Why Gold Could Rise For The Next 10 Years
Contrary to popular opinion, gold and silver are not hedges against a crisis. In fact, a crisis may cause all salable assets, including precious metals, to be sold in order to get cash.
At Dohmen Capital Research, we believe a good recent example is the 2008 global crisis. Gold plunged 31% as credit tightened, the crisis accelerated and a rush to cash from all assets commenced. That was painful for bulls who didn’t know that a credit crisis causes all assets to plunge. But it also created a great buying opportunity at the bottom. Here is the chart of the gold ETF during that time:
Dohmen Capital Research
Gold investors must realize this to protect themselves in times of crisis. Cash in the form of a stable currency is the most desirable asset to hold during such times.
However, crises cause the central banks to step on the monetary accelerator, which then makes gold a great investment as you can see on the chart above. That bull market in gold went from late 2008 to late 2011, three years. As our motto says, “timing is everything.”
Gold has been widely ignored since 2011 as an asset class for institutional portfolios. However, that should change as most other asset classes deteriorate and become unattractive for a while.
What is bullish for gold? My opinion is that gold is primarily an inflation hedge, actual inflation or the perception of future inflation, as currencies are debased by governments that can’t pay their bills.
With long-term bullish sentiment on the precious metals so low until late 2018, and the gold price in terms of many foreign currencies already near or at new record highs, it’s only a matter of time before the U.S. dollar price of gold shoots upward. Although the very short term may see more of a pullback, the long-term factors are very constructive.
Read the full article at Forbes, by Bert Dohmen