Gold may be only thing that could save investors’ wealth against debt issues.
The warning bells were rung a few days ago as numerous outlets announced that the U.S. national debt surpassed a record $22 trillion. In the past, President Trump himself cited economists’ warnings that a debt level of $24 trillion would be a “point of no return”, with severe implications for the economy.
According to a recent Kitco article, the Congressional Budget Office’s forecast is a bit more pessimistic, as the CBO forecasts an additional $12 trillion of national debt being created between 2020 and 2029. Of course, the debt crisis is far from a U.S. phenomenon: according to recent estimates, the total global debt sits somewhere around $244 trillion, a figure three times larger than the global economy.
The article writes that there is no clear solution in sight for this, but austerity will likely be a key ingredient in any such blueprint. And according to an interview with Peter Grosskopf, CEO of Sprott, gold is the only thing that could save investors’ wealth as the debt issue becomes more prominent.
Grosskopf expects governments to soon attempt to tackle the debt issue through one of two measures: either by quantitative easing (QE), which drives inflation higher, or financial repression. While either of these scenarios could be nightmarish for long term-oriented investors, the article reports both are exactly the sort of thing that the yellow metal thrives from.
As Grosskopf explained, whatever steps governments take to address the debt issue will further debase fiat currencies, which many already find to be on shaky legs. The article writes that in this environment of depreciating fiat, investors will turn to gold not just as an investment, but also as a currency in itself. In doing so, they will invoke the classic adage that nothing except gold is money.
Grosskopf and his firm already see this happening. The CEO noted that a diverse group of people has taken an interest in owning more gold as of late. This group includes famous billionaires, large funds, smaller investment firms and even central banks, the issuers of fiat currency.
The average investor is likewise becoming more aware of the instability of fiat, states the article, and individual investors are increasing their exposure to bullion as the global economic outlook turns questionable. Grosskopf noted that various central banks around the world are planning to raise interest rates, yet believes they will be unable to do so as higher rates with record debt levels are an economic fallacy.
On the opposite end of the spectrum, an all-too-familiar turn to QE programs will prop gold even higher, as the metal has historically been viewed as the ultimate hedge against inflation. Whatever policies central banks come up with in the near future to fix the debt crisis are sure to benefit gold and establish it as a better currency than fiat itself, states the article. And to Grosskopf, the steady increase in gold weighting in investor portfolios already serves as a testament to this.