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The Mainstream Has Turned Bullish on Gold; Jim Grant Has Better Reasons Why You Should

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After Federal Reserve Chair Jerome Powell released a dovish trial balloon last week, hinting we could be close to an end of the interest rate tightening cycle, the mainstream has suddenly turned bullish on gold. A recent Bloomberg article proclaimed, “Gold may be poised to rally as speculation mounts that the Federal Reserve will hit the pause button on interest rate hikes in 2019.” 

The article quoted Trey Reik, a senior money manager at the US unit of Sprott Inc. He framed Powell’s comments exactly like Peter Schiff did, saying the Fed chair “flinched.” He went on to say this could signal the end of the recent dollar rally. That would mean a big upside for gold.

 Once you get to the consensus view that the Fed may be done, the dollar may come under severe pressure. Gold will erupt.”

Goldman Sachs recommends an “outright long position” on gold.

If US growth slows down next year, as expected, gold would benefit from higher demand.”

Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne, cited the likelihood of an uptick in unemployment next year as bullish for the yellow metal.

If people get a sense that unemployment’s going up, heaven forbid, we’re going to see great volatility in 2019. That’s going to be a cue to sell the dollar, and that’s going to be a cue to buy gold in much bigger size.”

But as you know, the mainstream can be mighty fickle. It could just as easily turn bearish next week, depending on what pops up in the news cycle. Nevertheless, there are certainly a lot of reasons to think gold is set for a big bull run. We’ve been talking about them for months — chiefly the fact that the “booming” economy is built on piles of debt — government, corporate and consumer. It simply isn’t sustainable.

But there are even more fundamental reasons to own gold. Investment guru Jim Grant highlighted some of those reasons in a recent article published by Barron’s. Grant has a way with words and it’s worth considering his case for gold.

In the first place, gold is money.

Gold is a monetary asset, not a credit instrument. It is cash, not a promise to pay. It is final payment itself. Gold competes with currency and the promises to pay currency.”

It is also historically preserves wealth.

Gold, which has probably never traded at zero—not in millennia—is a store of value.”

Grant says all you have to do is look at gold and you intuitively understand it has value.

Gold is scarce, malleable, ductile, beautiful, indestructible … Gold explains itself: One look tells you it’s valuable. You don’t need a computer server, electrical outlet, or instruction manual.”

And probably most significantly, “gold’s price is the reciprocal of the world’s faith in central banks.”

If you approve of a decade-long suppression of market interest rates and of trillion-dollar budget deficits in a time of supposed bounding prosperity, by all means, don’t exchange your paper money (or digital representations of paper money) for gold. But if you harbor the well-founded suspicion that something’s not quite right in this overleveraged world, do yourself a favor. Lay in some real money.”

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