Gold soared in the first two trading weeks of 2020. Fresh investor demand fueled a sharp run-up following a U.S. military strike against a top Iranian general. Gold is now trading at new seven-year highs.
The military action is serious and one of the drivers for gold’s strength. But, geopolitics are only one of many factors that support the new secular bull market already underway in gold.
Gold is in the early stages of a historic new bull market. Looking back, history shows two major bull markets. The first from 1971-1980. The second from 1999-2001. The monthly gold chart reveals a third new bull market is already underway.
During the 1991-2001 bull market, gold rose 657%. Using history as a guide with conservative estimates that opens the door to a run toward $5,000 an ounce over this decade.
There are four major drivers in this new bull market in gold:
- Impotence of fiscal and monetary policy
- Currency debasement
- Geopolitical tensions
- Supply and demand
Impotent Policy Tools Leave US Vulnerable
Governments and central banks chipped away at their future policy effectiveness since the 2008 Global Financial Crisis. Monetary policy experiments with negative interest rates, quantitative easing and long-term low interest rates leave the U.S. Federal Reserve and other global central banks impotent to counter-act future financial crises and economic downturns.
Currency Debasement Continues
The record-size $22 trillion American government debt ties the hands of future Administrations to stimulate economic growth when it will be most needed. These policies continue to debase and devalue the paper currency you hold in your equity and bond investment accounts. Gold will continue to climb higher as these policies continue to erode the value of fiat currencies.
Searching for a New World Order
Geopolitical tensions are growing around the globe as the old world order rapidly destabilizes. The East is rising up. China and the United States are already at war over trade. The financial system is vulnerable to dramatic upheaval in the years ahead as the world’s two largest economies will battle for dominance on many fronts. The United States has the disadvantageous of being a debtor nation. China holds many cards with its trillions in reserve.
The U.S. dollar will fall from its pedestal as the world’s reserve currency at some point in our future, which will drive interest rates and inflation easily into the double digits and support another advance in gold.
Demand Will Outpace Supply
Peak gold supply is well known and demand is rising. Central banks were voracious buyers of physical bullion in recent years along with diversification from high-net worth individuals. Over the past 12 months nearly 80% of the world’s global gold purchases were made by high income investors, according to the World Gold Council.
Wealthy Turning to Gold
It’s no secret that Silicon Valley billionaires and New York Hedge Fund managers are stocking up on gold coins. This has been widely documented by numerous mainstream articles including New York Magazine.
Market guru Dennis Gartman said last month he now recommends investors hold 30% of their assets in gold over the next decade.
If billionaires and millionaires are hedging their wealth with gold bullion, shouldn’t you diversify at least 10%-15% of your assets?
The decade ahead may be like no other humans have ever experienced. Rapid acceleration of technology alongside a destabilizing world order will expose a truth known for thousands of years. Gold preserves wealth.
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