Forbes magazine published an interesting take on how inflation could push Gold and Platinum higher.
As Senior Contributor Clam Chambers wrote, the old joke goes “when you are in a hole, stop digging.” This is not a luxury for the U.S. or Europe when it comes to piling up national debts or printing money. It isn’t an option for the world economy either.
There might be light at the end of the Covid tunnel. But that twinkle of hope is still a long way away.
The bond market, which used to be considered vigilante when it came to monetary policy, is stirring the prospect.
The bond market wants more interest for its risk of inflation or its indigestion on too much supply. The central bank simply buys bonds from the market driving up the price and driving down the interest rate. What it buys it with might not be straight cash, but whatever it uses is heading toward cash so its little different from printing $20 bills.
That cash travels and that travel keeps the global economy afloat.
The U.S. has roughly a 130% debt to GDP ratio right now.
At this point, predicting the future comes down to setting the level where a government and economy can be comfortable with this debt load. That level was 100%.
So if the equilibrium point is 100% number, then the value of those debts must be either inflated away or real GDP growth must do the rebalance.
At an optimistic 3% growth that would take too long to happen so inflation must do the job.
Some could argue that if 150% debt to GDP was sustainable then politicians will only push that envelope harder. That further guarantees inflation.
Take all these variables and it would seem that 30% inflation in the next five years is conservative.
Without a doubt, bitcoin continued its historic rise in large part because of this inflation fear.
So, where is gold in all this?
Hate towards gold continues because jewelry demand is down. And jewelry remains gold’s biggest market. It’s also old.
Crypto, on the other hand, is young. It seems its best is yet to come.
However, that could change quickly.
Gold jewelry demand will rise and not just because people are back to buying jewelry. It’s because all other industries are back and they need gold. The medical industry needs gold for covid19 testing and for treating cancer, arthritis, and other diseases.
The dental industry, electronics, electrical, and aerospace are all in need of gold.
And then there’s the Ripple lawsuit. The controversy might inspire some investors to be more cautious in investing in Crypto. That will lead to a correction.
Chambers said that he will watch bitcoin and buy gold as soon as he thinks it hits the bottom of its correction.
He further stated that he is also looking into platinum. They don’t make much and it’s going to be core to the hydrogen economy, the next phase of the zero-emission economy drive.
In fact, he believes that regardless of the economy, platinum is going to do well because the world is set on a course for powering itself with renewables, and the best way to store energy for when the wind doesn’t blow or the sun isn’t shining is to split water into oxygen and hydrogen and turn it all back into water with the help of platinum catalysts.
I share a lot of Chambers’ investment strategies. I also believe Platinum will eventually catch up with gold as a hedge. I also believe that gold is far from being dethroned as a hedge.
But I do not suggest you follow what I do or what Chambers’ does. At least not until you consult a financial advisor.
But after you do and you are ready to invest in precious metal, call us. We will be here to answer your questions.