Will The Economic Boom Continue

1. Will The Economic Boom
Continue

2. Points To Be Covered Today:
• Gold Asks: Will The Economic Boom Continue?
• Economy Overheating And Higher Inflation
• There Is Still Room For Gold To Rally Further
• Gold Performance During The Great Unlock
• Gold News & Analysis
• Gold Technical Forecast
• Gold Price & Chart

3. Gold Asks: Will the Economic Boom
Continue
• The US GDP has already recovered from the pandemic
recession. What’s next for the economy and the gold market?
• Ladies and Gentlemen, the economic crisis has ended.
Actually, not only is the recession over but so is the
recovery! This is at least what the recent GDP readings are
indicating. As the chart below shows, the US nominal GDP has
already jumped above the pre-pandemic level.
• The real GDP, which takes inflation into account, remained in
the first quarter of 2021 below the size of the economy seen at
the end of 2019, but it will likely surpass this level in the second
quarter of the year.

4. US Nominal & Real GDP

5. US Nominal & Real GDP Annual Growth
• As one can see in the chart below in next slide, in terms of GDP growth,
the situation is a bit worse, as the annual percentage changes are still
below the pre-epidemic level.
• However, this should change in the second quarter of 2021 when the
growth pace is likely to peak amid base effect and reopening of the
economy.
• So, the question is: what’s next? Will the economic boom become well-
established or will we see a lot of volatility or even new slumps? Given the
recent flux of disappointing high-frequency indicators that fell considerably
short of expectations (just think about April’s nonfarm payrolls), the
question is very relevant.
• Well, there are many threats to growth, that’s for sure. The first is, of
course, the ever-evolving coronavirus and its new variants. However,
judging by preliminary evidence, the vaccines should remain effective,
allowing economies to function freely.

6. US Nominal & Real GDP Annual Growth - I

7. Economy Overheating And Higher
Inflation
• The second obvious danger is clearly the economy
overheating and higher inflation.
• The Fed and the Congress injected a lot of liquidity into the
economy although it would recover if it was left to its own
devices thanks to the rollout of vaccinations and easing
lockdowns.
• So, much of government funds arrived just when the economy
practically recovered, which is a recipe for higher prices and
inflation-related turbulences in the financial markets.

8. Increase In Debt – Both Private
And Public
• The increase in debt – both private and public – makes the global
economy more fragile.
• Given the level of indebtedness, even small increases in real interest
rates would be dangerous.
• They would increase the costs of servicing debts for the
governments and could hit the asset prices.
• The fact that the Fed will be under great pressure to remain
very dovish is, of course, positive for gold prices.
• Even if we see some effort to normalize the monetary policy, interest
rates and the Fed’s balance sheet will never return to the pre-
recession levels.

9. Threat Of Financial Crisis
• Last but not least, there is a threat of financial crisis.
• Many people are worried that there is a bubble in the stock
market (and in other markets as well, such as the
cryptocurrency market).
• Indeed, the equities have been reaching new peaks and the
valuations are elevated.
• The margin debt has also jumped. Not surprisingly, the relative
frequency of Google searches for the “stock market bubble” has
recently risen (just as for the word “inflation”).

10. There Is Still Room For Gold
To Rally Further
• To sum up, the US economy has already recovered from the coronavirus
recession, which is bad for safe-haven assets such as gold, as the
yellow metal doesn’t like economic expansions. However, there are
important threats to sustainable economic growth, which should support
the price of gold.
• Actually, there is still room for gold to rally further.
• This is because we are in an inflationary phase of the economic
expansion (this boom will be more inflationary than the post-Great
Recession period), and all the money created during the pandemic has
flowed into the asset markets, pushing their prices into elevated levels not
necessarily justified by fundamentals (just think about Dogecoin).
• Gold could benefit from such a bubble, as well as from an inflationary and
hot environment.

11. Gold Performance During The Great
Unlock
• As the first wave of infections has been contained, the governments are easing the restrictions. So,
in this edition of the Market Overview, we assess the Great Unlock. First of all, we analyze how the
gradual reopening of economies will affect the gold prices. We argue that the Great Unlock will not
be as great as it sounds, so the price of gold does not have to go down.
• Second, we examine how the second wave of the coronavirus - which is now the biggest threat and
in some countries it is already present - could affect gold prices. The issue is not simple, as gold
could on one hand gain less than during the first wave as people would be better prepared for
the epidemic but on the other hand, it could benefit even more amid extinguished hopes for the
quick recovery.
• Third, we study the Great Disconnect between the fundamental reality and the global stock market,
drawing implications for the gold market. The S&P 500 Index has been rallying since late March,
despite the soaring unemployment rate to levels not seen since the Great Depression. Isn't it
strange?
• Last but not least, we analyze the recent shortages of bullion and high premiums in the retail gold
market, investigating what happened and what does it mean for the gold market. In particular, we
examine whether the divergence between physical and paper gold resulted from
the manipulation and whether it signals the bull market.
• We hope that you are healthy and in a good financial position. During the pandemic, the most
important job is to survive. But it's not the only task: another is to protect health and capital. We are
here to help you in these turbulent times: read our Gold Market Overview and find out what the
current crisis implies for the gold market!

12. Implications For Gold – 2007-9 Great
Recession Vs. 2020 Coronavirus Crisis
• If you thought that the Great Recession was a disaster, you might want to
change your mind soon, as the coronavirus crisis is much broader and
deeper.
• In today's article, we'll compare the Global Financial Crisis from 2007-
2008 with the current crisis. Let's find out what it implies for the gold
market.
• When the economic crisis hits, the first instinct is to analyze the previous
catastrophes to learn what to expect from and how to handle the current
calamity.
• So, not surprisingly, many analysts have already pointed to the 2008
global financial crisis (GFC) as the most relevant example. However, is
really the current coronavirus recession similar to the Great Recession?
Let's compare these two big crises and draw investment conclusions for
the gold market!

13. Implications For Gold – 2007-9 Great
Recession Vs. 2020 Coronavirus Crisis - I
• First of all, in terms of scale and pace of the decline, the current crisis is much
broader and deeper.
• It hits practically the whole globe, not only advanced countries, and it affects all
offline sectors, not just the financial sector and construction.
• And in just four weeks, 22 million of Americans made claims for the
unemployment benefit. For comparison, during the Great Recession, 37 million
unemployment claims were filed.
• But the Great Recession started in December 2007 and ended in June 2009, so it
lasted one year and half.
• When it comes to output, the cumulative decline in the real GDP amounted to 4
percent during the Great Recession.
• Meanwhile, just two months of mitigation measures are estimated by some
economists to shrink the real US GDP by 10 percent. Even the overly optimistic
IMF expects that the US economy will shrink 5.9 percent this year.

14. Effect On Gold Prices
• Hence, the severity of the current crisis will be larger than the
impact of the Great Recession.
• After all, it should not be surprising. The current crisis is not a
normal economic crisis, but an economic lockdown, during which
most people cannot work at full potential.
• It means that the current crisis is not a mere liquidity crisis, but a
profit crisis - entrepreneurs cannot generate revenues, while they still
have to bear some costs.
• Importantly, without profits, companies will lack funds for
investments.
• It all suggests that the effect on the gold prices should be
larger, especially since the response of the Fed has also been much
more swift and aggressive.

15. Impact On Gold Prices
• Of course, there is one caveat, i.e., the duration of the crisis. The Great Recession lasted 18
months. But nobody knows how long the current crisis will take. If it is deep but short, the overall
damage may not be as severe compared to the protracted depression.
• In such a scenario, the positive impact on the gold price might be limited, especially that
investors are forward-looking and they can see across the valley. After all, the lockdown will be
probably loosened in the coming weeks. However, it remains to be seen whether the crisis will be
short.
• Although some measures may be lifted, we think that some social distancing will stay in place
and the economy will not return to full capacity. And the Fed will not normalize its monetary
policy in general and its interest rates in particular for a longer period of time, which should
support the gold prices.
• The nature of the coronavirus crisis is also different that the nature of the Great Recession.
The latter is widely believed to be the financial shock that took a severe toll on the real economy.
• That's not exactly the truth, as the financial sector got into trouble because of the housing bubble,
i.e., the misallocation of resources within the real economy.
• But we could say that the initial hit was felt by the housing sector, then financial sector, and then
the overall real economy because of the credit crunch. In other words, the banks which were
engaged in subprime lending were severely hit, so they constrained lending for households and
companies.

16. Gold Bulls Should Rejoice
• In contrast, the coronavirus crisis originated because of the
health crisis and the response to it.
• Radical containment efforts produced a huge shock to the real
economy, hurting mainly businesses and their workers.
• The financial sector has not been hit initially, although it may feel the
negative effects in the second-round of effects. Why is this difference
important? For two reasons.
• First, it shows that the central banks are helpless against this crisis.
Assuming that in 2008 we faced liquidity crises, the Fed could inject
liquidity and alleviate the primary source of the problems.
• But now the Fed addresses only the a secondary financial
repercussions, but it cannot deal with the primary shock to the real
economy. This is something the gold bulls should rejoice.

17. Gold News & Analysis
• XAU/USD has been extending its losses in a long response to the Fed decision.
• The Confluence Detector shows that XAU/USD has considerable support at $1,766.
• XAU/USD hangs near multi-week lows, just above $1,775 level
• Gold edges higher, keeps recovery moves from seven-week low.
• US dollar pullback favor short-covering from the key Fibonacci retracement support.
• Inflation expectations, stimulus hopes back mildly upbeat sentiment, options market remain most
bearish since late February.
• Lack of major catalysts can extend the bounce but bears aren’t out of the woods.
• Source:
• Gold Forecast, News and Analysis - FXStreet

18. Gold Technical Forecast

19. Gold Price & Chart

20. Will The Economic Boom Continue

21. THANKS FOR LISTENING
Will The Economic Boom Continue