10 FACTORS TO PROPEL GOLD 10 FOLD

by Egon von Greyerz, GoldSwitzerland:

Inflation is coming and it will have a major effect on the world economy and financial markets. This is one of the factors that will drive gold to levels which few can imagine today. Later in this piece, I am discussing 10 Factors which will make gold surge.

NO FEAR

Markets are expressing no fear and seem very comfortable at or near all-time tops. There is no concern that stocks are massively overvalued or that bond rates are at historical lows and only have one way to go. Nor is anyone worried that house prices are at levels which most people can’t afford. Money printing and interest rate manipulation has created such cheap financing that most people don’t look at the price of the property but only at the financing costs. In many European countries, mortgages are around 1%. At that level the monthly cost is negligible for many people. Neither the banks nor the borrowers worry about interest rates going back to the teens as in the 1970s.

So whilst we are waiting for markets to wake up from the dream state they are in now, what signals should we look for and what about timing.

These are the areas that we see as critical and below are our near term and long-term views on:

  • Interest rates / bonds
  • Inflation, Commodities, Oil, CRB.
  • Dollar
  • Stocks
  • Gold

INTEREST RATES – ONLY ONE WAY TO GO

Interest rates are critical to a world with $250 trillion debt plus derivatives of $1.5 quadrillion and global unfunded liabilities of 3/4 quadrillion. Minor increases in rates will have a catastrophic effect on global debt. Derivatives are also extremely interest rate sensitive. Also, derivatives represent an unfathomable amount that will blow up the global financial system when counterparty fails.

The very long interest rate cycle bottomed a year ago. Since the dollar debt is the biggest, dollar rates are the most important to the world. The US 10-year Treasury bond bottomed in July 2016 at 1.3% and is now 2.3%. US rates have turned up from a 35-year cycle bottom and are likely to go considerably higher into the teens or more like in the 1970s. This could be a very slow process but we could also see a rapid rise. As the 10-year chart shows below, there was a rapid rate rise into December 2016. The 10-month correction finished in early Sep 2017 and a strong uptrend has now resumed.

The long-term trend from 1994 on the chart below, shows the July 2016 bottom. The 23-year downtrend shown from 1994 actually goes back to 1987. This 30-year trend will be broken when the rate goes above 2.6%. With the 10-year at 2.35% currently, we are not far from a break of this trend.

10yrtreasurybond.png

In summary interest rates bottomed in 2016, right on cue as that was the end of the 35-year cycle. The trend is now up for a very long time. This is initially linked to a rise in inflation and will later on be fuelled by a collapse of bond markets and hyperinflation.

INFLATION – ON THE RISE

There are many ways to measure inflation. We can take the official government figures which are manipulated and lagging the real economy. US CPI bottomed in 2015-16 at 0% and is now 2%. If we take the Shadowstat figures, real US inflation is nearer 6% and in a clear uptrend.

consumer_inflation.png