Commodity Trade Mantra: Powerful Forthcoming Rally in Gold and Silver Ensured by Weakening Dollar & Rising Inflation

September 11, 2020

Article by Stefan Gleason and Neils Christensen in Commodity Trade Mantra

Gold and silver prices are modestly up in midday U.S. trading Thursday. The Fed is monetizing debt on an epic scale, through which it increases the quantity of money heavily. The increased quantity of money will, sooner or later, most likely to be reflected in higher prices: be it consumer and/or asset prices.

The debasement of the purchasing power of money

As long as central banks continue with their inflationary scheme, the savvy investor has good reason to consider keeping gold as part of his/her liquid means because the purchasing power of gold cannot be debased by central banks printing up ever greater amounts of currency. And unlike bank deposits, gold does not carry a payment default risk. At current prices, we believe gold offers an attractive risk-reward profile, meaning a significant upward price potential that comes with a limited downside price risk.

Equity market turmoil is supporting gold’s role as risk diversifier. Central banks remain dovish, with interest rates expected to sit near zero. Ongoing quantitative easing should support investor demand. Gold remains an attractive investment, as the recent price setback is likely to be short-lived.

Gold and Silver stand to gain

Since posting new record highs in early August, the gold market has consolidated above $1,900/oz support.A move back above $2,000/oz would likely be followed through to the upside with a rally to fresh highs. Silver, in turn, could be expected to run to new multi-year highs above $30/oz.

The relentless mega trend of dollar depreciation (i.e., inflation) ensures hard money will gain value versus fiat Federal Reserve notes. Inflation rates may be set to 

accelerate as the Fed aims for an “average” of 2%. According to central banker logic, this requires pushing inflation above 2% for an unspecified period.Holders of low-yielding U.S. dollar-denominated debt instruments should be quite concerned about the prospect of losing purchasing power.

Chinese economist Xi Junyang announced last week that the country would aim to hold $800 billion in U.S. debt “under normal circumstances.” But, he added, “China might sell all of its U.S. bonds in an extreme case, like a military conflict.”

If major world powers dumped their Treasury holdings and stopped accepting U.S. currency in international trade, the U.S. dollar’s privileged status and value would collapse. Of course, gold and silver stand to gain against ....

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