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Some Mainstream Bullishness for Gold

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Some people out there in the mainstream are saying now is the time to buy gold.

In recent months, the mainstream investment world has by and large either ignored the yellow metal or outright spurned it. After all, stocks are soaring. The economy is doing “great.” There’s nothing to worry about — at least that’s the mantra. But we’re starting to see a little bullishness for gold out there in the mainstream.

In an article published last week, Barron’s proclaimed, “Gold is cheap. Inflation is coming. You do the math.

The Barron’s writer insists gold has gotten a bad rap, and “this out-of-favor asset class now deserves a place in investment portfolios.”

Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the US and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar. Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit. At $1,200 an ounce, the same is true today.”

Barron’s has picked up on a theme we’ve been harping on for months. The world is awash in debt. Especially governments — including the US federal government. GoodHaven mutual fund co-portfolio manager Keith Trauner told Barron’s all of this debt means governments are keen to see inflation increase.

‘Virtually every government in the world is trying to promote inflation partly because there is so much sovereign debt,’ Trauner says. When there is so much debt, he contends, governments have three choices: default, restructure, or inflate the currency. ‘Politicians, when given the chance, will choose the latter.’

The article highlights another point you’ve seen us make — rising interest rates are not necessarily bad for gold. This is not merely theoretical. Gold had one of its best decades ever during the inflationary 1970s when interest rates soared.

The potential for a decline in the dollar could also boost gold, according to the Barron’s article. It quotes a metals strategist at Sprott US who sounds a little bit like Peter Schiff. Trey Reik said he thinks the Fed may have to relent on rate hikes “in part because the upward pressure on rates is squeezing developing economies that have dollar-denominated bonds or other obligations.” Reik said now is a good time to buy gold.

Gold offers enormous portfolio utility in today’s complex and treacherous investment environment.”

And gold is cheap right now. Barron’s compares it to the stock market.

One way to measure it against stocks is a comparison with the Dow Jones Industrial Average. It effectively takes 22 ounces of gold to buy one unit of the Dow, which finished on Friday at a record 26,743. The most recent low in that relationship occurred in 2011, when the Dow/gold ratio dropped to 7.8. Then, gold was near its all-time high of $1,900 an ounce.”

Barron’s isn’t alone in its bullishness for gold. Bank of America Merrill Lynch commodities analyst Francisco Blanch recently told Bloomberg bullion could average $1,350 per ounce in 2019. He also mentions the problem of a giant US federal debt.

We’re still pretty constructive longer term on gold, because of worries over the future of the US economy even though it’s performing relatively well right now. In the short run, the effects of strong dollar, higher rates dominate. But in the long run, a huge US government budget deficit is pretty positive for gold.”

Blanch also said we’re eventually going to start seeing the negative impacts of the trade war.

Eventually, the trade wars are going to come back to bite the US. It could take longer, it could take shorter, eventually it’s going to happen, but maybe the Fed acknowledges it sooner, which is what people are going to be looking for in terms of getting more bullish on gold. We know that trade wars are not good for the economy.”

Of course, we’ve been hammering on these themes for months. But it’s always interesting when the mainstream starts to catch up. The bottom line is that these low gold prices aren’t going to last forever. Now may be the time to buy gold while it’s still on sale.

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