Get Ready for Skyrocketing Inflation (And Gold), Says CIO

As the Fed swiftly acts to save the US economy, one financial expert predicts that inflation will a necessary component. Find out what this would mean for gold.

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According to Forbes contributor Bob Haber, the U.S. has wholly embraced Modern Monetary Theory (MMT), a concept that makes many an economist recoil. In its most basic definition, MMT is an amplified version of quantitative easing (QE) that essentially allows central banks to print as much money as they please and ostensibly offset the resulting inflation through taxing the wealthy.

While zero or negative interest rates and QE were already present around the world before the coronavirus, Haber notes that those loose monetary policies will soon seem moderate. He acknowledges that the Fed needs some tools to battle the unraveling recession, yet as the hyperinflated economies of Venezuela and the Weimar Republic show, uncontrolled money printing only moves in one direction.

In essence, inflation is the only way out of the existing economic woes that have combined with the latest blow to create a uniquely difficult situation. Ahead of the pandemic, the U.S. was already dealing with $23 trillion of debt and over $1 trillion of fiscal deficit, two issues that many considered unsolvable. Now, Haber expects the debt bubble to climb to $30 trillion by the end of 2020, paired with the likelihood of increased federal spending to stimulate the economy. To add, there is also an ongoing pension crisis that will hardly change for the better with recent developments.

To Haber, there is only one path for the Fed, and it is a clear one. The central bank has already printed $1.4 trillion over the past two weeks, with the Bank of America equating this to $1 million printed every minute. Evercore ISI estimates that the Fed's $5.7 trillion balance sheet, one that the bank was looking to reduce not too long ago, could double by July. If it does, it will represent 50% of the national GDP, a baffling contrast to the 5% it represented in 2008. As Haber notes, the only remedy for this is to wholeheartedly embrace inflation in order to make $1 trillion seem closer to $100 billion.

Just as the Fed has a single path of action ahead, so do investors looking to respond to the paradigm shift that has arrived. The average investor who previously held a gold allocation between 5% and 10% will need to reassess the landscape and consider increasing said allocation to 15%-20% as the money supply expands.

As Haber points out, investors haven't been waiting around for inflation to take its toll and have already jumped on the gold wagon to protect their wealth. When gold prices peaked in 2012 around $1,900, large funds held 82.5 million ounces of gold. Now, Bloomberg data shows that fund holdings have already climbed to 91.2 million ounces. Aside from commercial investors going long gold across the board, Haber also points out that mining companies have warned that the production of the metal has essentially peaked. Haber firmly believes that gold is not only primed to soar past its all-time highs, but also keep moving up so long as the Fed sticks to its ultra-loose policy.

Here's Why One Analyst Sees Massive Upside Remaining for Gold

After already surging above $1,500 this year, Frank Holmes writes in Forbes that he sees reason for gold to go much higher in 2019. Find out why here

Earlier last week, gold briefly fell below $1,500 before jumping back to its current level above $1,520. Forbes contributor Frank Holmes believes dips like these present a tremendous buying opportunity considering what's in store for the metal. In his latest analysis, Holmes outlined three key reasons why gold could surge far past its recent 52-week highs.

As his first reason, Holmes lists the often overlooked, but paramount factor of U.S. inflation. Despite expectations that consumer prices would rise when President Trump took office due to his trade policies, the official rate of inflation has remained still for the most part over the past couple of years. Now, however, things might be finally catching up.

The August inflation reading showed that core consumer prices rose to an 11-year high, amounting to a 2.4% growth year-on-year. This represents the biggest inflation spike since September 2008. Adding to that, August's report also showed the biggest monthly rise in medical care costs since 2016 and record increases in health insurance costs. Combining this with the effect that import tariffs are likely to have, Holmes thinks that we are headed for a period of rapidly-rising inflation that will catch many off-guard. Gold has historically acted as the premier hedge in order to combat inflation and protect one's savings.

Holmes further points to what he calls the negative-yield phenomenon: currently, $17 trillion of global debt trades with a negative yield, which has helped pushed gold to all-time highs in a number of top currencies. Although negative-yielding bonds haven't reached the U.S. yet, Holmes expects Treasuries to soon be affected by the phenomenon as well.

Besides extremely disappointing showings by the 10-year Treasury and a much-feared yield curve inversion, Holmes also notes that the Federal Reserve has shown a willingness to cut rates in quick succession. A week ago, President Trump encouraged the Fed board to push rates to zero or below zero to compete with other top economies, after previously calling for a rate cut of 100 basis points. Should U.S. yields indeed fall into negative territory, it would not only eliminate a main haven competitor but also cause an immense surge in gold prices in dollar terms.

Negative-yielding U.S. debt is far from the only economic concern, as Holmes lists a slew of geopolitical and economic risks as his third reason for why gold is poised to keep moving higher. The trade tensions have played their part in slowing global growth, as factory production worldwide has now contracted for two straight months. The likelihood of a no-deal Brexit has also brought gold to an all-time high in pound sterling terms, as British investors rushed to the metal in preparation of turmoil. Flare-ups like the unrest in Hong Kong and the recent attack on Saudi Arabia's oil facilities have also kept investors on their toes.

In an interesting note, Netherlands' central bank (DNB) recently hinted to a belief that the monetary system could collapse, and that gold would serve as the asset to rebuild it. Holmes found this to be very much in line with the portfolio strategy of the official sector, as global central banks have been net buyers of bullion since 2010 and have lately upped their purchases by a tremendous margin.

Analysts Predict That Gold Has Enough Force To Move Above $2,000 An Ounce

Gold has seen colossal momentum so far this year, enabling the metal to pick up generally 20% since January

Gold has enjoyed tremendous momentum so far this year, allowing the metal to gain roughly 20% since January. The strength of its drivers became especially prominent this summer, when gold climbed above six-year highs during what is normally its weakest quarter.

Although gold continues to make moves above $1,530 an ounce and many analysts have upgraded their near-term forecast to $1,600 an ounce, a MarketWatch article reports others are seeing $2,000 as a more realistic level in gold's immediate future.

In a recent publication, Brien Lundin, editor of Gold Newsletter, drew a line between what he sees as short- and long-term factors powering gold's remarkable run. The former category includes the now-infamous U.S.-China trade war, whose ongoing escalation has sparked fears that the dispute will bear a heavy toll on the global economy, sending investors flocking towards safe-havens.

According to MarketWatch, other short-term boosters include renewed threats of a recession occurring in the U.S., which were present throughout the Federal Reserve's hiking schedule but came to special prominence due to the recent inversion of the yield curve in both the 2-year and 10-year Treasuries. The likelihood of successive rate cuts by the Fed and persistent weakness in global economic data reports have also played their role as gold's near-term tailwinds. Deric Scott, vice president and senior analyst at precious-metals retailer Metals.com, has also pointed to conflict in Hong Kong and Iran as two events that have been pushing investors towards safety.

Yet both Lundin and Stan Bharti, chief executive officer of private merchant bank Forbes & Manhattan, believe that there is a much stronger force driving gold's prices, which will ultimately result in gold surpassing its all-time highs. In the MarketWatch article, Bharti notes the last 8-10 years have seen investors jump onto the bullish bandwagon in the stock market in a low-interest environment. Yet Bharti thinks that this era is drawing to a close, and that inflationary concerns will once again drive investors back to hard assets.

Lundin also sees the likeliness of heightened inflation as a key element to higher gold prices, as gold has historically acted as the premier hedge against depreciating currencies. The analyst thinks that any indication of quantitative easing (QE) in the U.S. would send gold soaring. Recently, both the Fed and the European Central Bank have hinted towards looser monetary policies in the near future, including a possible return to QE programs.

Over the short-term, Bharti sees gold jumping from its current levels to reach $1,600 in the next quarter. By the end of next year, the CEO expects gold prices to climb above $2,000 an ounce. Lundin echoed Bharti's sentiment, stating that gold's climb to $1,800 or $2,000 is a near-certainty over a longer stretch of time.

Barron's Sees Gold Staging a Comeback in the Near-Term

Despite lack of enthusiasm from large speculators, gold remains as popular as ever.

In a recent article on Barron's, columnist Andrew Bary outlined why gold could be staging a comeback in the near-term. Newsmax reported on the article and wrote that, despite the lack of enthusiasm from large speculators, gold remains as popular as ever among cautious investors and those looking to shield themselves against the dollar's depreciation.

Although it isn't making the headlines, Bary notes that global inflation is something every investor should prepare for. As GoodHaven portfolio manager Keith Trauner explains, governments around the world are dealing with an immense amount of sovereign debt. According to the Newsmax article, policy makers will always see inflation as preferable to defaults or restructuring, which is why a steady uptick in prices will continue to be the norm. Few assets can boast of having retained their value against the dollar over the past century, which makes gold the ideal hedge against a guarantee of high inflation.

Potential losses in the dollar are another source of relief for the yellow metal reports the article. Those who feel that the greenback is propped up and overbought rely on gold's strong negative correlation with it to guard against a potential pullback.

According to the article, the general consensus is that higher interest rates will continue pushing down on gold, with the federal-funds rate expected to rise by 1% between now and late-2019. Yet many forget that the inflationary 1970s, which hosted a record number of rate hikes, still rank among gold's best decades, showing that the metal can thrive in an environment of higher rates.

Gold's unyielding scarcity likewise speaks in favor of a recovery. The roughly six billion ounces of gold available today, worth at least $7 trillion, are minimally replenished year-on-year, as the total annual mining output amounts to less than 2% of the global supply. Mining efforts have been complicated by the cost-cutting closures of many mines over the past decade and a dearth of new exploration, giving weight to warnings that the supply of gold is rapidly dwindling, writes Newsmax.

Large investors with a keen eye for precious metals aren't waiting for gold prices to surge, as evidenced by John Paulson's recently-formed coalition whose goal is to breathe new life into the gold industry. Besides the billionaire fund manager himself, other prominent members of the 16-member group, called Shareholders' Gold Council, include fellow money manager John Hathaway and Egyptian billionaire Naguib Sawiris. Sawiris, who makes the list with his La Mancha Group, said in April that he invested half of his $5.7 billion net worth into gold.

Paulson's decision to unite institutional gold investors comes as large funds continue to shun gold in a gesture that many interpret as a sign of higher prices to come.

Stock Market Fears Reinforce Gold According to Famed, Frank Holmes

As stocks faced a near 1600-point correction, Frank Holmes reminds us of his time-proven advice to hold 10% of one's portfolio in gold.

After a prolonged record-breaking performance, the stock market was finally taken down a notch by the near-1600-point correction that started earlier this month. As panic spread among investors, gold emerged as the standout asset for the duration of the scare.

Frank Holmes recently wrote in a Forbes article that gold's performance against plunging stocks is expected, but no less impressive, and reinforces his time-proven advice that investors should hold 10% of their portfolio in gold.

As the downturn continued, all of the major averages turned negative for the year, with the Dow experiencing its sharpest daily decline ever. The article writes that the CBOE Volatility Index, sometimes referred to as the "fear index", also spiked to its highest point on record, an increase of almost 100%. Given the severity of the drop, experts scrambled to understand what caused it and whether it was a one-off scenario, with explanations ranging from overbought conditions to recessionary concerns.

As opposed to worries that the economy is struggling, Holmes believes the selloff might have been caused by the earlier report from the Labor Department, which showed the highest wage growth since the financial crisis. This added fuel to ongoing concerns that inflation is building up after a lengthy absence, a notion Holmes supports.

The article notes that all of the major indices, such as the consumer price index (CPI) and its alternate version, show that inflation is trending upwards. An inflationary environment wreaks havoc on traditional havens such as Treasury yields and even cash, leaving gold as one of the few assets investors can turn to.

Holmes says that inflation expectations have already given gold a leg up, which could be just the start if the cost of living shoots up. Analysts at BCA Research agree, adding that gold will serve as an important hedge when the stock market turns bearish in the second half of 2019.

Holmes, however, believes gold bulls might not need to wait that long given the amount of volatility and fear already seen in the markets. Despite reassurances that the fall in equities was a momentary lapse, the flight to gold shows that investors are keenly aware of the stock market's propped-up position.

Even with all of its gains, Holmes points out that the ever-steady gold continues to outperform the equity market by a large margin in the 20-year period. Since its untethering from the dollar in 1971, the metal has also beaten out every other asset class, including cash, commodities and bonds, over multiple time periods. The article states that these statistics exemplify gold's low or negative correlation to other assets and show that the metal allows investors to turn a profit in a wide variety of situations.

Seeking Alpha Writer Sees 2 Drivers That Could Send Gold Prices Higher

Gold prices could steadily rise in the short term and long term.

Seeking Alpha's Clif Droke sees two solid drivers that could send gold prices higher, one in the shorter term and one over the long-term.

The short term driver is a potential reignition of safe-haven demand due to a build-up of weakness in stocks.

Some have expressed concerns that the stock market's run is built on overly-optimistic projections, and the recent surge in 52-week lows posted by NYSE-listed stocks corroborates this. In this article, Droke expresses that the broad market faces internal selling pressure, and a continuation of this weakness could lead to a familiar flight to the safety of gold as stock market indices slump.

As his long-term driver, Droke points to an unusual combination of fear and inflation expectations. While these might not seem to go hand-in-hand, Droke argues that they have been the yellow metal's biggest backers since last year.

After a jump in prices brought on by the merciless campaigns of both presidential candidates, gold assumed a downwards trajectory when Donald Trump was elected in November. The "Trump bump" saw investors abandon safe-haven assets in order to load up on equities, riding on the promises of a stronger and more stable economy.

However, the article points out that this faith has since largely evaporated amid political concerns, including uncertainty over Trump's tax plan and its ability to stimulate the markets. A strong booster for gold on its own, political uncertainty in the U.S. is aided by inflation expectations, which Droke feels are significant enough to facilitate a gradual increase in gold prices.

While the markets aren't expecting high inflation in the near future, Droke reminds us that present-day inflation is still markedly higher than it was two years ago when deflation was on the horizon. Furthermore, signs such as a lessened appetite for money point to an upcoming increase in U.S. inflation.

Droke notes that the demand for money was at its highest immediately after the credit crash as the world economy looked to rebuild itself. Since then, economies around the world have improved, led by developed Asian countries – in turn, demand for money has subsided as investors braced for higher inflation, improving the outlook for gold over the longer term.

Despite recent dips, Droke points out that the gold price is far above its December 2015 lows and is closer to its 4-year high than it is to the low. Cracks in the equity market, concerns over the U.S. political situation and a rise in inflation expectations should provide ample support for the yellow metal moving forward.

Why You Shouldn't Doubt the Shiny Yellow Metal

Gold has been experiencing its best quarter in over 30 years. Should you be doubting the metal and is it wise to keep buying? See what this leading investor is saying here.

With the recent price fluctuations that gold has seen, many have been wondering what's next in store for the wise investor: can gold sustain its rally, or is its current strength a come-and-go hot money affair?

Speaking to CNBC in a recent interview, known gold guru George Milling-Stanley said he's leaning heavily towards the former. Milling-Stanley is a true gold buff, having stuck to the metal for 40 years in spite of naysayers – his faith paid off, as he now manages the $33 billion S&P depository receipts (SPDR) Gold Trust fund that's up 15% year-to-date.

His experience with the yellow metal also lets him refute these naysayers easily, especially since they tend to focus on gold's perceived lack of return. "For 40-something years, since I first got into gold investing in the 1970s, people have been saying it doesn't pay a return. Well, guess what? Not much else does these days, either. People are charging you to store money. [gold] GLD costs less at 40 basis points annually than holding Swiss francs," Milling-Stanley explains.

While recognizing the risks that hot money poses, he doesn't see it as responsible for gold's early-year success: "We think most people were dangerously underweight gold or out of the market altogether," he said. Instead of huge gains ahead, Milling-Stanley would prefer to see a moderate steady increase, predicting such thanks to demand "across the board" – including that from emerging markets – and stagnant mine production. "I would like to see gold go up steadily by about $100 in 2016, so to the $1,350 to $1,375 level by Christmas. That would be sustainable."

Milling-Stanley also mentions his four talked-about factors that have been keeping gold down in recent years. Each of them is now swinging towards the metal's favor: the dollar trade won't be as monolithic as before, the Fed is struggling to reach inflationary goals, equities are no longer posing a significant threat and investor sentiment is shifting. Milling-Stanley explains why the last point is particularly important: "A big factor is the change in the perception of risk, which has done a 180, even if the risks haven't changed. People are looking for risk-off assets. Risk-off trading was enough to give us a $200 rise. The perception of a riskier environment is liable to be what's governing here."

As for investing, the gold expert doesn't think anyone missed the boat: those who wanted to sell gold already did so at its $1,800 level, so there shouldn't be a surge in selling back or recycling until the metal goes a lot higher. And Milling-Stanley believes it can: "This thing could run. I won't say it's going to, but it could. It showed us in 2011 it could go up dramatically," he added.

Is gold the asset you can't hack, erase or delete? Read about this here.

5 Popular Myths About Gold, And Why You Shouldn't Believe Them

There's plenty of misinformation in the public domain about investing in gold and silver. Here are some reasons to be skeptical.

Stefan Gleason of TheStreet recently tackled the five most common gold myths, why they are wrong, and how this misinformation can cause investors to shy away from gold. Gleason lists the myths as follows:

Myth #1: A rise in interest rates will cause the price of precious metals to go down.
Analysts who support this idea ignore the fact that gold and silver had a successful run in the late 1970s, when interest rates were steadily on the rise. Gleason argues that only real interest rates affect the price of precious metals; as long as these are below the rate of inflation, and thereby considered negative, gold prices will likely be strong.

Myth #2: The possibility of government confiscation.
The 1933 Executive Order by President Franklin D. Roosevelt, which ordered U.S. citizens to exchange their gold bullion for cash, was not nearly as far-ranging as many are lead to believe. The government did not seize bullion kept in citizens' homes, and while there was some minor confiscation of bullion from safety deposit boxes in failed banks, another raid of this type is highly unlikely given that the dollar is no longer on a gold standard.

Myth #3: Numismatic coins are "confiscation-proof".
Often perpetuated by dealers of rare coins, the simple fact is that no law says that numismatic coins are not at risk for confiscation. In fact, Gleason suggests American Eagles as an option to consider, saying, "They are considered to be legal tender coins in the U.S., which would seem to provide at least some legal barrier to any potential gold prohibition effort."

Myth #4: Mining stocks can offer greater gains than bullion.
Gleason writes that gold and silver bullion is notably safer, as it experiences much less severe downturns than mining stocks. He adds that "while mining stocks can be attractive at times for speculators or traders, they aren't suitable for most buy-and-hold investors."

Myth #5: The possibility that greater powers are keeping gold's price down.
Price manipulation occurs in all asset markets – not just in the gold market – meaning that no asset class is completely immune. Regardless of whether there is large-scale manipulation or on a smaller level by a few rogue traders, the constant industrial demand for precious metals will likely always make them a safe investment for the "little man" who avoids future markets and owns actual bullion.

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