Bullion coin demand 'off the charts,' why isn't gold price?Bullion coin demand 'off the charts,' why isn't gold price? Former U.S. Mint director weighs in | Kitco News My Comment : This article does not make a lot of sense to me. I just don't think the Fed ever mobs up liquidity. It just keeps adding more. And more monetary and physical stimulus should mean higher, not lower, PM prices.
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Yet, despite this high demand, gold prices are still consolidating and cannot break above the $1,850 an ounce level on a sustained basis. Moy said the 2008 financial crisis offers some clues as to why gold has been stalling.
"The last time demand was this high was during the financial crisis. People were panicking and buying into gold, and prices were shooting up. Then the government started injecting both fiscal and monetary stimulus, and you saw gold correct down maybe 20-30%. And then, over the next three years, gold began to climb until it set a new record of $1,925 in 2011. Afterward, gold didn't decline until it became clear that the economic recovery was going to be slow, which eliminated the uncertainty. The Fed also had the time to mop up all the excess liquidity before it caused inflation," Moy described.
If you apply gold's price action from back then to today, a similar pattern is revealed. When the pandemic first hit, both demand and gold prices shot up and hit new highs. Then there was a correction once the government started pouring fiscal and monetary stimulus into the economy.
Also, Moy added that the only reason why the U.S government was able to print so much money out of thin air and not have significant inflation is because the recovery has not really started yet.
"Demand hasn't caught up with supply, and therefore retailers cannot charge higher prices. The scenario changes if the economy bounces back. With all those stimulus dollars, you will see interest rates shoot up rapidly from the Fed, and you are going to see inflation climb up at a faster rate than the Fed can slow it down. That will also help gold break out of its trading range of trading," he said.