America’s so-called economic “recovery” is unsustainable and the looming financial crisis could push gold prices to about $2,500 per ounce.
At least, that’s the opinion of Michael Lombardi, founder of the investment research firm Lombardi Publishing and the popular financial web site Profit Confidential. He has been widely recognized for predicting the gold bull market in 2002, the housing crash of 2006, and the economic crisis of late 2007. Now, Michael believes we’re heading toward another financial calamity and it could be a game changer for the precious metals market.
I had a chance to chat with Michael Lombardi about the economy and the future of gold prices. The following is a transcript of our conversation. It has been lightly edited for clarity.
Moe Zulfiqar: In your regular column for Profit Confidential, you have been telling readers to watch central banks’ gold purchases. In your view, why is this so important?
Michael Lombardi: Each day, I am surprised to see how gold purchases by the central banks are ignored. It looks as if the mainstream has taken an oath not to talk about gold. Their actions say they are very bullish on gold bullion.
Don’t ignore this. In the first quarter of 2016, central banks purchased 109 tonnes of gold bullion. They have been buying gold for 21 consecutive quarters.
Moe Zulfiqar: Many analysts regard gold as a “pet rock.” They don’t see any logic in owning gold or other precious metals. How do you address these critics?
Michael Lombardi: I have one question to those who oppose owning gold: if the yellow metal is so useless, why does the Federal Reserve hold more than 8,000 tonnes of it and why do Germany, France, and Italy hold more than 60% of their reserves in gold bullion?
The answer is simple: central banks realize very well that gold holds value when uncertainty prevails. Right now, we have an abundance of uncertainty. They know they need gold.
Don’t for a second think the central banks will tell you when they are going to buy gold; they will buy first and report after. Why? Because speculators could front-run them and send gold prices higher.
Moe Zulfiqar: Gold prices have been in the doldrums over the past few years. Are we nearing the end of the precious metals bear market?
Michael Lombardi: I have been following the markets for a while, and there are a few things I have noticed.
One of the biggest things, I believe, is the irrationality among investors. At times, as a whole, investors value something at more than its worth, and other times, they completely ignore the best opportunities.
Currently, I believe investors are ignoring gold. The metal is severely undervalued.
Moe Zulfiqar: Where are gold prices heading next?
Michael Lombardi: I am not a big fan of providing targets, but I am certainly not ruling out $2,500-an-ounce gold in the next two to three years. All the signs suggest it could really be possible.
Don’t forget that the gold market is severely small compared to the stock or bond markets, so you don’t really need a lot of inflows to send gold prices skyrocketing. I truly believe that 2016 could be the year we will reference back to as the beginning of the bull market in gold prices.
If you have time on hand, pay attention to mining stocks. As gold prices increase, these stock will pay massive returns.