Gold & Silver’s Run Forecasts a Coming Bust in Stock, Bonds, Credit Markets
$GLS, $SLV, $UGLD, $GDX, $CEF, $PHYS
The precious Yellow metal is at the beginning of a multi-year Bull Market in a world of monetary policy where central banks print money and offer low to negative interest rates for a long time to come.
“As some of the excesses in other asset classes get unwound, Gold will perform very strongly,” said analysts Diego Parrilla. The “perfect storm scenario will mean that Gold will perform best when other asset classes are doing worst.”
Gold is up 24% YTD, fueled by low or negative interest rates, coming off of 40% decline from its record high in Y 2011 through the end of Y 2015 in a very oversold market.
As it stands now the Southside is supported in the 1200-1250 zone, so the risk-reward ratio is extremely asymmetric and bias’d to the Northside.
In the 1st of 2 Key central bank monetary-policy announcements Wednesday, the Bank of Japan (BOJ) shifted the focus of stimulus from expanding the money supply to controlling interest rates, dubbed QQE, some economists see this action as further evidence that the BOJ is out of tools and has lost its effectiveness. The US Fed made a “standing pat”policy decision with a Hawkish tone.
Many investors are Bullish Gold because of low borrowing costs and central bank asset buying (bond buying).
Iconic bond guru Bill Gross says there’s little choice but Gold and real estate given current bond yields, while Paul Singer, David Einhorn and Stan Druckenmiller all express solid reasons this year for owning the precious Yellow metal.
Earlier this year I wrote that there would not could not be a Fed rate hike this year and or next meaning that there is lots of room for rallies.
Related Story: Ways to Invest in Gold, the Precious Yellow Metal
Note that global bond yields are still very low, but they have been rising. Yields have climbed to 1.21% from a record low 1.07^ in July, that according to the Bloomberg Barclays Global Aggregate Index in data going back to Y 1990.
Bond-buying and negative rates in the US, Asia and the EU have distorted the valuation of government bonds, creating a textbook bubble.
The yields are forcing investors to lend further out, contributing to what some believe is the biggest duration bubble in history. This action is sending people to credit markets, lending to weaker and weaker credits for longer and longer, and to stock markets, leading to financial-asset inflation.
“If we’re able to normalize global monetary policy, and we can do that in a way that doesn’t result in the implosion of some of the bubbles we’ve been building, the appeal of gold as a safe haven might diminish,” Mr. Parrilla said. “But I think it’s highly unlikely we will have a very smooth unwind of all these years of monetary excess.”
Spot Gold traded at 1,320.56 oz Wednesday Vs the intra-day record of 1,921.17 oz in September 2011, according to Bloomberg generic pricing.
My take in this scenario is a predominantly long-stock bias through Gold and Silver miners.
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