Mainstream Proclaims Gold Is Back in Vogue

In his most recent gold videocast, Peter Schiff said he thinks the recent Fed rate hike was the end, not the beginning of the tightening cycle. The next move will be a drop back to zero and another round of quantitative easing. When that happens, investors who have been selling gold believing the economy is on the rebound will have to reverse their bets and begin buying as gold rallies.

It’s looking more and more like Peter was right, and now some of the mainstream folks are starting to catch on. A recent Bloomberg article proclaimed “gold is back in fashion.” The reason? People are beginning to recognize the shakiness of the economy. As a result, they are turning back to gold as a safe haven:

The $15 trillion rout in global equity markets since May is reawakening the lure of gold for investors seeking safety.”

According to the article, hedge funds more than doubled their net-long position in bullion last week and investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year.

Last week, Citigroup Inc. analysts raised their 2016 gold price forecast. George Milling-Stanley, Boston-based head of gold investments at State Street Global Advisors, said people tended to ignore global risks last year, even with the economic meltdown in Greece and the Paris terror attacks. But now, investors are becoming more wary of systemic risks and gloomy economic indicators:

People have become complacent about risks, whether it’s macroeconomic and geopolitical. What’s out of fashion may be coming back. That atmosphere of people feeling completely calm and untroubled, I think, is starting to go away. Gold is a very good risk-off trade, and I think people are starting to look very, very carefully at the risky positions that they have on a number of other markets.”

Hard numbers back up this sentiment. People are buying gold. Investors have poured $926 million into ETFs backed by precious metals so far in January. According to Bloomberg, investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETPs has already jumped by $3 billion in 2016. The chart below shows the rebound.

The Bloomberg article also picked up on what Peter has been saying about the future trajectory of Federal Reserve policy:

Fed Bank of Boston President Eric Rosengren said this month that the central bank’s projected path for more policy tightening is at risk, citing falling estimates for U.S. economic growth.”

Peter has been harping on this since the Fed nudged rates up in December. Last week, he even predicted another round of government stimulus:

I think sometime in the next few months they’re going to have to launch QE4, they’re going to have to reverse that rake hike – go back down to zero. And I think Congress is also going to come out with a huge stimulus bill that’s going to include tax cuts for the middle class and massive increases in government spending.”

Now that others are starting to see the writing on the wall, it seems increasingly likely the gold rally will accelerate, just as Peter predicted:

The Fed didn’t solve our problems; it exacerbated our problems. We put a Band-Aid on a cancer. And now the Fed is trying to remove the Band-Aid, and now we can see the wound underneath has gotten much, much worse. So now they’re going to have to come back with the mother of all quantitative easing programs, and we’re going to have the mother of all rallies in gold, as everybody has to quickly reverse their bets. They have to go from selling gold because the Fed was going to hike in a strong economy to buying gold because the Fed is now easing and relaunching QE4 because we have a recession and a bear market.”

The Bloomberg article suggests that speculators are indeed starting to turn around and we may well be in the early stages of a bull market.

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