It’s hard to believe that the 2008 Great Recession is already a decade behind us. Part of the reason is of course the severity of the crisis, which many of us are still recovering from today. And, the measures to help us get back on our feet were in place for years. In fact, the Federal Reserve slashed interest rates to nearly zero in 2008 and didn’t start increasing them until late 2015.
The most recent interest hike took place in December last year. Back then, Fed Chairman Powell promised further gradual tightening.
Come Christmas, however, the markets took a huge dive. Investors started panicking, fearing another recession like the one in 2008 was just around the corner.
The uproar from the markets put enough pressure on central banks to keep them from raising interest rates. Powell capitulated, shelving any talks about rate increases—a move he was praised for by Gita Gopinath, chief economist for the International Monetary Fund. She saw “considerable and rising risks” to the global economy, backing up Powell’s policy decision.
At this time, the markets are estimating the probability of a rate hike in 2019 at zero—in fact, markets are expecting a rate cut soon.
The Fed also gained support from renowned economist Paul Krugman. He shared the worry about a coming recession, but more importantly he was worried that the central bank would be unable to cut interest rates low enough to counter such recession.
This is not just a US phenomenon. Both the European Central Bank and the Bank of Japan had planned on tightening their policy and raising interest rates. Now, however, they have made a U-turn and are considering dropping rates into negative territory.
Although the Fed has backed off, some people—including the President of the Federal Reserve Bank of St. Louis—are calling them out for keeping rates too restrictive. Joining the choir is the San Francisco Fed: in a recent research paper, they are saying that the economy would have recovered even faster after 2008 had the interest rates been pushed into negative digits.
One economist goes even further. Société Générale’s Albert Edwards expects the Fed not only to lower interest rates into negative territory but also to print money and give it directly to the people to combat the next recession.
So, with the Fed banks praising negative interest rates, the possibility is real that we’ll actually see such rates.
If the Fed goes all the way and drops interest rates below zero, you would lose the value of any amount you hold in cash, and you would earn more money holding gold (interest rates don’t impact your gold holdings).
And sophisticated investors are seeing this. Recently, the gold price has been rising: it’s been trading at a 14-month high. Central banks, undoubtedly the most sophisticated investors around, are buying up gold at the fastest pace since World War II.
In other words: central banks, who control currency printing, are betting on gold and its 5,000-year history as the safe-haven asset.
So, that’s the first reason we’re bullish on gold. The second reason is that we are simply not discovering new gold.
Because gold and gold stocks have been unpopular for years, mining companies don’t have the financial abilities they’re used to and have cut their exploration budgets to 11-year lows. The results? They are finding less and less gold. Since it takes 10 years to start producing gold from a new mine, when demand really starts picking up, gold supply will be too small. That means there will be rising gold prices. Many investors are buying gold for this reason alone.
Gold production has peaked, according to some of the biggest players in the gold industry, and central banks are using their superior capital to stock up on gold. Even real estate billionaire Sam Zell just bought gold—for the first time ever! Zell says the lack of supply made this decision a “no brainer.”(Learn more in our article: Will the Price of Gold Go Up? Ask Billionaire Sam Zell.)
The simple truth is this: The huge demand for gold—when it picks up because of any type of financial crisis or uncertainty—combined with dwindling supply will lead to gold prices rising.
Historically, gold has been an excellent indicator of central bank policy. Before Jarome Powell reversed the Fed’s policy in January, gold rose from under $1,200 to nearly $1,300 an ounce.
This week gold has gone even higher, and we expect it to climb higher still. When that happens, all hell is about to break loose.
My recommendation is that you add gold to your portfolio while there is still gold to be bought at today’s relatively low prices. You can apply different strategies that will have you achieve much higher returns than just the increase in the spot price of gold. You can apply certain strategies when you use your IRA to purchase gold, while others can be used for straight cash purchases.
To continue learning how to safely grow your wealth, I encourage you to ask for our Free Gold Investment Guide.
Inside our guide, you’ll learn no-brainer strategies on how you can protect and grow your wealth with precious metals.
More about Kevin
Kevin has spent over 16 years in the financial industry, focused primarily on precious metals as investment assets. He has published many articles on buying and selling precious metals along with the best entry and exit strategies for various financial assets. He has helped thousands of clients protect, preserve, and safeguard their investments with precious metals and has been with Gold Alliance for more than two years as a leading Sr. Portfolio Manager, overseeing a large portion of our clients’ portfolios.
Kevin happily provides advice for clients who wish to diversify into precious metals. Schedule a free consultation appointment with Kevin here.