World Gold Council: Gold Could Shine as Heightened Risk Meets Easy Money


by Peter Schiff, Schiff Gold:

Gold will likely shine over the next six to 12 months as heightened risk meets easy money — this according to the World Gold Council’s mid-year outlook.

Gold ranked as one of the best-performing assets through the first half of 2019, beaten only by stock markets – which have also been supported by the turn toward looser monetary policy – and oil. And if you combine gold’s gains through H1 2019 and the Q4 2018, nothing beats it.

In a podcast last week, Peter emphasized that we need to recognize the reality on Wall Street. While stocks made significant gains in dollar terms over the first six months of the year, they actually lost values when priced in gold. You also need to put the stock market gains into a broader context.

The only reason that the market has done so well this year is because it got destroyed in the fourth quarter of last year. Remember, we had the worst December since the Great Depression as well.”

Peter said the stock market gains are really all about monetary policy.

The Fed has done a complete 180 on monetary policy and that is what has driven what I believe is a bear market rally in the US stock market.”

Globally, central banks have clearly pivoted back toward easy-money. The World Gold Council projects this turn, along with continued financial market uncertainty, will likely support gold investment demand and nudge prices generally upward.

The WGC report offers a succinct summary of the 180-degree turn in monetary policy, noting that it happened rather rapidly. It also points out that the Fed doesn’t often act against market expectations.

Global monetary policy has shifted by 180 degrees. Less than a year ago, both Federal Reserve (Fed) board members and US investors expected interest rates to continue to increase, at the very least through 2019. By December, the most likely outcome was for the Fed to remain on hold. Now, the market expects the Fed to cut rates two or three times before the end of the year. And while statements by board members, including Chairman Powell, are signaling a wait-and-see approach, the market has barely changed its forecast. The Fed may not do what the market asks, but it generally doesn’t like to surprise it either. In recent history, the Fed adjusted its funds rate in line with expectations whenever the market’s implied probability of such outcome was 65% or higher; the only notable exception was rate cut announced during an un-scheduled Federal Open Market Committee (FOMC) meeting in January 2008 when the global financial crisis began to unfold.”

The WGC report notes a number of significant risks in the market right now, including the potential long-term effects of increased tariffs, tensions between the U.S. and Iran, uncertainty surrounding Brexit, and overvalued stock markets.

Low interest rates are having the perverse effect of fuelling a decade-long stock market rally with only temporary pullbacks. This has pushed stock valuations to levels not seen since the dot-com bubble. Worryingly, in the event of a recession, central banks – including the Fed – may not be able to rely on cutting interest rates. Instead, they may need to use quantitative easing and, possibly, new non-traditional measures to reinvigorate the global economy. ” [Emphasis added]]

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