(Kitco News) – Gold far outperformed other commodities during the first quarter despite selling to generate cash once the collapse began in the stock market, and the metal is poise to rise even further, said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management.

In a portfolio review for the first quarter, he called the metal the “star” of the resource sector, as commodity markets collectively lost 49% in the first quarter and West Texas Intermediate crude oil fell by 66%.

“Gold, in fact, was the only commodity in the plus column – take that, you gold bashers! – up virtually 4% for the quarter, though down from mid-March when the stock market collapsed…,” Day said.

Gold rose early in the year, moving just above $1,700 an ounce on March 9. The metal then fell to nearly $1,450 as traders were liquidating alongside the free fall in the stock market. Gold has recovered since and was at $1,653.40 around 10:30 a.m. EDT.

“Its initial decline amid the liquidity-driven panic market crash is neither unprecedented nor perverse, nor is it a cause for concern,” Day said. “In a liquidity panic, people look for liquid assets to sell, and there is no more liquid asset than gold. So, the selling of gold amid a liquidity panic actually shows that gold performed its primary function well.

“We saw the same thing in 1987, in 2000 and in 2008. No surprise, and in each case, gold was the first asset to recover.”

Gold was already in a new bull market ahead of the stock-market crash, Day said, rising in terms of all world currencies during 2019 and so far this year.

“But the unrestrained abandon with which the Fed and other central banks have promised to create new currency will see gold significantly higher,” Day continued. “It is the one clear beneficiary of this new environment. It will gain, not because of the virus and people’s suffering, but because of the monetary response to this crisis.

“Gold has strong tailwinds, not only [from] the stimulus programs instituted around the world, but also ultra-low and declining again interest rates; huge deficits at the government level in the U.S., Japan and many emerging countries; debt burdens among households particularly in the U.S.; a short deflationary period followed by rising inflation; and a volatile equity market.”

Day said he does not envision a V-shaped economic recovery since various shutdowns and restrictions have been “too severe” and are lasting for a long time. However, he also said, one of the consequences of ultra-loose monetary policies, including by the U.S. Federal Reserve, will be eventual inflation.

Further, while he looks for the U.S. dollar to remain strong during the COVID-19 pandemic, he expects the greenback to fall once the crisis is over. He pointed out that the dollar was already softening before the virus panic, following two years of strength.

Day listed three main reasons for expected dollar declines in the future: “U.S. government finances are a shambles, inflation is coming, and foreign investors are shunning the dollar.”

Day said he does not anticipate a quick recovery to new highs in stocks, saying they were “overvalued” ahead of the crisis. Further, stock buybacks – which have been a major support for equities in recent years – are likely to be fewer, and the fund manager looks for dividend cuts.

Gold stocks fell along with the broader stock market as the COVID19 panic unfolded, Day said. However, he pointed out, gold equities tended to be first to recover after past stock-market collapses, such as after the 2008 financial crisis. Back then, he said, senior gold stocks lost 70% during a three-month time frame, then rallied 120% over the next five months even as the broader stock market continued to decline.

Operations at a number of precious-metals mines have been suspended in recent weeks, in many instances due to government rules to combat the pandemic. However, Day said, these suspensions are likely to be short term and resume shortly after restrictions are lifted.

“Though we fully expect additional volatility in the gold stocks, we are buying gold and silver stocks more actively than we are the broad market,” Day said. “First, the gold stocks are very undervalued, on valuation metrics, on historical prices, and against bullion. Second, they are typically first to recover after market meltdowns. We are not buying indiscriminately, but again buying the best on dips, and again, even trimming positions on strong rallies. Patience is the watchword here too.”