I believe we are now at a key turning point in the modern history of gold as an official reserve asset – a turning point that is very propitious for the metal’s price in years to come.
Central banks attitudes with respect to gold are becoming increasingly positive. After years of persistent net sales by central banks in the aggregate, the official sector may soon become a net purchaser of gold from the market.
As clients know, we remain “extremely optimistic” on the gold-price outlook — but, unlike many other bullish analysts, we believe the metal’s ascent will take several years to reach its next long-term cyclical peak.
In the meantime, expect high volatility and a difficult climb, fraught with sharp reversals along the way that will, at times, cause some observers to wonder if the market has already topped out.
Ultimately, gold will most likely climb into the US$2000 to $3000 range – but it could go even higher given the right confluence of economic and political developments . . . or if a late cycle mania produces a final bubble before the market shifts into reverse.
Here’s a quick review of the key drivers producing this bullish scenario:
The macroeconomic outlook for the industrialized and newly industrialized nations – with recovery (measured by unemployment, household incomes, and other qualitative indicators of wellbeing) agonizingly slow.
The eventually inflationary consequences of central bank monetary creation in the United States and, indeed, around the world.
Here in the United States, we expect continued growth in federal spending – in order to shore up the economy, bail out more bad loans (in the commercial real estate market, for example), finance state and local budget deficits, and promote the new social agenda.
With voters too strapped to accept higher taxes and the Federal Reserve necessarily pursuing a low interest rate policy, the only financing alternative is the printing press and the invisible tax of inflation.
A continuing erosion of the U.S. dollar as a stable, reliable, store of value – at least “attitudinally” if not vis-Ă -vis other major currencies. Read the rest of this article »
