I’ve been a firm believer in gold for a while and have been talking about the likelihood of high inflation here on Forbes for months. Gold and inflation, in my opinion, are so linked that it is child’s play to move into what is likely to be a longer period of inflation with gold investments, which in my opinion will at least devalue money in the US and Europe over a period of 3-5 years by 50%. The upside potential for inflation is much higher, but I believe inflation will be all that will be required to realign nominal GDP and deficits. When you bloat as a country, GDP and taxpayers’ money grows, but lagging debt shrinks relative to GDP public sector indebtedness does not hold back growth. To get an economy there after a traumatic spell of wild spending, usually caused by war, but in this case plague, a country is inflating the debt of the past and using inflation as a flat tax on the future.
This is not one revolutionary analysis, it’s just the story of post-war inflation since time immemorial. You could of course take a multi-year austerity policy – yes, that just isn’t going to happen.
So inflation is what we have and what we are going to get more of, and of course, it is gold that is going to rise alongside other hard assets because as the value of money goes down, the face value of hard assets goes up.
This is about as easy as investing. Buy gold! (And I have.) But gold is not mandatory. It’s not going to the moon.
How can it be! Gold has not done badly in the last 20 years, of course, but this inflation is a new thing and should pull gold higher. Instead, gold is practically languishing.
Some explain it away by saying that Bitcoin is the new gold and gold is therefore out of date. That is believable, but actually the rich in need of inflation hedging are old and the old tend not to be tech savvy and certainly not to be interested in immersing themselves in the abstruse crypto landscape of wallets, decentralized exchanges and the clutter bitcoin and crypto.
Bitcoin could be an alternative to gold in some arenas, and gold could be an unpleasant asset to buy and hold, but there is no lost lust for the yellow metal.
It’s confusing. I remember, of course, my younger days in the 1970s when inflation skyrocketed and gold exploded. I’m programmed for that.
What’s different now? The answer is: Nothing, and it could be this « nothing » that explains why gold appears to have no contact with inflation.
Gold outperforms inflation x2, which is what we’re looking for, but the interesting thing is that inflation does is more reliable and grinds every year, 1974 and 1975 are years when gold actually falls while inflation rises.
This came as a surprise to me. It also clearly shows that gold can be relied on to protect against inflation in the long term, but not from week to week.
You could say that gold does not track inflation, but, like other commodities, slumbers and then explodes.
I think we’re seeing that right now. There is a lot to sizzle in the markets. One week it could be natural gas, the next nickel, bitcoin and then the S&P 500 going wild. This is what the participants follow. Assets are in line for a vertical move and here we are with gold. Nothing will happen because nobody cares about gold until suddenly everyone does. Then it will make a vertical. If it does, it will be quick.I am the CEO of the equity and investment website ADVFN. In addition to running Europe’s and South America’s leading financial markets website, I am also a prolific financial journalist. I
I am the CEO of the equity and investment website ADVFN. In addition to running Europe’s and South America’s leading financial markets website, I am also a prolific financial journalist. I wrote a stock market column for WIRED – which referred to me as the « Market Maven » – and am a regular columnist for numerous financial publications around the world. I’ve written & Commodities in the US for titles like Working Money, Active Trader, SFO, and Technical Analysis of Stocks, and I’ve written for pretty much every UK national newspaper. In 2018, I got started at State Street U.K. Institutional Press Awards named Journalist of the Year in the Business Market Commentary category. Over the past few years I’ve become a financial thriller writer and I’ve just published my first non-fiction book title: 101 Ways to Pick Stock Market Winners. Find me here on US Amazon.
You will also see me regularly on CNBC, CNN, SKY, Business News Network, and the BBC to share my opinion on the markets.
Keywords:
