A correction in stocks could result in a substantial rally in gold
With the stock market in the midst of the second longest bull market ever, soaring for eight years, numerous analysts and pundits have been predicting a major correction for some time. Former congressman Ron Paul’s outlook for the market is particularly grim, and he expects not only a sizeable adjustment in stocks but a rally in gold of an even greater magnitude.
“If our markets are down 25% and gold is up 50% it wouldn’t be a total shock to me,” Paul told CNBC, adding that things could go south as soon as October. His prediction for gold is $1,867 an ounce, not far off its all-time high from 2011. The famous libertarian’s forecast is precisely in line with his thoughts from a year ago, when he offered yet another bearish outlook on stocks and warned investors to brace for impact.
Back then, Dr. Paul singled out artificially low interest rates around the world as the most likely catalyst behind a financial catastrophe. Today, he remains firm in his belief that the Federal Reserve kept interest rates too low for too long and is now haphazardly trying to remedy the situation through ill-advised rate hikes.
Although both the S&P 500 and the Dow have experienced considerable gains since his interview a year ago, Paul sticks to his forecast and explains that the rally is merely on borrowed time. “People have been convinced that everything is wonderful right now and that stocks are going to go up forever,” said Paul of the ongoing rally. “I don’t happen to buy this. The old rules always exist, and there’s too much debt and too much mal-investment. The adjustment will have to come.”
Aside from his ongoing criticism of the Trump administration, Paul – who was among the “Trump rally’s” staunchest detractors – is also outspoken in his lobbying against the Federal Reserve, arguing that the central bank and its policy makers never really have a grip on the situation and are merely experimenting with different ideas.
After almost a decade of loose monetary policy, the former U.S. Representative believes there’s plenty of room for the Fed’s hiking campaign to harm the economy and plunge the prices of multiple assets. “I think it’s a very precarious market, and the Fed better be very careful. Since they are incapable of knowing what to do, I don’t expect much good to come out of anything they do,” said Paul. “There are so many mistakes made out there that the correction is almost unlimited.”