Gold has done just what we hoped and expected it would. Now it’s time to take stock and consider what it all means.
To recap: Last Friday I told you that gold was within a “hair’s breadth” of hitting our key $1,400 target.
Because the gold price had plummeted in water-fall fashion in 2012, from around $1,800 to $1,400, this lower level was being widely watched by traders.
In short, once gold cleared $1,400, there was very little technical resistance all the way up to around $1,800!
That’s why this level was so important...which is why I rushed out that alert to you on Friday.
Sponsor:
Breaking Through
Yesterday gold wasted no time in barreling through $1,400. It soared over $20 to $1,419, giving it plenty of room above the key benchmark.
Today the price catapulted higher from the opening, bringing in buying from around the world just as we expected.
It wasn’t long before the gold price hit a high of $1,439.
Then the bears attacked, no less than four times. The first three times, the gold bulls shrugged it off and gold moved even higher. This was very encouraging.
On the fourth try, however, the bears had the advantage of a piece of news: Fed Chairman Powell gave a speech that struck a cautionary tone on further rate hikes, leading to a sell-off in not only gold, but U.S. equities as well.
This was the first set back for gold in over a week. And even it wasn’t much — after dipping a couple of dollars into the red, the price quickly rebounded into the green.
Still, this was enough of a jolt that we should re-examine our base case for gold.
Why Much Higher Gold Prices Are Inevitable
The good news is that, while there are geo-political issues that are prompting some safe-haven demand for gold, the primary drivers for this rally are longer-lasting monetary concerns.
Specifically, the Fed’s shocking turnaround — from hawkish a few months ago to essentially promising rate cuts today — is massively bullish for gold, silver and mining stocks.
Many have been surprised by this turn, and in truth even I have been amazed by how quickly it has come. But it has always been inevitable.
Let’s review why.
The primary reason, of course, is the size of the federal debt. It isn’t getting out of control...it’s already well out of control.
Historically low interest rates, as in rates near 5,000-year lows over a decade, encouraged a massive accumulation of debt at all levels. On the sovereign side alone, central banks took advantage of these ultra-low rates to pile even more debt on top of already-towering totals.
It was easy when rates were so low. But, as I’ve shown in Gold Newsletter in recent months, just the relatively minor rate hikes that the Fed was able to get in were enough to send the costs of servicing the federal debt sky-high.
The bottom line: “Normal” interest rates are no longer possible.
If the Fed somehow managed to get the fed funds rate to only 3.0%, my projections show that the annual debt-service costs would approach $1 trillion.
That’s one trillion dollars...every year...paid out before a cent went to national defense, Medicare, Social Security or anything else. And those interest payments would go to fat-cat investors and central banks, including China.
There’s no way the U.S. public would stand for that. It would be politically impossible, and the Fed wouldn’t allow it to happen.
So they can’t raise rates. That leaves the other two options: Stand pat or cut rates.
As we’ve seen, the markets won’t allow the Fed to stand pat, at least not for long. The equity and real estate bull market, the foundation of “wealth effect” that the Fed tried to build, demands ever-greater injections of easy money to stay alive.
So the Fed will have to cut rates. And in signaling to the market that they had its back in the last Fed meeting, they also indicated in clear terms that they’re going to cut rates soon.
And when they start cutting, they almost always start a cycle of ever-lower rates.
The result will be ultra-low or negative real rates (adjusted for inflation) — a situation that is massively bullish for metals.
So that’s good for gold. But it also does nothing to address the bigger problem...
The Out-Of-Control Debt
Keeping interest rates at ultra-low levels only temporarily keeps the wolves at bay. The federal debt is still growing, ever more quickly, and within a few years it simply won’t matter how low interest rates may be.
We simply won’t be able to pay even the interest on the debt.
What’s the solution?
It’s the same one that every civilization has used over and over again, through thousands of years of human history.
They’ll devalue the currency.
In ancient times, they would use ever-cheaper gold or silver alloys in their coins, or simply clip the edges of the coins, to debase the currency. Cheaper currency means that the debts are also cheaper.
That’s the way it’s going to work again. Nations will print fiat money hand-over-fist to pay off their debts.
That highlights the sole difference this time around. Because every developed economy is in the same sorry shape, they’ll all have to debase their currencies.
So if the currencies can’t devalue against each other, what can they devalue again?
Obviously, gold. And silver. And other “tangible” assets.
This is why much higher gold prices are inevitable...and why what we are seeing now are just a harbinger of what’s to come.
An Explosive Near-Term
As exciting as the long-term picture may be for gold investors, the near-term is going to be a lot of fun as well.
Once again, by clearing $1,400 so decisively, gold will attract massive new demand from traders around the world.
Thanks to over a decade of record-low interest rates and financial accommodation, there are absolutely enormous pools of capital sloshing around the world’s markets today. Just a very small shift in allocations from other asset classes toward gold will send the price soaring.
What we’re seeing right now could be just a taste of what’s to come in the days just ahead.
There will be bumps along the way; nothing goes up in a straight line. In fact, gold is in over-bought territory right now, and a pause to consolidate these gains would be healthy.
But the future is clear...and it’s one with far, far higher gold prices. You’ll want to make sure you’re ready for it.
One final note: The reaction to last Friday’s offer of a half-price subscription to Gold Newsletter and a $400 savings for the New Orleans Investment Conference was spectacular, to say the least.
So I’m extending it for a couple more days. Click on the links below to take advantage of these savings while you still can.
All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference
CLICK HERE
Or Call Toll Free 800-648-8411
To Register For New Orleans 2019
NOTE: Click the link above to register, and then click the green “Tickets” bar. Once there you can enter “FREEGOLDCLUB” as your Promotional Code to collect a free Gold Club upgrade (a $189 value).
CLICK HERE
To Subscribe
To Gold Newsletter
At Half Price
