This morning I received a research note from a private bank I work with occasionally. Buried in the text was a call for lower gold prices, and the analysts listed five reasons why they think gold prices will decline. Here’s what they had to say:
1) “We expect the scaling back of [the Fed’s] stimulus to happen this year at the December meeting. A reduction in monetary stimulus . . . shall reduce the attractiveness of gold as a zero-income asset.”
2) “Inflation pressures in the developed world should remain subdued, lowering demand for gold as an inflation-hedge.”
3) “We expect the US recovery to accelerate, reducing the attractiveness for gold as a safe-haven asset.”
4) “A subsequent improvement in investor sentiment shall also reduce demand for gold as safe-haven asset.”
5) “Physical demand from India should be discouraged by the gold import duty increases and other measures that aim to reduce the current account deficit.”
My analysis? These guys are completely missing the point.
The truth is that today’s financial markets are regulated and controlled by central lenders who are destructively broadening their accounts to the point of bankruptcy. Numerous banks are currently on their way to insolvency. A lot of “rich” countries are now bankrupt.
And the “richest” country in the world has gotten in yet an additional unfortunate, farcical episode public financial humiliation.
The United States government is so broke that they fall short to gather enough tax income to cover compulsory entitlement spending (like Social Security) and interest on the debt. Which includes record-low interest rates.
The financial obligation is growing by the day. The United States government reached its statutory financial obligation restriction back in May, and as quickly as they raise the debt ceiling, they’ll quickly reach the new restriction once again.
The US government can not even pay for the 1.968 % typical interest that it is presently paying. (This is compared to 6.620 % back in January 2001, and 3.665 % in September 2008 when Lehman collapsed …).
Political leaders are taking pension funds, raiding savings account, and raising taxes. They’ve imposed capital controls, as well as restricted gold importation and ownership.
Investors are addicted to low-risk winnings like gamblers or drug addicts. Securities markets are at all-time highs. Bond markets are near all-time highs. Many other asset courses (US farmland) and products (cattle) are also near all-time highs.
There’s hardly anything in this world that makes any sense.
I own farmland in South America as the best hedge versus inflation, system disruptions, and economic decline. Plus it produces terrific cashflow.
But farmland isn’t really portable or liquid. And that’s why gold is such an excellent alternative.
Rare-earth elements are like an insurance coverage. It’s a policy you hope you’ll never need to cash in. But if you ever find that you need to do this, it’ll probably be due to the fact that the monetary system has broken down, and the gold cost has gone to the moon … potentially 5x or more of it’s current value.
(Jim Rickards, author of the excellent book Currency Wars, made a very compelling and rational case for this at our event in Chile six months ago…)
If that day ever comes, you’ll be thankful that you had the foresight to trade away some paper currency for real savings.