Gold's Long-Term View Alive and Well

Gold prices have not done much of anything in recent months. In fact, the yellow metal has remained range bound as investors appear to be waiting on the outcome of ongoing negotiations between Greece and its creditors. In addition to Greece, markets also appear to be in a holding pattern as the Fed prepares to raise interest rates for the first time in years. As the Fed gets ready to tighten, the ECB and other central banks continue to pump markets full of stimulus money in an attempt to boost their economies. It is a significant disconnect that may keep the Fed from raising rates beyond 25 basis for quite some time to come.

The next FOMC meeting is in two weeks, and may shed some additional light on the central bank’s plans regarding rates. Gold and other precious metals may see little in the way of price movement until then, but eventually the Fed will act and at that point gold may be able to stage a breakout from its recent trading range.

The reality is that it really doesn’t matter. Gold looks poised to continue higher over the long-term as investors will likely seek out its wealth preservation qualities as the U.S. Dollar continues to lose value in real terms.

Unfortunately for the Fed, their hands may be tied. Any rate increase coming this year is more an act of preserving credibility than necessity. As such, the likelihood of any hikes beyond the initial anytime soon is nill.

In a recent Kitco News article, Incrementum AG fund manager and “In Gold We Trust” report author Ronald-Peter Stoeferle stated “The first rate hike is all about credibility. The Fed is in a lose/lose situation. If they don’t hike rates the markets will completely lose face with them but below the surface the Fed knows that the economy is not in good shape.”

Mr. Stoeferle went on to add that even after the disappointing first quarter, the economy has still not shown a robust recovery in the second quarter.

In his analysis, he also came to the conclusion that the Fed does not want any further strength in the dollar which could bring it to parity with the euro. He added “Looking at long-term trends my research shows that gold is really inexpensive at these levels and the beauty of gold at the moment is that it is a very asymmetrical trade with very little downside.”

We could not agree more…

It is always important to see the forest through the trees, and all the current discussion about gold, the Fed and interest rates is nothing more than short-term market noise.

Perhaps most noteworthy about Mr. Stoeferle’s comments is what he had to say about the Fed not wanting a higher dollar.

While dollar strength in recent months has been widely discussed, it is nothing more than a blip in the grand scheme of things. Eventually, we believe the dollar will resume its path of least resistance lower, and as it does additional purchasing power and wealth will be destroyed.

The global economy is not strong, and in fact could not tolerate higher interest rates. The ongoing currency war will also serve to keep currency values down as economies fight to keep moving forward.

This could lead to a period of global stagflation in which prices rise while wages and economic activity remain stagnant. As we have discussed in previous posts, the notion of stagflation is not a pretty one.

Picture this:

-Zero wage growth

-Increasing unemployment

-Higher food costs

-Higher energy costs

-Business failures

-Further government stimulus measures

Owners of fiat currencies and dollar denominated assets will have nowhere to hide as the value of these assets evaporates.

Steady interest rates, higher interest rates-it doesn’t matter. The continuing depreciation of the dollar and fiat currencies has already been set in motion. There is no going back…

The time to act is now.

We believe only one asset class can offer meaningful protection from this inevitable scenario. That asset class is gold, silver and precious metals. These assets have stood the test of time as a reliable store of value not dependent on government promises or obligations.

You have worked hard for your money and now is the time to protect it.

Once the great asset reallocation begins, gold and silver could stand to benefit significantly. Don’t wait until prices move higher or your dollars lose more value. Consider how precious metals may fit into your overall investment strategy now.

To learn more about precious metals and how they may benefit your portfolio, speak with an Advantage Gold specialist today. It has never been easier to invest in physical precious metals than it is today, and our specialists will guide you through the process step by step.