In an article published in Forbes magazine on October 14, 2016, contributor Henry TO lists three reasons to be bullish on gold.
1. Global gold mining production has definitively peaked and is projected to decline despite the year-to-date bounce in process and higher investment demand.
The author bases his reasoning on the World Gold Council’s Q2 2016 Gold Demand Trends report. The Q2 gold mined was 768.9 tonnes which is less than the peak of 897.0 tonnes mined in Q4 of 2014. TO mentions that gold miners are focusing on cost reduction and deleveraging their gold positions in place of exploration and development.
2. The long-term outlook for global monetary and fiscal policy remains highly expansionary.
TO argues that negative interest rates in Europe and Japan together with “negligible population and productivity growth, as well as high debt levels and entitlement spending, the ECB is likely to follow” the Bank of Japan and keep easing its monetary policy for the indefinite future. The author also mentions that in his opinion if the ECB loses control and fails to keep the European monetary union together, inflows to gold will spike further as investors brace for a break-up of the euro zone. According to TO the long-term stability of the US dollar is threatened by unfunded pension and healthcare liabilities. According to the Congressional Budget Office’s 2016 Long Term Budget Outlook, the US federal debt as a percentage of GDP will hit 77% by the end of 2016. By 2026, the US federal debt is estimated to rise to over 86% of GDP. TO argues that one way US/global policymakers to tackle these entitlement liabilities is to inflate their currencies (more quantative easing) which will result in higher inflation. TO concludes that “As global policymakers monetize their governments’ debt to fund higher entitlement spending and keep interest rates low, investors will flee to gold as a long-term hedge against such inflationary policies”.
Buying physical gold now is a good way to diversify your investment portfolio. Consider rolling over portion of your IRA into precious metals.
The third reason TO lists to remain bullish on gold is:
3. Indian and Chinese gold jewelry demand will continue to rise.
Although jewelry demand was weak in the first half of 2016 from both Indian and Chinese consumers, TO believes that long-term demand for jewelry from both India and China will continue due to rising income levels and urbanization in both countries.
This report published in Forbes, supports the idea that it is a good time to buy gold not only as a diversifier but also as a future hedge against inflation.
