“Mother of All Bubbles” Keeps Gold Appetizing

Sinking USD could mean more gold gains

gold bubble-1

After reaching optimistic heights after the November election, the U.S. dollar has been on a near-constant downward trajectory, recently hitting a 13-month low.

The ongoing concerns over the Trump administration, including an inability to pass key legislation and the passing of questionable decision, promises to keep the greenback in its bear market. As investor and CEO Frank Holmes explains, gold has already gained 8% year-to-date in good part due to the sinking dollar, which is why he believes that more gains are almost guaranteed.

The rally in gold is especially impressive, says Holmes, because of both the stock market’s gains and rising interest rates. The fact that gold can post gains in these circumstances means good things for the metal in the near term, especially considering the result of the Fed’s latest meeting, in which the central bank sounded some dovish tones on interest rates.

UBS also sees good things for gold in the short term, with analyst Joni Teves pointing to India as once again being a major driver for gold demand. Teves explained in a note that a good monsoon season in the country, which imported 525 metric tons of the yellow metals in the first half of 2017, could push demand to a new record high by the end of the year.

Yet Holmes sees gold’s long term as even more encouraging due to an important factor: the mounting levels of global debt. Out of all the risks that strengthen the case for gold, the rising debt ceiling is among the most concerning – global debt has now reached $217 trillion, a massive increase over pre-crisis levels of $150 trillion.

With global debt amounting to 327% of the world gross domestic product, paying down looks less and less likely. Holmes points out that some are referring to it as “the mother of all bubbles” and reminds us that the previous two bubbles, which were mild in comparison, poured over into crises.

Another massive risk on the horizon is the sharp rise of global pension levels, with unfunded pensions expected to reach $400 trillion by 2050. When one adds curbed population growth to the mix, any improvement in economic growth seems unlikely, especially considering how ineffective central banks have been in promoting it. Monetary easing, Holmes notes, is precisely what brought on rampant borrowing across the globe.

With another crisis potentially in the works, Holmes finds the case for gold to be stronger than ever. He asserts that the metal shines brightest in times of turmoil, so savvy savers would do well to waste no time ensuring that a portion of their savings is protected against the coming tide.