- Prices rise as currencies devalue, sometimes rapidly.
- Huge devaluations have occurred in many other countries but not recently in the U.S.
- Printing the global reserve currency creates advantages. One advantage is that the U.S. can import real goods and pay for them with “printed” debt-Treasury notes. Exchanging real goods for “IOUs” can work for a long time, but not forever.
- Imagine the impact upon the U.S. economy if it could not exchange paper debt for real goods. Other countries strive to eliminate these exchanges. Treasury Notes are accepted for imports, but for how many more years?
- Prices in the U.S. will rise when there is less demand for the dollar in global trade. (Think crude oil!)
- Politics and military posturing may delay the loss of reserve currency status, but not indefinitely.
What Happens If Other Investors Start Thinking Like “Bond King” Jeffrey Gundlach?
In recent months the wave of sovereign gold repatriation has continued as Turkey and Hungary have been added to the list of nations requesting their gold back. But now the interest in gold is even spreading into the mainstream investment fund sector, as recently “Bond King” Jeffrey Gundlach has added himself to the list of investors who are bullish on gold.
Perhaps the real surprise is that it has taken as long as it has. Because while there has been demand on a sovereign level, especially from nations like China, India, and Russia, the general Wall Street opinion of the precious metals sector has not been favorable in recent years.
With the mainstream crowd still primarily drinking the Federal Reserve Kool-Aid, most have seen little reason to even consider precious metals. So it’s interesting to see someone as well known as Gundlach make the following comments.
“We see a massive base building in gold. Massive. It’s a four-year, five-year base in gold. If we break above this resistance line, one can expect gold to go up by, like, a $1,000” he said during the 2018 Mauldin Economics Strategic Investment Conference, according to recent recap from Steve Blumenthal, chief investment officer at CMG.
The most prominent factor behind Gundlach’s bullish gold outlook is a weaker U.S. dollar. In his presentation, he said that he sees the U.S. dollar continue to push lower in 2018.”
Gundlach’s comments indicate that his thesis is based at least partially on technical factors. Although he did also reference the fundamentals as well.
“When you get a lousy year in the dollar, like last year, it’s very typically followed up by another year that’s bad just after,” Gundlach said.
Of course given the almost daily developments that are accelerating the move away from the Dollar on a global basis, it’s not hard to imagine that more challenging years for the dollar lay ahead in our near future.
Additionally, it’s particularly interesting to hear these comments from a fund manager primarily known for his bond market expertise. Especially his comments on the current treasury market.
The “Bond King” also argued that U.S. Treasuries were “not attractive” despite rising yields, as various economic indicators suggest that US inflation is set to rise, which would hurt prices of government bonds (thus driving yields higher).
These sentiments are hardly shocking to those who have been following the merits of the investment case for precious metals in the past years and decades. Yet to see those comments from an investor like Gundlach, that many other fund managers in the mainstream are likely to take notice of and consider, introduces another potential source of demand into an already thin market.
Especially in today’s markets where investment flows can change quickly, and many are following the same chart patterns, it’s a development worth keeping an eye on. Because I continue to believe that we are headed towards the point where the demand for precious metals overwhelms the paper markets, with growing interest and demand always looming as the potential trigger to squeeze the market.
The fundamentals have always been simple enough. It’s not that there’s a need for more evidence to support the case for metals, but rather just a matter of more investment buying power becoming aware of the merits of the case. So should more investors pay attention to and understand what Gundlach is seeing, that’s just one more factor leading towards the higher precious metals prices that must eventually occur.