Today the man who was bearish on the gold market for 5 years, and turned bullish at the tail end of 2015, told King World News that this will be one of the greatest gold bull markets in history. He also spoke about the big surprise.
Eric King: Paul, from a big picture perspective, talk about where we are in the gold bull market.”
Paul Wong, of Sprott Asset Management: “People need to understand that one of the major fundamental drivers of the gold market is where interest rates are heading. We are now living in a negative interest rate world (for the first time in history)…
Continue reading the Paul Wong interview below…
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Paul Wong continues: “The following chart shows the average G10 bond yield and the data clearly shows that interest rates are in collapse mode — it looks like a waterfall (see chart below).
The collapse in interest rates started back in 2008, when the world experienced the shock of the credit crisis. What we saw in the aftermath of the 2008 collapse was a huge buildup of debt to ‘save the system.’ Well, how do countries get around all of that debt? They basically try to grow their way out of it, and so the decision was made to lower interest rates.
So they started global QE and pursued a zero interest rate policy, which started the first leg down in the yield market. Obviously that didn’t work, so the next phase was a negative interest rate policy. The ECB started this policy in June of 2014. If you look at the chart above you will see a sharp decrease in bond yields at that point. Then, in January of 2016, the Bank of Japan announced negative interest rates and then the whole interest rate complex started to collapse. So you now have 2/3 of the world’s largest central banks utilizing a negative interest policy.
We now have more than (a staggering) one quarter of all sovereign bonds on a global basis that are negative yielding. So the goal was to try to get global GDP up to a level where the developed nations could start eating away at that debt. The problem central planners have is that, like QE, it’s not working. So we are now beginning to hear rumblings that there will be more helicopter money coming in one form or another because their growth initiative policies have failed. In fact, every single year global GDP has come in materially lower than the average forecast.
The Big Surprise
Earlier in the year central planners, to paraphrase, said, ‘Well, if it doesn’t work, we will hit it harder.’ So now they are saying they are going to have to think of something else, and that’s helicopter money. My best guess is that the Japanese will initiate helicopter money first since their central bank pretty much owns all of the Japanese sovereign bonds out there anyway. The Bank of Japan is also the biggest shareholder of the Japanese stock market. I mean they are running out of stuff to buy, literally. So yes, helicopter money is coming. This time around I think the impact on the gold market will be outsized to the upside, much like it was after the first QE that was initiated.
With regards to the gold market and gold equities, the first thing I was looking for was selling capitulation. We saw that in spades in the summer of 2015. If you look at the illustration below, it shows that, top-to-bottom, the gold equities were down (a jaw-dropping) 80 percent.
But looking at the chart above, a typical destructive bear market is down about 80 percent. That’s only happened twice in history prior this latest collapse. Again, looking at the chart above, the 1982 low and the 1997 low were both down about 80 percent.
But this bear market was one of the longest on record and was the deepest on record in terms of the overall price decline. I knew that alone was going to give us a significant price rally. You see big percentage gains off of a small base…
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Paul Wong continues: “So the crash in the Dow 1929 – 1932, the tech crash and rebound — anything that is down 80 percent or more, you have to be interested in taking a look at the asset class. And if you couple the rebound that is now taking place in the gold bull market with what’s going on with the reckless central bank policies, we are going to see an extraordinary bull market run. Again, part of the reason for this is that you had one of the worst, protracted bear markets in history, coupled, as I mentioned earlier, with the latest development in central bank policies, and that should push gold into one of the better bull markets in history.”
***KWN has now released one of the most powerful audio interviews ever with legend Art Cashin and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also just released: With Chaos Ready To Erupt, This Is About To Shock The World CLICK HERE.
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