This year’s World Series contest between the Chicago Cubs and Cleveland Indians will surely go down in history as one of the most exciting ever. Still, this tension pales in comparison to the extreme national hyperventilation we are likely to witness over next week’s Presidential election.
Last Friday, with a Democratic win seemingly clinched, the FBI announced it would reopen its investigation into Hillary Clinton’s emails. Whether you agree with the implications of this news or not, it is clear that shock disclosures of this kind have the potential to upend the race even at the final hour. The recent debates are already fading from the American memory.
We all know that gold can thrive in periods of uncertainty like this. No wonder a recent Reuters poll of 35 analysts and traders showed that they expect gold prices to hit a four-year high in 2017.
INVESTING IN MONETARY DISORDER
Market observer Jim Grant has long been an advocate of gold as a way to ride the wave of financial disorder that looks increasingly inevitable with every passing day. To Grant, gold is not a hedge against monetary disorder but a way to invest in it.
With the U.S.A. in debt almost $20 trillion and no coherent plans to turn it around, we have an unsustainable situation in the financial markets. Research analysts at Barclays argue that the ability of central banks or governments to repair the global economy through fiscal or monetary stimulus is increasingly exhausted, which could lead to more extreme risk taking.
Radical monetary policy erodes confidence in the traditional banking system, creates currency market distortions and incentivizes risk-taking in the stock and credit markets. Since the financial crisis, central banks have loosened monetary policy to unprecedented levels to facilitate growth. Credit Suisse also describes this quantitative easing as an “exhausted tool.”
According to Grant, radical monetary policy begets more radical policy and either the markets or voters will eventually put an end to it. Grant recommends that you invest in gold: something outside the realm of “paper-based” assets.
Despite radical monetary policy, global economic growth remains anemic. The policies of the central bankers and politicians have so far proven to be woefully inadequate. Growth has been particularly weak in Europe, even though rates are below zero and aggressive bond-buying programs are in place.
Are you willing to risk your retirement future on tired and ineffective policies that will not work when the next adverse shock hits the markets? Grant’s recommendation to own gold should be carefully considered.
2017: THE BEST YEAR FOR GOLD IN FOUR YEARS?
As I mentioned above, a comprehensive Reuters poll of 35 analysts and traders just found that they expect gold to hit a four-year high in 2017. Mitsubushi analyst Jonathan Butleragrees, arguing that gold could be driven higher by falling yields on sovereign debt securities, further quantitative easing in the euro zone and a slow rate of macro tightening in the U.S.A.
American Precious Metals Advisors Jeffrey Nichols thinks gold will benefit because of growing physical demand for gold in India and China. He expects a robust Indian festival of Diwali to further support gold prices.
Ron William, founder of RW Market Advisory, predicts gold could head as high as $1,500 an ounce because the current environment is disrupting the usual inverse relationship between the U.S. dollar and gold. He thinks gold will benefit from safe haven inflows given what might happen this election cycle.
GOLD INVESTORS WILL BE THE REAL WINNERS IN NOVEMBER
No matter who sits in the White House come January, gold investors could be rewarded. With unpopular candidates neck and neck in the polls and the country deeply polarized, gold and silver stand as a solitary bulwark against uncertainty.
Under a Clinton presidency, expect more deficits, more taxes and more government spending. Under a Trump presidency, expect unpredictable policies, rhetoric that rattles the markets and proposed tax cuts that lower revenue by more than $9.6 trillion over the next ten years.
No matter the winner, investors who are over-committed to traditional investments all stand to lose. All it would take is one geopolitical or financial crisis to ignite a new bull run in gold.
The U.S. is in a state of political paralysis. Assuming Washington, D.C. does remain permanently broken, you owe it to your family and heirs to diversify your assets into physical gold: the one asset class outside the control of politicians and central bankers.
In fact, owning gold could be the smartest way to bet on today’s monetary disorder. This is an environment that seems to be the new normal.
