This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: 10 forces precious metals investors should watch in 2022, a look into stockpiling of gold by global central banks, and why gold should be included in every investor’s savings.
10 key factors driving the precious metals market this year
ETF Trends has published a concise, information-rich report that outlines 10 key forces precious metals investors must watch this year. The first is the uncomfortable relationship between the M2 money supply, U.S. 10-year Treasury after-inflation yields and the dollar. The monetary expansion and the highest debt level in nearly a century have brought on historically low yields. There is also a general appetite for a weaker dollar among central banks to loosen global financial conditions.
Monetary tightening is the talk of the town, and we’re yet to see it actually happen. The less stimulus and liquidity, however, the higher the macroeconomic risks which are seemingly coming from all fronts. The Federal Reserve is being pressured by the current government’s desire to avoid going down in history as the administration that wrecked the U.S. dollar. Therefore, bailouts (even in the case of a stock market meltdown) seem less and less likely.
The Fed’s finally closing its wallet, no longer offering unlimited quantitative easing. This change in business-as-usual is also primed to make the markets reassess both stock prices and the risks that they offer. We might also see a general move away from the reflation trade and into safe-haven assets, among which gold will likely surpass underperforming Treasuries.
Besides central banks diversifying away from the dollar, consumer demand for gold jewelry is also expected to make a notable return. It will do so after hitting historically low levels during which gold nonetheless posted consecutive all-time highs.
Some of the sharpest price increases this year could come from institutions, though, as sellers vanish and interest in safe havens that guard against inflation returns.
Central bank gold bullion purchases aren’t discussed enough
Eurasia Review’s Claudio Grass notes that central bank gold purchases feel under-reported given their weight. Central bankers have done nothing but dismiss and undersell gold’s importance.
This new record went largely underreported in the mainstream financial press and almost entirely unmentioned in official central bank statements and their guidance or policy commentary. Quite to the contrary, policymakers in the US, the Eurozone and in most other major economies, have for over two years now insisted on repeating the exact same talking points and all kinds of arguments and convictions that would in fact nullify the case for holding gold at all.
At the same time, the official sector’s total gold holdings climbed to a 31-year-high of 36,000 tons by the end of 2021. This seems like a pretty clear case of “Do as I say, not as I do” to Grass. It’s hard to disagree.
This kind of disconnection between words and actions, says Grass, seems like a repeat of the “transitory” inflation narrative.
We watched the prices of everything go up as central banks assured people that the spikes were temporary, only to dismiss the notion entirely. Central bank officials are just as likely to admit that gold is a sound investment as that that high inflation is here to stay. Watching their actions instead should suffice. If our current 40-year record-high inflation isn’t the new normal, why do so many global central banks want more gold? After all, gold is known primarily as an anti-inflation play.
Another force that might be flying under the radar here… The drop in the U.S. dollar’s role as a global reserve currency. The greenback’s loss of value against gold over the last decade has been a hallmark of this push, and inflationary spikes are certainly there to expedite the process.
Russia is spearheading the push against the dollar, with its foreign reserves in gold beginning to exceed those in dollars for the first time in history. China, too, would hardly mind seeing a change regarding the international trade’s status quo. Far from just these “dollar detractors”, countries around the world have been buying massive amounts of gold, from Thailand’s 90 tons, India’s 70 tons and Brazil’s 60 tons, all acquired last year. This tells us that nations are both preparing for a dollar decline and a lengthy inflationary period where everything but gold loses value.
How gold remains a necessity in your portfolio
Gold is a highly unique asset and its role in a portfolio should be approached in accordance. It defies classification, acting as an investment, a reserve asset and a currency. It works well in times of peace and strife, economic prosperity and uncertainty. And it can always be relied upon to perform roles in a portfolio that are both difficult and varied: offering returns, providing diversification, ensuring liquidity and establishing overall performance.
The year ahead is yet another example of an uncertain environment where gold is sure to fulfill all of those roles. There are concerns that supply chain issues will persist for some time for multiple reasons, with inflation being a prominent one. An inflationary environment with a slowing global economy, or “stagflation”, is exactly the kind of environment gold outperforms in.
On the opposite side, however, we have central banks recognizing the ill effects of their loose monetary policies. We’re hearing talks about tightening and balance sheet reductions. Some don’t believe this will materialize, while others have already priced the scenario in. And while a tightening schedule with a stronger U.S. dollar seems fairly bearish for gold, historical analysis shows that the metal has done well during times like this. Taking into account that both real and nominal interest rates will remain low or negative, gold seems ready for another year of standout performance.
As has always been true, the metal’s lack of counterparty risk and aforementioned diverse drivers guarantee its resilience. A stronger economy will boost jewelry and industrial demand, while a flimsy one will bolster things on the investment end, especially due to currency debasement. In both scenarios, the price is held up considerably by ongoing bullion purchases by central banks, which have only paused their net gold buying once in more than a decade.
For an asset that is too often cited as a hedge, it’s also important to note gold’s long-term performance. It has consistently outperformed all commodities, currencies and bonds while rivaling U.S. and global stocks. Remarkably, it has done so not only without introducing risk to a portfolio, but instead lowering it.
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My prediction is Gold finishes the year at about $1800. We can check back in a year.
I’ll take that bet Ken…see you next year if we are both still here and not too busy fending off the Vaxxed Zombies…the unVaxxed illegals, the Chicoms, the UN, and the frigg’in NWO???
GOLD PRICES – 100 Year Historical Chart (the past is prologue but even more bullish for precious metals).
https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart
There are times in history when protecting your wealth should be the primary objective of your investment strategy.
As Mark Twain said: “I am more concerned about the return of my money than the return on my money.”
To preserve wealth in a fragile financial system, history has proven that it requires acquiring hard assets which have no counterparty risk.
(Someone will always say…get food, water, security, community, Yada, yada, yada first! Yes, gold is only for extra wealth. That is a given.
However, gold’s potential lies not only in hedging against unforeseeable events (did I say in your hands with NO COUNTER PARTY RISK) there is also a genuine investment case for gold, because compared to the all-time highs of 1980 and 2011, gold still appears cheap in relative terms.
Gold was the trade of the decade from 2000 to 2010 and many rode that bull hard.
I believe Gold is the foundational stage of the 3rd Gold Bull Market of my lifetime since Nixon cut it lose in 71. I watched the first, made a killing on the 2nd, and I’m positioned for the third.
Timing is everything…especially going macro.
In light of these macro and market figures it is therefore difficult to imagine that we are currently at the end of a gold bull market.
CONCLUSION:
Two huge steps forward, one small step backward – that was gold’s rhythm over the last six years. If gold keeps this rhythm, 2022 and 2023 will indeed be golden years for gold. And this much is certain:
The band is already playing on the deck of the fiat Titanic.
Credit King World News for much of the above.
PS: Silver however is the real rocket to ride and have for everyday purchases post TSHTF.
Gold & Silver may or may not ever be the hedge again they were meant to be against tyranny. TPTB have a lot of skin in the game and have shown time and time again they are willing to monkey hammer any price discovery with paper contracts. Informal markets may give rise to its use as a means of trade outside the soon to be coming to a bank near you CB Digital Currency. Will this lunacy ever stop? Will freedom again ever be valued over subjugation?
Yes. But not in our lifetimes.