1 Reason to Remain Bullish on Gold: Central Banks
Don’t be too discouraged by the recent decline in gold prices whatsoever, because they could shoot through the roof. In fact, $2,000 gold could be possible sooner rather than later.
Let me explain…
If there’s one thing that should keep you bullish toward gold prices, it’s the central banks. As it stands, they are involved in a very dangerous race. Central banks believe that if they keep interest rates low and print more money, it could lead to more lending, and eventually, we see economic growth.
At the most basic level, it sounds like a good idea, but be very careful before subscribing to it. Remember, low interest rates and money printing lowers the value of the currency as well.
Looking at all this, you have to ask one question: do low interest rates and money printing do anything at all? Sadly, they don’t.
One of the prime examples of this is Japan. The Bank of Japan has been printing for several years and has kept interest rates low for some time. Unfortunately, the Japanese economy has remained stagnant and the outlook is dire.
The Japanese yen took the hit. Please see the chart below:
Chart courtesy of www.StockCharts.com
Relative to major currencies, the Japanese yen has declined roughly 30%.
Don’t for a second think that the Japanese currency is the only one that has taken a hit due to central banks’ irresponsible policies, though. This phenomenon prevails across the globe. You see, there are currently five central banks that are implementing negative interest rate policies (NIRPs) and I don’t doubt that more will soon follow.
Just recently, the Bank of England cut its benchmark interest rate and started an asset purchase program—a.k.a. money printing. (Source: “Bank of England cuts Bank Rate to 0.25% and introduces a package of measures designed to provide additional monetary stimulus,” Bank of England, August 4, 2016.) Could it be the next bank to implement a NIRP? It’s very possible.
Gold Prices Outlook: Bullish If You Own It
Dear reader, count on this phenomenon to create wild fluctuations in the currency markets. It has already done major damage and it has ability to do even more.
Now, you must keep in mind that whenever currencies are in trouble, there’s one thing that stores value and wealth: gold. Gold bullion has a solid record of holding value—we are talking thousands of years and longer than any other fiat currency.
As currencies become volatile, don’t be shocked if investors seek safety. Gold does a great job at offering just that. In the midst of all of this, we could see gold prices skyrocket in a relatively short period.
Keeping all this in mind, it is often wondered, why haven’t gold prices skyrocketed already if central banks are engaged in irresponsible policies?
Here’s what you have to keep in mind: investors initially bought into the idea that all is well. They also bought into the idea that interest rates will eventually go higher. In addition to this, the returns on the stock markets were looking attractive.
Investors are starting to realize that they sold gold for all the wrong reasons and are coming back to the yellow precious metal. Gold is up more than 25% year-to-date but still remains oversold. Give it some time, though. Gold prices hitting $2,000 isn’t a farfetched idea. It could happen much sooner than many think.