Investors should put their money in gold or companies that do well amid higher gold prices, says David Skarica, editor of the Gold Stock Adviser newsletter and author of "The Great Super Cycle." Debt and equity markets also are full of hurdles, and mounting global criticism of U.S. fiscal and monetary policies might eventually lead to higher borrowing costs and soaring inflation, ultimately sparking unrest around the world, he warns.
Gold stocks normally trade between 40 percent and 60 percent of the price of gold, meaning that if gold is worth $1,000 an ounce, a stock index tied to the precious metal is ripe with buying opportunities when at or less than 40 percent or is too expensive when breaking 60 percent of the per-ounce price.
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"Right now the ratio is only about 38 percent, and that's despite this huge run we've had in gold and gold stocks, telling us that gold equities are still cheap compared to the metal," Skarica tells Newsmax.TV.
"Gold stocks are extremely cheap," especially considering that gold is trading near $1,390 an ounce and should soon rise to around $1,700.
Broader stock-market indexes should peak in nine months after finishing recent rallies.
Equities won't plunge, Skarica says, but they won't shine either.
Fewer people own stock these days than in the 1990s due to higher unemployment rates and higher debt levels, which makes any government efforts to spark a stock-market rally less likely to incentivize the public to spend and really get the economy moving again, Skarica says.
The bond market, meanwhile, doesn't look stellar either.
While there are sound companies issuing healthy debt, as a whole, the bond market wrapped up a 27-year bull market in December 2008.
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Furthermore, government debt is less attractive these days due to all the money printed in an effort to revive the economy.
"There's just too much debt issuance coming from the U.S. government, there're too many problems with unfunded liabilities, so I think interest rates will be headed higher, which means bond prices are headed lower."
Officials across the globe, including in China and Germany, have expressed disappointment with U.S. fiscal and monetary policies.
Printing money cheapens the dollar and also sends investors racing to stock markets abroad, pumping up foreign currencies in the process, which many say gives the U.S. unfair trade advantages.
With such a cheap greenback and with such high debt levels in the United States, foreigners who buy U.S. bonds are going to demand higher interest rates when investing here down the road.
Higher interest rates would force the government to spend more servicing its debt and less on fiscal spending, such as military expenditures.
"People are getting fed up with the U.S. abusing its power as the world's reserve currency," Skarica says.
"I think what that's ultimately going to lead to is higher rates, and these other countries are going say 'Hey, you didn't want to do austerity? Well now we're going to make you do austerity.'"
Aside from demanding higher interest rates in the United States, investor nations could slap tariffs on U.S. goods.
A mix of higher borrowing costs and higher inflation could spell trouble for the world as a whole.
"That creates unrest not only in the U.S. but maybe in even more places worldwide because higher commodity prices, especially for people lower on the food chain, economically speaking, whose food expenses are a large part of their expenditures," he said. "That can create unrest in those countries, which could lead to wars somewhere down the line."
Meanwhile, calls for increasing gold's role in foreign-exchange markets have grabbed headlines recently.
Involving the precious metal more isn't such a bad idea, Skarica says.
"I think it might be a little more difficult today because there is more cross-border trading and more foreign-currency transactions etc., but I think you need some kind of linkage of your currency to gold," he said.
"The gold standard keeps central bankers and politicians in line."
World Bank President Robert Zoellick has said the world should find a way to use gold as a benchmark for global exchange rates, although he stopped short of calling for an outright return to the gold standard of the early 20th century.
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Zoellick said in a commentary piece in the Financial Times recently.
"Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."
Many market watchers are taking a wait-and-see approach to gold's role in global foreign-exchange markets — and Zoellick's effects on gold markets.
"Right now, we just have to sit back and say, 'That's nice,' and see if anyone else finds that to be true as well," says Colin Cieszynski, an analyst with CMC Markets in Toronto, according to the Wall Street Journal.
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