The era of negative real interest rates is set to continue.
What will this mean for gold and gold mining stocks?
This thread outlines five reasons why real interest rates will remain low, and the implications for the gold sector.
What will this mean for gold and gold mining stocks?
This thread outlines five reasons why real interest rates will remain low, and the implications for the gold sector.
1/ Firstly, Western economies saw an exorbitant spike in their broad money supplies during 2020.
Unlike the post-2008 years, not only is narrow money growing rapidly, but broad money is as well.
This will serve to keep inflation figures above target levels.
Unlike the post-2008 years, not only is narrow money growing rapidly, but broad money is as well.
This will serve to keep inflation figures above target levels.
2/ Secondly, the Fed has abandoned its inflation-targeting policy for "inflation-averaging".
Since figures have been lower than target, the Fed will likely let inflation run high without implementing countermeasures.
Markets already predict higher inflation (see graph).
Since figures have been lower than target, the Fed will likely let inflation run high without implementing countermeasures.
Markets already predict higher inflation (see graph).
3/ Thirdly, governments around the world are turning away from free markets.
We are seeing a strange mix of protectionism on the one hand, and "harmonization" of taxes and regulations on the other.
These trends slow real growth, serving as another supply-side inflation driver.
We are seeing a strange mix of protectionism on the one hand, and "harmonization" of taxes and regulations on the other.
These trends slow real growth, serving as another supply-side inflation driver.
4/ Fourthly, as inflation picks up, investors will demand higher nominal interest rates to compensate them for loss of purchasing power.
When this happens, financial repression is the classic tool used for preventing capital flight.
For more on this see:
When this happens, financial repression is the classic tool used for preventing capital flight.
For more on this see:
https://twitter.com/IGWTreport/status/1372656999184412672?s=20
5/ Fifthly, global indebtedness has reached unprecedented levels and those with the most debt – governments and large corporations – are those with the most power.
Pressure will be placed on monetary and fiscal authorities to lower the real value of those debts via inflation.
Pressure will be placed on monetary and fiscal authorities to lower the real value of those debts via inflation.
6/ What does this mean for gold?
As inflation picks up and real returns in risk assets become harder to find, we predict investors will turn to inflation-resistant stores of value such as gold, silver and bitcoin.
As inflation picks up and real returns in risk assets become harder to find, we predict investors will turn to inflation-resistant stores of value such as gold, silver and bitcoin.
7/ Higher demand for gold typically translates into higher prices for gold mining stocks.
Over the past 60 years there has been a 66% correlation between the USD gold price and the Barron's Gold Mining Index.
Over the past 60 years there has been a 66% correlation between the USD gold price and the Barron's Gold Mining Index.
8/ However, Incrementum analysis shows that during periods of declining real interest rates – what we predict for the next few years – that correlation rises to 92%.
This historical precedent makes us more confident of a joint bull market in gold and gold miners.
This historical precedent makes us more confident of a joint bull market in gold and gold miners.
9/ Technical and balance sheet indicators provide further reasons for optimism on the gold mining sector.
We explain these reasons in our thread "Golden Opportunities in Mining" below.
We explain these reasons in our thread "Golden Opportunities in Mining" below.
https://twitter.com/IGWTreport/status/1398683899086114820?s=20
Thank you for reading.
The themes in this thread are explored in our IGWT nugget "Mining Stocks and Real Interest Rates: An Unsurprising Relationship": ingoldwetrust.report/nuggets/mining…
For more content like this, follow us on Twitter: @IGWTreport @RonStoeferle @MarkValek @petermiyoung
The themes in this thread are explored in our IGWT nugget "Mining Stocks and Real Interest Rates: An Unsurprising Relationship": ingoldwetrust.report/nuggets/mining…
For more content like this, follow us on Twitter: @IGWTreport @RonStoeferle @MarkValek @petermiyoung
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