be drivers for gold?
Um, I think, uh, eventually, uh, we talked about, um, and, you know, GDP picking up and industrial use, um, you know, jewelry, jewelry, sales have been, um, horrendous and in India and China, you know, through this period due to lockdown, partially due to the higher price of gold. And, um, so I think, you know, we'll keep an eye on that to see how that picks up, you know, where oil ends up, you know, when we come out of this and the.
Yeah, I think energy is going to be interesting because energy is a big component into, you know, uh, producing gold and, you know, cheap energy prices are usually better for gold, but these cheap energy prices for so long could have taken a lot of production off them, off the market. So when the economy comes roaring back, there may be shortages in on the energy side, which could, uh, you know, increase the production cost of gold.
So I think that, I think once that once we get. Stop talking about COVID. Uh, I, I was telling someone, I said, I'd never heard of dr. Fowchee a year ago, and now he's like a rock star. He's on magazine covers. He's doing interviews. Um, and, and he's, and he's a tremendous asset to the country, I think next year.
There's some of the really smart economists are going to be the rock stars of, of 2021, because, you know, w we've done just some unprecedented things to the debt loads and to, uh, to, to, um, how we, how we manage through risks and how we come out of that. I think, you know, we need some really, um, smart, intelligent economists to, to kind of give us some, some guidance.
Well, thanks very much, Kevin, it's a pleasure to catch up with you again after so many months. And I look forward to speaking with you again.