Despite the best efforts of price manipulators and even new forms of money, gold just won’t go away. In between articles about the ongoing trade war between the US and China, Trump’s latest twits, and central bankers trying to make everyone happy about the economy, there is still a good old-fashioned sense that something is truly wrong with the world economy right now. Bottom line – that’s why gold is just getting started.
Back in 2008-9 Ben Bernanke committed the US to a bold experiment – massive quantitative easing. Rather than let the free market recycle the fallout of failed banking hubris itself, the US would start printing a bunch of money to give to – you guessed it – the banking system. Yes, the same banking system that couldn’t control itself well enough to prevent a meltdown of truly epic proportions, despite enough rules and regs to bury a small city. You see, rules and regs aren’t really any good if someone doesn’t follow them, or decides to compute numbers in new and different ways, that don’t agree with the laws of nature or basic economics.
So rafts of essentially free money started flowing out into the banking system. The idea was that banks would use this money partly to prop themselves up, and recently to increase loans to businesses both big and small. This would boost Average Joe incomes and help Americans spend their way out of the recession.
Well, the first part worked. In reality, it was hard to tell where all the money was going. A popular opinion by ground-level observers was that bankers used it to bail themselves out, give themselves raises, and buy that third home on the French Riviera. Oh, and finance huge projects by huge corporations, though that wasn’t always obvious. This was in stark contrast to the experience of the average man-in-the-street, who was either loaded with more work (at the same wage) or even downsized because “the economy is bad”. This resulted in increased rants by political types against the wealthy, though many ranting Hollywood types are very well off indeed. Your friendly Gold Enthusiast would even wager the perception that bankers were given a get-out-of-jail-free card resulted in the rise of some political puppets and ideas, but that’s outside the range of this column.
So now here we are on the downhill side of 2019, about 10 years after the biggest bailout in the history of the world. How did it turn out?
Well, apparently it wasn’t a permanent fix. The Fed is back into cutting interest rates, saying that while the US itself looks good the Fed is concerned about the “global economy”. Interesting, in that the stated metrics the Fed follows are both doing just fine and the Fed wasn’t charged with worrying about the world economy. Yes, in one sense it makes sense – buffer the US economy against the ravages of the world. But really, shouldn’t businesses be doing that on their own, without the Fed enticing people to buy things they can’t afford with lower interest rates?
So the US has spent its way into a credit rabbit hole. We’re likely in it so deep that we can’t get out without a major currency refactoring, at the very least.
Well, that’s enough ranting, let’s get down to it. It is Friday after all. You’ll recall our pointing out gold hit new all-time highs in major currencies back on Aug 5th. This was following all-time highs in 75 currencies back in January (2019). Logic says it’s pushed those higher as many countries are devaluing their currency, trying to get more money flowing into their economy. But chasing current balance parity is a zero-sum game worldwide because what flows into one country flowed out of another country. Coupled with currency devaluing it turns into an everyone-loses game. That’s why no country can seem to win anymore.
Now US leaders have signaled quite strongly that they are joining in the currency debasing game. And China hinted it is willing to jump in the deep end too. That removed the last two solid things in the world economy. Europe has already thrown in the towel, giving up on restraint and announcing more rounds of QE starting in October.
And those are the reasons why gold’s run is just getting started. It may take a while, but we’ll probably see 3000 USD/oz gold in the next several years.
The Gold Enthusiast
DISCLAIMER: No specific securities were mentioned in this article. The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT position. He may be making small, non-market moving trades over the next 72 hours.
SPDR Gold Trust (GLD - Get Rating) shares were trading at $142.76 per share on Friday morning, up $1.36 (+0.96%). Year-to-date, SPDR Gold Trust (GLD - Get Rating) has gained 17.74%, versus a 17.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Mike Hammer
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group More...
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