NEW YORK (May 8, 2014) – Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, had the following comments:
Despite improved economic indicators and optimism among Fed policymakers, in all truth, the economy remains anemic – and will continue to underperform for a very long time to come, suffering from what some economists have labeled “secular stagnation.” The latest economic data show a bounce back from the harsh winter interruption in activity – not an improvement in the underlying fundamentals as wishful thinkers believe.
The household sector simply cannot fund a recovery in consumer spending nor in home sales and new construction – prerequisites for a robust economy – because it remains overly indebted, underemployed and rightfully cautious. Meanwhile, much needed public spending is politically impossible.
Factor in a likely correction – or, worse yet, a crash – on Wall Street and we still have more juice for a resumption in gold’s long-term bull market.
Equity prices have been inflated by central bank monetary creation, not by a fundamentally healthy economy. The broad market indexes (like the S&P 500) are at or near record highs, not because most companies have moved higher but because a small few that dominate the indexes are up sharply.
Long-lasting bull markets in equities have historically been a reflection of long economic expansions, bringing economic benefits to a large swath of the population – and they have typically undergone occasional mild corrections. Now, we have stock markets rising – not because the underlying economy is healthy, but because it’s not – and the Fed, in response, has been printing money that finds its way to Wall Street.
Moreover, this bull market in equities has not been tempered by periodic corrections as we’ve seen historically, leaving many investors today with overvalued portfolios. Not having benefitted from occasional corrections, the odds now favor a severe correction, or even an outright bear market in equities.
As noted above, the recent statistical improvement in the U.S. economy is just a bounce back from the past winter’s weather-induced economic chill. As a more realistic view of economic prospects takes hold, the financial markets will re-assess expectations of Fed policy – and this could be the catalyst triggering a resumption of gold’s long-term bull market.
Sooner or later, equities are due for a setback – perhaps mild, more likely not so gentle. Either way, the competition for investment funds between equities and gold – a competition that equities have won in recent years – will shift increasingly toward bullion.
About Rosland Capital
Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver, platinum, palladium and other precious metals. Rosland also helps people who wish to protect their wealth by including a gold or precious metal-backed IRA in their asset portfolio.
About Jeffrey Nichols
Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.