Gold Is Cheap. Inflation Is Coming. You Do the Math | Sprott

Gold James Alexander Michie


Author: James Alexander Michie

Over time, gold has certainly had a bad reputation. Likewise, 2018 has been a year in which gold has especially faded. Its price has plummeted by 8%, to around $ 1,200 an ounce, and is out of more than 35% from its peak of $ 1,900 in 2011. As additional damage, Vanguard will soon re-baptize the largest US-based mutual fund. gold and it will keep your focus away from the metal.

Now, if a comparison is made with stocks and other financial assets, gold seems cheap. In addition, inflation is beginning to rebound in the US. UU and in much of the world as central banks reduce their huge balance sheets. Gold has symbolized a good defense against inflation that erodes the value of a portfolio of stocks or bonds. Over time, it has maintained its value against the dollar. Gold was $ 20.67 an ounce 100 years ago.

According to Keith Trauner, co-owner manager of the GoodHaven mutual fund (ticker: GOODX), which owns Barrick Gold (ABX), a leading mining company “Gold is rare, and it is difficult to quickly increase supply”, he added. “Historically, the people have seen it as a protection against the depreciation of the local currency government. ” Similarly Trauner said “Virtually all governments in the world are trying to promote inflation in part because there is so much sovereign debt” and also established “Politicians, when they have the opportunity, will choose the latter”.

On the other hand, Pierre Lassonde, who is president and co-founder of Franco-Nevada (FNV), a mining and gold royalty company with a market value of $ 12 billion. “Gold is the anti-dollar,” he added. “When the dollar is strong, there is no need for gold.” But when the dollar is weak, people return to gold. “In fact, throughout history, gold and the dollar have a negative correlation of 80% to 85 %. The dollar has been backed by expectations that the Reserve Federal will continue to tighten and raise its benchmark, the federal funds rate, to 2.5% -3%, from the current range of 1.75% to 2% by the end of 2019.

Currently, a large part of US investors have little or no gold, but there are some who opt for metal and one of them is Jeffrey Gundlach, the declared CEO of DoubleLine Capital, the large investment oriented firm. to bonuses, who said “In my June webcast, I recommended that golden insects wait for up to $ 1,200 to buy because it had just broken below a graph point at $ 1,290,” which has been transformed into something positive early of this month when the gold reached $ 1,196. Based on the technical data, to which Gundlach responded: “now I am bullish”.

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Source: Andrew Bary | Sprott

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