Time to sell your gold? Not so fast…

Goldex Team

Editorial content

The price of gold hit an all-time high this year. Time to sell gold, right? Not necessarily. In fact, it could well be a better idea to buy and hold – just like the IMF.


IMF says no

For the IMF, in particular, gold is too important to sell. The Jubilee Debt Campaign (JDC) recently challenged the organisation to sell some of its gold stash to cover the debts of the world’s poorest countries made more vulnerable by the COVID-19 pandemic.

It holds 90.5m ounces of gold, currently worth around $175bn. Just seven per cent of that would raise $12bn – enough to cancel the debts of 73 poorest countries until the end of the year. And the IMF would still be left with a sizeable $26bn profit.

But the IMF said no. Gerry Rice, IMF spokesman, pointed out that gold reserves provide fundamental strength to the organisation’s balance sheet, enabling the Fund to lend safely and at low cost to its member countries.

“This is particularly important at present, when the IMF is undertaking exceptionally large support for its membership, including its poorest member countries, in the context of the Covid-19 pandemic,” he said. “The IMF has no plans to sell gold at this time.”

And, he added, the IMF has approved emergency financing of over $10bn to 47 low-income countries since March, plus a second six-month tranche of debt service relief in grant form for 28 poor countries, funded by richer countries.


Peak gold?

Gold, after all, is a finite resource, and the IMF knows that well. There’s only so much of it around – and one day, it could well run out. Last year, according to the World Gold Council, gold mine production hit 3,531 tonnes. Although that’s just one per cent lower than the previous year, it’s still a decline – the first one, in fact, since 2008.

Taking the yellow stuff from mines which are already there is already expensive – and it’s even harder and more costly to find new deposits. Mining itself, of course, is vulnerable to global shocks: supply declined by 6 per cent in the first six months of 2020 due to disruption caused by the coronavirus outbreak.

And the pandemic, right now, isn’t going anywhere. That means further disruption is likely – and demand for gold will continue to rise in the face of continuing uncertainty, as predicted by the World Gold Council back in July.

Its Gold Demand Trends report for Q2 pointed out: “There is a growing consensus that a swift V-shaped recovery is morphing into a slower U-shape recovery or, more likely, the possibility that a recovery in H2 is short lived as recurring waves of infections set the global economy back, resulting in W-shaped recovery.”


Election uncertainty

And whether the US wakes up to President Biden or President Trump on Wednesday November 4, it’s likely that the result won’t usher in a new era of calm and tranquillity just yet, meaning demand for a safe haven will remain high.

Those record highs of August – when gold went over $2,000 for the first time in history – may well be returning soon. So, it may be wise to buy while you can. “We like gold, because we think that gold is likely to actually hit about $2,000 per ounce by the end of the year, Kelvin Tay, regional chief investment officer at UBS Global Wealth Management told CNBC. He pointed out that gold is a ‘very, very good hedge’ in the event of uncertainty.


Different worlds

Gold, in short, is often considered a great for the long-term – so many say grab it while you can. A year ago, Money Week’s Dominic Frisby wrote a prescient piece in which he recalled the early days of 2001, when gold was just $250 an ounce.

“The dubious war in Iraq, the housing bubble, the bailing out of the banks and all of those other events that have so undermined public faith in leaders had not begun yet. No wonder gold was so undervalued. The world is a very different place today. And as a result, the gold price is a long way from $250: there are a lot of reasons to own it. Everyone should hold some gold.”


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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.