You wouldn’t know it reading the Wall Street Journal, Bloomberg, or the other popular investment news sources . . . but thus far this year gold prices are up some 16 percent, making the yellow metal just about the top-performing investment asset class of 2016.
We expect gold will continue to be one of the best – if not the best – investment-asset class in the months and years ahead. In fact, by this time next year, gold prices could challenge or even surpass their all-time high of $1,924 an ounce reached briefly in September 2011. And, as outlandish as it may seem, gold could double or even triple its historic high by the end of this decade.
What are some of the bullish factors likely to contribute to gold’s coming historic run?
Believe it or not, the recent “Panama Papers” affair is likely to give gold a surprising short-term boost, driving the world’s wealthy and most powerful to seek the safety and anonymity only gold can provide. If you can’t trust your private banker anymore, just who or what can you trust? The answer, of course, is gold!
Safe-haven demand has contributed to the first-quarter gain in the price of gold – and will continue to support a rising price for years to come. Global economic and geopolitical risks are certainly not diminishing anytime soon – and, some would say, these risks are likely to worsen. Moreover, when other drivers of the gold price are supportive, history suggests safe-haven buying has its most powerful influence on the metal’s price.
Secular stagnation, an extended multi-year period of disappointing global economic growth, will pressure the Federal Reserve, the European Central Bank, the People’s Bank of China, and other prominent central banks to pursue stimulative monetary policies characterized by lower than normal interest rates . . . which, taken together, are likely to stoke future consumer-price inflation and inflation-hedge demand for gold.
Moreover, demographics – that is to say population growth – in China, India, and other gold-friendly countries means that many millions of people will join the ranks of jewelry buyers and gold investors, further boosting long-term demand for the metal over the next few years.
Here’s a crucial point you won’t hear elsewhere: The shrinking supply of freely available gold means that less metal will be offered in the marketplace . . . and those wishing to accumulate the metal will have to pay more, much more, for each and every ounce.
Freely available supply includes not only current mine production and metal recovered from old jewelry scrap but, most importantly, the net re-sale of bullion and small bars by current holders.
In recent years, Western investors and institutional speculators with little lasting commitment to gold have been selling the yellow metal to buyers in the East – mostly Chinese and Indians – buyers (including a few central banks) who are likely to hold onto their newly acquired gold, not just for years, but for decades and even centuries to come.
In addition, wealthy retail investors in the United States, Europe, and elsewhere have also been big buyers of bullion coins and small bars . . . and, importantly, share a long-term affinity to the yellow metal.
At the crux of this bullish long-term forecast is the observation that large quantities of gold have migrated from Western investors (including hedge funds, institutional speculators, bullion banks, etc.), who have no lasting allegiance to the yellow metal . . . to Greater China, India, a few central banks, and wealthy retail investors around the world – most of whom will never re-sell metal back into the market, except at sky-high price levels.