Looking at what’s happening in the global economy, it could be a bad idea to be bearish on gold prices. If anything, the yellow precious metal seems undervalued and outright ignored.
Just as gold prices are up close to 15% year-to-date, we see the bearish sentiment pour in. We are hearing big banks come out against the precious metal. We are hearing for calls of $1,000 per ounce of gold once again.
Don’t get lured into this whatsoever.
If you want to know where gold prices are headed, just pay attention to what’s happening in the global economy.
I remember the financial crisis in 2008 and 2009 very clearly. At that time, we were told interest rates are low and the Federal Reserve is printing. If you don’t buy gold now, you will hate yourself later. Investors rushed. We saw a big rally in gold prices. In 2011, the yellow metal reached $1,900.
As it stands, very similar reasons are present and we are told gold is useless. Interesting, to say the very least.
In 2009 we had low interest rates, now we have negative interest rates and multiple central banks are printing without remorse. In fact, I feel as if central banks around the world are waging war against money.
Japan, the Eurozone, Sweden, Denmark, and Switzerland have each implemented a negative interest rate policy. Canada could be next.
As for printing, the Bank of Japan has been printing money for a very long time.
In addition to this, we are hearing a significant amount of noise that suggests the European Central Bank (ECB) will be printing more than it already has been and another rate cut is possible. If you listen to the press conferences and statements of the ECB officials, from our perspective, they are setting up the stage for it.
Oh, and if you thought the U.S. was going to raise rates, you could be very wrong very soon.
During the testimony to the Senate Banking Committee, the chairwoman of the Federal Reserve, Janet Yellen said regarding negative interest rates that “We’re [the Fed is] taking a look at them… I wouldn’t take those [negative interest rates] off the table.” (Source: “Janet Yellen: Negative rates possible in U.S.,” CNN Money, February 11, 2016.) In other words, negative interest rates could be possible in the U.S. as well.
Don’t ignore the People’s Bank of China when looking at gold prices, either. It has been lowering rates and it will not be shocking to see it print as well. It’s just a matter of when and we question if it will be vocal about it at all.
With money printing in full gear and negative interest rates, it’s puzzling to see negative sentiment building up for gold prices. It’s irrational.
Know that negative interest rates and money printing means devaluation of currency, and gold is one of the only hedges against this. It stores wealth.
Looking at history, one thing is for sure; investors tend to realize their mistakes and panic. Gold prices, I believe, could see something like this. The precious metal is currently deemed useless. It could change as the value of money declines further and investors could rush to buy more.
We saw a glimpse of investors rushing to buy gold to protect wealth a few days ago when gold prices jumped $50.00 an ounce. It will not be surprising to see this kind of daily gains going forward.
Courtesy: Moe Zulfiqar
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