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Report: Gold in the Early Stages of a New Bull Market

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Are we in the early stages of a gold bull market? Incrementum thinks so and offers three key reasons for this assessment in its most recent In Gold We Trust Report.

At the moment we are at the turning point towards a gold bull market. The macroeconomic and geopolitical factors support this tendency. One of the things we notice across the bull markets of the past 50 years is that, even in its weakest period of increase, gold gained more than 70%. This record supports our optimism for future developments. From our point of view, stronger inflation tendencies or the abandoning of the rate-hike cycle in the US could trigger an increase in momentum of the gold price. We regard these scenarios as realistic.”

Incrementum is a Liechtenstein-based investment and asset-management company. Its 230-page report slices and dices the gold market and puts in in context of the world economy. The comprehensive report identifies three main factors to support its bullishness on gold. At least two of these themes will be familiar to regular readers of SchiffGold.

First, there is a distinct change in the tide of monetary policy from easing to tightening.

The reversal from QE to QT has provoked remarkably little attention in public discourse. However, the consequences of this monetary U-turn could be dire, because the monetary amphetamine that prevented a relapse into crisis in the post-Lehman era has come with numerous side effects.”

As the report points out, the five largest central banks have created more than $14 trillion out of thin air. As the report authors put it, there has been a “global debt accumulation orgy.” But now interest rates are starting to go up, and “the tide of global liquidity is beginning to go out.”

The world is drowning in debt after a decade of easy money. With interest rates pushing upward, this could create a massive collapse. That, of course, is good for gold.

Second, Incrementum sees the potential for the dethroning of the US dollar.

 The creeping loss of the hegemonic status of the US dollar as the senior global reserve currency could have far-reaching consequences for the US. Declining global demand for the US dollar and Treasury bonds could boost domestic US price inflation and drive interest rates up further.”

We’ve reported extensively on a number of countries working to free themselves from US dollar dependence, including China, Russia, Turkey and Iran. Jim Rickards recently described an evolving “Axis of Gold” as these countries increasingly use physical metal to create an offensive counterweight to the dollar.

Incrementum notes that many countries are increasing their gold reserves. Globally, central banks have upped their gold stashes by about 10% over the last decade.

Incrementum projects increasing polarization in the world monetary system with a gradual loss of US dollar hegemony.

De-dollarization and the reshaping of a unipolar world monetary regime into a multipolar one continue. The process comes with geopolitical polarization and rhetoric that promotes divisiveness above unification.”

The report also pointed to a shift away from the dollar as a safe-haven in light of an ever-increasing US trade deficit.

In this context, it comes as little surprise that the status of the US dollar as the classic safe-haven currency seems to be reversing. The simultaneous correction of equities, bonds, and the US dollar at the end of January may offer a glimpse into the erosion of the currency’s safe-haven status.”

Finally, Incrementum notes a shift in technology with increasing digitalization and a continued rise in the popularity of cryptocurrencies. The report called it an “epochal technological change taking place at a breathtaking pace.”

Incrementum views cryptocurrencies and gold as “friends not foes,” and sees a future combining the best of both worlds.

A collaborative approach would play to the strengths of both. The first gold-based cryptocurrencies are underway as we speak.”

The report points out something else Peter Schiff has been harping on – the mainstream doesn’t see trouble on the horizon, but the economy is due for a recession.

In the past 100 years, the US economy has fallen into recession every six and a half years on average. Now, more than ten years have passed, and yet the mainstream does not expect a recession in the foreseeable future. In view of this unbridled optimism, the potential for surprise seems to be clearly asymmetric. At the moment, a decline in US economic output seems as unlikely to most economists and market participants as Vin Diesel’s coming home with an Oscar, or the national football team of Fiji’s winning the World Cup.”

According to the report, all of these factors and many more it identifies create an extremely positive environment for gold in the long-term.

The central point is this: The global boom, fueled by ultra-low interest rates and the never-ending expansion of the money supply and credit, is on shaky ground. The likelihood of the boom turning into a bust is high – much higher than the mainstream expects. We therefore anticipate a significant global economic dislocation with a substantial effect on the gold price in the coming years.”

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