With many financial pundits in disagreement on the outlook for gold, Stefan Gleason of TheStreet offers five compelling reasons to believe that its future is bright.
For some years now, many financial experts have been predicting a bull market for gold. With global debt continuously on the rise and serious geopolitical conflicts in multiple areas, there are many reasons to expect an increasing number of people to move to a “safe haven” asset such as gold. Recently, Stefan Gleason of TheStreet offered his personal take on the five most likely catalysts that could buoy gold and silver towards bull market status.
The potential for upcoming interest rate hikes in the United States are, unsurprisingly, the first of the five likely culprits. Much of the dollar’s current strength lies upon investors’ expectations of a raise in interest rates later in 2015, as announced by Federal Reserve Chair Janet Yellen.
An actual increase in interest rates, however, may be less likely than many believe. If the current spate of negative economic reports continues, the Fed may have no choice but to postpone a hike and might also be forced to come up with a new stimulus program. Needless to say, Gleason notes that both of these would weaken the dollar and increase the potential for a gold bull market, especially considering that the yellow metal has held up well even with a strong dollar in place.
Second on Gleason’s list is the possibility of real interest rates going negative. Understanding the difference between real and nominal interest rates is critical for anyone to truly understand the markets and where they may be headed. Should inflation rise faster than nominal interest rates, real rates could actually go down. And if they were to hit negative territory, any investment based on interest becomes unattractive; this often directs people to gold and silver instead. In fact, it was under such a scenario in the 1970s that precious metals performed well.
Speaking of inflation, the looming debt crisis is listed as the third potential catalyst for an increase in gold. With official debt over $18 trillion, and estimates of a total fiscal gap soaring over $200 trillion, not even the most optimistic of forecasters can argue against the potential for the Fed to further increase liquidity in the markets. As more dollars are printed by the trillions, it would only spell bad news for the greenback and will pave the way for hyperinflation, leaving precious metals as one of the only stable forms of money.
The rising amount of global conflict is listed as the fourth candidate on Gleason’s list. In his own words, “From unrest in Yemen, to the terrifying spread of ISIS, to the dangerous provocations of Russia, a breakout of international conflict would drive massive demand for safe-haven assets” – to speak nothing of Obama’s recent actions in favor of Iran as a nuclear superpower.
Any one of these powder kegs could spark serious interest in gold and silver. The possibility of the U.S. being engaged in yet another costly war overseas instills fear in investors, as military spending can easily move a country towards inflation.
The fifth and final reason – but certainly not least – for why precious metals may increase in value is far more direct than the others: supply deficit. Those following the market are well aware that each of the precious metals are facing supply issues going forward.
Most of these stem from the mining industry’s difficulty of covering their own costs.The combination of mining shutdowns and an anticipated supply deficit will create an environment where the price of gold and other precious metals will have to go up in order to facilitate mining expansion or a re-start of operations – both very expensive ventures.
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