Gold will rebound as the global economy slips into recession and forces central banks to fire up the monetary printing presses
like they’ve done since the financial crisis, said Michael Pento, president of Pento Portfolio Strategies Llc.
“Gold is portable, divisible without losing its value, beautiful, extremely scarce, and virtually indestructible. It is simply the best form of money known to mankind,” he said in a blog post
. “The case for keeping your wealth in gold only becomes more bolstered when real interest rates are negative, faith in fiat currencies is crumbling, and nation states are insolvent.”
The Federal Reserve will trigger the next global recession by initiating its first rate-hiking cycle since 2004
and popping bubbles in stocks, real estate, emerging markets and junk bonds, Pento said. The central bank will then have to reverse course and revive its monetary stimulus programs.
“The Fed will not be able to move very far off of the zero-bound range before the yield curve inverts and the U.S., and indeed the entire global economy, melts down,” Pento said. “This means real yields will become more negative, the U.S. dollar will lose more of its purchasing power and economic instability will intensify over time — the perfect fundamental backdrop for rising gold prices.”
Fed Chair Janet Yellen last week in a speech said she expected the central bank would raise interest rates this year. The Fed has kept rates near zero percent since 2008, when the global economy shrank the most since the Great Depression.
Gold more than doubled from a 2008 low of $712.50 an ounce to a record high of $1,923 in 2011 as central banks including the Fed tried to spur growth by cutting rates and rolling out "quantitative easing
" programs. As the global economy recovered, gold fell 40 percent to its current price of about $1,130.
Pento said gold and gold miners will become more valuable as Fed policy loses effectiveness in stimulating growth.
“As the credibility and effectiveness of central banks comes more into question, investors will seek comfort in gold because it is the sole monetary solution that has stood the test of time,” Pento said. “Every few decades a reminder is needed that all fiat currencies throughout history have lost all of their value.”
Investment strategist Michael E. Lewitt also recommends buying gold while it’s out of favor among investors.
“Gold continues to be unloved, which I view as a reflection of investors’ complacency and/or ignorance of actual global monetary conditions,” Lewitt said in his Credit Strategist newsletter
. “Those who know better should use current price weakness to add to their positions.”
He recommended the Central Fund of Canada, the Sprott Physical Gold Trust or physical gold as the best ways to allocate money to precious metals.
“The dollar is the single most important financial instrument in the world for investors to monitor,” Lewitt said. “Unfortunately, along with all other fiat currencies, it continues to be actively debauched by central banks with no end in sight. For that reason, regardless of what happens, investors should continue to buy gold and save themselves.”
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