Today a legend who is connected in China at the highest levels predicted the price of gold is going to spike to $2,200.
2019, The Year of Living Dangerously
By John Ing, Maison Placements
December 21 (King World News) – Next year, we expect a number of factors that will drive gold prices higher. In 1990, the top ten largest institutions held about 10 percent of US financial assets. Noted economist and nonagenarian Henry Kaufman calculated that today’s 10 largest financial institutions now hold about 80 percent of US financial assets. Never has so much is held by so few. Similarly, the Economist magazine noted that since 1997, market concentration has risen in two-thirds of industries such that 10 percent of the economy is made up of industries in which four companies control more than two-thirds of the market. In Canada, the concentration is more widespread with the oligopolic concentration of the banks, cable, insurance, auto and media industries.
And worrisome too, is that Wall Street’s newest structured products, ETFs, algos and derivative CTA sell programs (managed futures funds) has resulted in a similar unhealthy concentration of assets, such that next year a sudden change in the markets will see the marketability of a large volume of securities and liquidity disappear – not everyone can fit through the exit door at the same time. Gold will be a good thing to have then…
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More broadly, the American economy has experienced many booms and busts in the past three decades from the dot-com bubble to the Asian crisis to the Lehman collapse. Although the pick up in inflation is largely self-inflicted, interest rates have moved up four times as the central bank drains the liquidity punchbowl, exposing an American house of cards, and a vulnerability to higher rates. Each time before every bust, the economic tipping point came when inflation and rates rose. Worrisome is that the Trump administration next year is likely to unleash even more stimulus in advance of the next election. We haven’t seen anything yet.
The Bull Market is Dead, Long Live The Bull Market
To be sure, the decade-long bull market is over. This year, the market will have its first down year in a decade. Buying the dips was an excellent strategy while the market kept on recording new highs. However this year, beset by a tighter monetary policy, rising interest rates, Trump’s escalating trade war together with a slowdown in the global economy, profits are elusive causing lower stock prices. Sky high valuations have finally caught up and investors have found that buying the dips was an unprofitable strategy, as markets ratcheted lower. Marijuana stocks and bitcoin are on the trash heap. The inverted yield curve has turned negative for the first time since 2007, igniting concerns that the world’s biggest economy is slowing down. The dollar too has crested. Now selling the rallies seems to be the best trading policy.
We believe the stock market is simply a discounting mechanism and while the US economy is currently in excellent health and yields still low, next year’s outlook is murky, particularly with an escalating trade war, gyrating oil prices and a worsening geopolitical climate. We also believe that the market is the canary in the coal mine and the recent turmoil is only beginning to price the above uncertainties and risk.
After Trump’s firing of “dovish” Janet Yellen, the bond market rallied on his handpicked Fed Chairman Jay Powell’s appointment. The honeymoon ended with Trump’s complaints on “hawkish” Powell’s fourth rate increase. Defying Trump, Powell might not have a choice in raising rates since America’s deficits loom large and funding with debt issuances will be difficult if foreigners balk. Mr. Powell warned that risky corporate debt has surged and, “highly leveraged borrowers would surely face distress if the economy turned down”. Next year, we believe, with an expected slowdown, America’s fiscal and Achilles Heel vulnerability will be exposed. Ironically Trump’s dilemma is largely self-inflicted again. Gold will be a good thing to have…
NEW KEITH NEUMEYER INTERVIEW:
Keith Neumeyer spoke with KWN about $8,000 & $10,000 price targets for gold and much more, to listen immediately CLICK HERE OR ON THE IMAGE BELOW.
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The Drum Beat of Trade Wars
Ominously, US federal debt exploded over $21 trillion and is more than 100 percent of GDP, a level reached only during and just after World War II. The interest payments today on that debt alone has exploded to over $500 billion and in October, the deficit was at $1 billion or 58 percent higher than a year ago. The federal debt and deficit have grown dramatically since Trump took office with spending up 18 percent and a budget deficit, spurred by defense spending will top $1 trillion, for the first time in American history. Trump, the spender.
Of concern is that amid the escalating trade war, foreign central banks are among the largest holders of US debt and have lately balked at buying more debt. Problematic is that with the US becoming the world’s biggest debtor, in essence a giant hedge fund, in accumulating big foreign debts to fund consumption, foreign creditors in the hunt for yield, has them looking elsewhere because of currency, yield risk and Trump’s politicization of diplomacy. The US has become overly dependent on foreign capital to finance its huge twin deficits and any reduction in foreign flows would cause Treasury securities to lose value, forcing the Fed itself to be the buyer of last resort and the printing press. And of concern is that with the world drifting in a more protectionism direction, that the markets themselves have become much more volatile and vulnerable to swings in market sentiment.
Then there is that big risk that China could always weaponize its massive US treasury debt holdings since it is the largest foreign holder of US debt. After all, Mr. Trump’s politicization of the arrest of Meng shows that all is fair in love and war. China has been absent in five of the past six auctions of American treasuries. After being hit with sanctions, Russia recently sold all of its American debt holdings. With America mortgaged to China, Mr. Trump is unwittingly treading on thin ice.
Gold, The Ultimate Store of Value
There was a time when the dollar was worth its weight in gold and anyone including foreign governments could redeem their dollars for gold. However in 1971, beset by huge debts and fearful of running out of gold, President Nixon severed the link to gold. Henceforth the US could run up its debt, using the printing press to pay for their debts because American dollars had the “exorbitant” privilege as the world’s reserve currency. Of course after the 2008 financial crisis, when the Fed opened the monetary spigots, a decade long bull market ensued. Until now. Like the Seventies, America has become more indebted and again, foreign governments today are balking at the dollar’s value, expressing concern over the excess of dollars and the American financial hegemony that provides the plumbing for the world’s financial system.. Like the technological war, America’s global financial hegemony and dollar supremacy is on the wane with many looking for alternatives.
Yet, Mr. Trump is not the biggest threat to the economy. Not the tariffs, not the Cold War with China but the looming disruption of the fragile world’s financial ecosystem which has been broken, creating uncertainty of America’s role in global commerce. World trade has slowed amid the realization that world co-operation and adherence to rules has been replaced by growing protectionism, not only in the United States but elsewhere in echoes of the Great Depression. It is not the trade imbalance with China that is America’s problem, but that China saves too much and the US saves too little. In August, the Chinese held $1.2 trillion of US debt due more to America’s propensity to spend more than they earn. This is America’s Achilles Heel…
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Gold is an Alternative For Central Banks
The Fed remains the world’s biggest holder of gold but the non-dollar countries are increasing their holdings. China and Russia have boosted their gold holdings and are the fifth and sixth largest holders. Russia and China are among the top 10 gold holders and a growing number of countries are conducting trade using their own currencies and even gold. China and Europe are settling oil contracts in other currencies than the dollar. Payment systems and channels today bypass the US because of fears of arbitrary sanctions. Gold has become an alternative for many central banks. Central banks’ demand for gold rose 22 percent in third quarter, according to the World Gold Council.
Consequently, the mighty dollar is not so mighty. Markets, lulled into complacency by the rounds of quantitative easing that financed federal spending, have been shaken by Trump’s trade wars damaging confidence in the US financial system. Since he started his “winnable” trade war, the trade deficit has soared to a record level and now the recent market and currency volatility has unleashed fears of a beggar-thy-neighbor currency war that went hand in hand in the 1930s.
2019 Will Be A Rewarding Year For Gold
All of which suggests that the debt laden US economy is not strong enough to shake off the trade- related hits to the corporate sector. The US balance sheet is in shambles. Debt on debt is not good.The credit troubles has taken the Fed unaware. So likely, will the outbreak of inflation. Mr. Trump believes he can kick the debt can down the road, for the next president. Wrong. His protectionism policies and isolationism echoes the blunders of the 1930s. 2019 will be a rewarding year for gold.
Thus, the age-old discipline of supply and demand leaves the dollar with only one way to go. The dollar is the keystone to the world’s financial ecosystem. However, two-thirds of the world’s assets are denominated in a fiat currency, issued by a country that is actively debasing that currency to lessen its debts and obligations. The only thing underpinning the dollar is the belief that the US is a credible steward of that currency. That belief is being tested. Today the dollar is on a shaky foundation, and amid the structural weakness of rising twin deficits, growing US debt and a protracted trade war, it comes down to trust. Without confidence in a fiat dollar, there is no reserve currency.
The dollar like the Venezuelan bolivar has become dependent on outside money. Part of gold’s allure is that it is a safe haven in uncertain times. There are two ways to describe the movement of gold. One can say that gold has fallen against the dollar or that the dollar has fallen against gold. In the dollar world, it is the latter because gold has maintained its value in those respective currencies whether they be pounds, roubles or renminbi. We believe, gold will continue to rise in value as long as the United States runs twin deficits, spends more than they bring in and Donald Trump is in the White House.
Gold’s Bull Market Has Just Begun
Gold’s bull market has just begun. Gold will benefit from the diversification away from equities. From a low of $1,150 when Trump was inaugurated, gold has built a two year base and we expect the rally to continue with a near term target at $1,275 an ounce. Short covering and hedge fund demand will push gold to $1,340 an ounce with a $2,200 an ounce target within 18 months. Gold will be a good thing to have.
***KWN has now released the remarkable audio interview with legend Pierre Lassonde and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
KWN has also released the powerful audio interview with Rob Arnott, whose firm helps to oversee nearly $200 billion, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
ALSO RELEASED: Legend Pierre Lassonde Just Predicted The Price Of Gold May Hit $1,400 In January CLICK HERE TO READ.
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