To Skol and other knockers of Gold, ask yourselves theses questions...
Why is it so hard to get a quarter percent rise in US interest rates? Why has/does the Fed continue to defer?
Why do we have so little real growth in GDP despite the unprecedented levels of stimulus over last 8yrs?
Why has Japan been in a rut for decades? Why do Europe and the US now seem destined to follow in its path?
I've heard it said that 'everything changes, and everything stays the same'. But, something has changed for sure and certain - DEMOGRAPHICS.
We are now seventy years removed from the last World War. The period between then and now saw historic levels of growth, reconstruction, population increases, technological advancement, productivity improvements.
Now, families are having less children, the population is ageing, pensioners generally spend less, pension liabilities become a heavy drag on Government budgets. On top of this, improvements in technology don't have the enormous impact on productivity they have had in the past. A car is a giant stride improvement on a donkey, an electric car not the same impact. The same with computing, factory assembly lines, airplanes, construction, agriculture. A lot of the big gains in productivity have already been had. Sure, tech will continue to improve but won't have the same impact on GDP.
This brings us to the Fed. It knows something's amiss. That's why interest rates are still at near zero. Nominal GDP and inflation are struggling to reach 2% and now when it finally seems like the Fed will raise in December, the talk has shifted. All of a sudden, the Fed and other Central Banks are reasoning that we may need to let inflation run, our economies overheat, to reverse the ongoing negative impact of the GFC.
So, we now have a situation where many CBs are openly saying interest rates will be lower for longer and also that they want higher rates of inflation before removing stimulus.
Both of these - low interest rates and higher inflation - are great for Gold!!!
On top of this, low growth means you're always that much closer to the next economic slowdown, recession or crisis. Real GDP growth at <1% doesn't give you much of a buffer, you're always just 'round the corner from the next round of stimulus and the next push upwards in the gold price.
And then you have the complications of the modern global economy, increased interdependence and risk of contagion, ballooning debt, currency wars.
One GBP bought ~$1.50US not so long ago, now it buys $1.22. The Euro is buying just $1.08US. The Chinese Yuan and the Yen have fallen. In a matter of weeks, US80c bought a Canadian dollar, now it takes just 75c. This is a significant and ongoing erosion of the competitiveness of US companies. It means the Fed Reserve can't materially remove stimulus until the rest of the world begins to catch up - this may never happen.
Skol, if you think that gold is going to fall to $800 you are sadly and utterly mistaken. 2017 will be a continuation of 2016 for Gold with more upside if stimulus is extended or inflation takes hold (with little GDP growth).
There will be no peaceful, sleepy unwinding of the bubbles in real estate, bonds, equities. Take heed, DON'T SHORT GOLD!!!
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