I know I am one of the very few who are saying this: higher gold prices are on the way. I say this because the fundamentals of the market continue to improve. With this, I am asking if 2015 will be the year when we see the beginning of another bull run in the precious metal’s prices.
You see, there are many factors at play when it comes to valuing the yellow metal, but two of the most critical ones I look at are: 1) central banks and their monetary policies, and 2) the state of the global economy.
Gold Prices to Jump Higher Thanks to Central Banks
As it stands, central banks around the world are involved in unprecedented monetary policies. Know this: the damage is already done. If these global monetary policies continue, the problems are going to be much bigger.
For example, look at what happened in the U.S. economy. The Federal Reserve printed without any remorse. Yes, the balance sheets at the banks got better, but what happens now with all the money in the system? It has already created a significant amount of capital misallocation—just look at the bonds market and stock valuations.
Higher Inflation Ahead in the U.S.?
Mind you, the Federal Reserve isn’t the only central bank that makes owning gold a compelling argument. Others, big and small, have and are doing the exact same. Consider the central bank from India; it’s failing to keep its money supply in order. Between 2008 and 2014, the M1 (most basic) money supply, which includes notes and coins plus on-demand bank accounts, increased about 110%. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 7, 2015.)
Saying the least, across the globe, there’s too much money in the system. Understand this: if the central banks continue to print money and unfortunately more and more are joining, it will create inflation down the road—across the globe, not just the U.S. It may not be the case now, but in the long-term, we will have to face severe consequences. The yellow metal will shine then.
Uncertainty in the Global Economy
I am convinced that what central banks around the world are doing is just a short-term fix. And they are currently failing.
Despite money printing and near-zero interest rates, the global economy continues to show signs of severe stress. The eurozone remains in deep water, China is slowing down significantly, and the U.S. economy is showing signs of stress as well.
Global trade is slowing. Just look at the chart of the Baltic Dry Index (BDI) below.
Chart courtesy of www.StockCharts.com
The BDI essentially tells how trading in the global economy looks. When it declines, it means countries aren’t trading as much among each other. It currently sits at a much lower level than it was back in 2009.
Look at the commodity prices, too. They are seeing massive declines across the board. This suggests demand is slowing and a global economic slowdown shouldn’t be ruled out. If all of the same continues, expect uncertainty to increase. This will be great for gold.
Think Long-Term with Gold
I have said it before and I will repeat myself again; don’t be bothered by what happens to gold prices in the short-term. Think long-term.
I am always looking for the next big trade. Right now, I believe it’s gold. The yellow precious metal is suggesting solid gains when all the dust settles and reality kicks in.
With this, I continue to take the stance that gold mining companies are selling for a massive discount. As I see it, it will be very irrational not to at least look at them once. Some of the biggest mining companies, with assets around the world, with cash on hand, and massive reserves and resources in safe geopolitical areas—they are selling for pennies on the dollar.