Gold Is Approaching Its Finest Hour Since January 1980
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This is a strong recommendation from Commodity Trend Alert editor Eric Roseman.
Gold spot prices are still roughly 55 percent below their inflation-adjusted January 1980 high. And Eric reckons gold prices are heading much higher before this bull lays to rest.
That’s because this marks the first time in history that every facet supporting the bull market in gold is riding on steroids…
Global gold production is now declining since 2005, with South African and Australian output virtually stagnant in 2008. Net supplies are approaching deficit as production fails to meet rising demand.
We’ve seen a booming demand mainly from exchange traded funds and a dramatic asset allocation shift among investors. Retail investors are dumping dollars and other fiat paper money for the relative safety of gold.
In Europe, dollar-based investors have been dumping the buck in favor of the euro since 2002. But there’s just one problem with this plan. Growing economic problems in the Eurozone will fracture the euro at some point.
More than any other region, I visit Europe several times per year and can tell you with absolute certainty the continent is suffocating under the strong euro.
Though unimaginable to many dollar bears now, the euro will unlikely remain strong over the next several years.
Right now, weaker countries in the Eurozone are plunging into a hard recession - namely Ireland, Spain, Italy and possibly, France. That hurts the euro’s overall strength. It’s also possible that one or two Eurozone members might leave the single currency altogether as deflation threatens economic growth and stifles export competitiveness.
This scenario is growing more likely by the day. When that happens, gold prices will rally even higher as investors dump what’s perceived to be the ultimate king of fiat currencies.
Even if the U.S. dollar does recover and posts a cyclical bear market rally, gold prices can still rise. This occurred in 2005 as spot gold prices climbed 18.3% while the dollar rallied 12.8% against the euro.
There’s no steadfast rule that gold must decline if the dollar strengthens, especially in a counter-cyclical bear market rally. Provided investor demand remains strong for gold and global interest rates remain historically low, gold prices can climb to new highs as the dollar strengthens.
Unlike the 1970s when the global economy suffered through stagflation, the late 2000s offers a completely different economic paradigm. This is not stagflation all over again - or not exactly.
For the first time in the post-WWII period, investors are struggling with “inverse stagflation” or deflation in housing, credit and financial assets (stocks and bonds) combined with soaring inflation in food and energy prices.
If this was truly an inflationary economic cycle, textbook economics would support rising home values. But this is certainly not the case considering the S&P Case-Shiller Home Price Index has plunged more than 15% over the last 12 months through April (latest data available).
This data is certainly not consistent with traditional inflation supporting housing values. In the 1970s, inflation-adjusted home prices increased, unlike in the post-2006 period.
The U.S. financial system is another source of deflation as banks struggle to recapitalize and purge their illiquid backlog of derivatives tied to housing and other opaque securities. Banks are now lending less - also a deflationary event. If less credit is flowing, then the economy can’t grow.
Of course, prices for just about everything are soaring over the last 12 months.
The government’s official CPI numbers don’t tell the whole story. Consumers are paying much more for goods and services today compared to last year. In fact, some consumers are paying more than double for items like gasoline and certain foods. Yet, the official CPI is just 5% over the last five months through June.
The bull market in gold is still sitting pretty. Investors, policymakers and consumers are scrambling to decipher how to stop rising inflation. Meanwhile central banks in some industrialized countries can’t aggressively hike lending rates because deflation has already gripped housing and bank credit. It’s an awfully delicate macroeconomic landscape.
Inflation and deflation now co-exist for the first time since 2001. I’m not sure which economic evil will win this war. But one thing is for sure. If given a choice, the Federal Reserve and other central banks would much rather allow inflation to grow than deflation or an environment of accelerating falling prices.
This, in fact, has been the sad history of all paper money. Over the next 12-24 months, I suspect the Fed and its international counterparts will aggressively print credit because deflation is seriously threatening the global economy. They don’t have a choice. Millions of consumers are witnessing a purge in asset values. Inflation is the lesser evil and central banks recognize this.
P.S. I know it’s easy to say “buy gold.” But where do you start? Exchange traded funds? Gold stocks? Bullion? Coins? And I know you want to buy right now while gold is still 55% below its inflation-adjusted high. So you have to decide how to buy fast. To help out, I’ve written all my favorite gold plays into my newly updated report. I believe gold is so crucial to your portfolio right now that I asked my publisher to sell this report for the lowest price possible, so everyone can afford it. You can get all the details on this report right here.
Source: This Is Gold’s Finest Hour: How to Buy Now
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Tags: , Eric Roseman, euro, Gold Etf, Gold Prices, investing in gold, stagflation, US dollar, Us Inflation Rate, US recessionAbout the Author
Eric serves as an editor and Investment Director for The Sovereign Society's Commodity Trend Alert. Eric's talents include blending a dozen or more alternative investment funds to produce consistent returns to traditional asset classes and making commodity based recommendations with huge upside and limited downside.
The Offshore A-Letter specializes is an elite global investment opportunities, asset protection strategies, tax management solutions, second citizenship and residency programs and offshore structures.