The crashing sound reverberating through the canyons of Wall Street is not what one expects from a healthy economy. Instead, it should be heard as an early warning alarm signaling a large-scale monetary crisis.
Last week, we cited Metals Focus, a leading precious metals research firm, describing US demand for minted silver retail investment products as “almost insatiable.”
At the same time, the US Mint reports strong gold coin sales. For example, through the first six months of 2022, US Gold Eagle sales are well above half of the 2021 total.
All of this is bullish on its face, especially in light of the bloodletting that has taken place so far this year in stocks, bonds, and cryptocurrencies.
Now, to the bullish case of “insatiable demand” and the clamoring for investing in precious metal products, we can add the forecast from the leading investment bank Goldman Sachs.
It foresees gold heading to $2,500 an ounce in the second half of this year. Not only did Goldman Sachs raise its forecast as the consensus grows that the US is entering a recession, but the prospect of a recession is seen as a material contributor to higher gold prices.
Analysts are clearly considering the historical precedents for higher gold prices due to a recession (or even a depression). The Great Depression saw the dollar devalued, much as the Fed’s inflation is doing today. Gold rose from $20.67 an ounce in 1929 to $35 in 1934, for an increase of almost 70%. Gross Domestic Product (GDP) fell five percent in the Great Recession that followed the popping of the housing bubble. The recession lasted only 18 months, ending in June 2009, with gold roaring up over 50% between September 2010 and 2011.
Goldman Sachs analysts are making the case that with the recovery from the COVID shutdown, investors moved back to riskier assets, i.e., stocks and bonds. Now, with recession stress ahead for both, gold’s special safe-haven allure will again be front and center as we head to the end of the year.
We are persuaded. We point, once again, to the monetary reality that always prevails in the end.
The Federal Reserve (and the world’s other leading central banks) embarked on a frenzied bender of money printing as the Great Recession got underway. The Fed’s balance sheet – the assets including US Treasury and mortgage bonds purchased with dollars it simply created out of… out of thin air! – grew from $800 billion then to $8.9 trillion today. That is an explosive increase of unbacked, inflationary dollars, an increase of more than 1,100%!
Like money printing that has gone before, from Argentina to Zimbabwe, from Agrarian France more than 200 years ago, to industrial Germany a century ago, it will all eventually be reflected in the sharply reduced purchasing power of the currency. Or, stated differently, its assimilation into the economy will be seen in much, much higher prices.
The Fed has not been alone in this money madness. Including the world’s other leading central banks, the People’s Bank of China, the Bank of Japan, and the European Central Bank, central bank balance sheets have grown from $4.9 trillion to $31.3 trillion.
Did they not take leave of their senses? Can they really have believed that they could print and spend $26 trillion into the economy at no real cost?
At root, for Americans, the cost is the destruction of your dollar-denominated wealth and the imperiling of your dollar-denominated future. Because one can only find refuge from these trillions of empty monetary calories in real assets, preeminently gold and silver, we find Goldman Sachs’ forecast for gold to climb to $2,500 entirely reasonable. And that trajectory is likely to continue beyond their target for some time thereafter. Bear in mind that the race for gold will not be run only by Americans. Under the circumstances we have described, it will be a global affair.
Little wonder that some of the responsible parties are feeling remorse for this splurge of money printing. A majority of central bankers surveyed by the World Gold Council believe global gold reserves will continue growing; each year the number the central bank respondents reporting they expect to add their own reserves goes up.
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The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.
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