GOLD

Is Gold Ready to Turn?

Bill Fleckenstein

Today, there is really no alternative to owning some gold, unless you have the perfect inflation-protected business. Yet gold is routinely scorned and laughed at, all while central banks are trying to double inflation to around 2% from the 1% or so they claim it is, when in fact it is quite likely already 4% to 5%.

How anyone can forgo having exposure to precious metals to protect themselves from the eventual destruction of fiat currency is hard to fathom, but that is what markets do. They get investors negative on something at a moment in time when they should be wildly bullish about it, and vice versa. Note the attitude toward stocks in general right now. The latter should be sold and the former should be bought, yet people are doing the opposite, in size.

On the inflation front, keep an eye on the UK and Japan as well as the US. Currency printing is a worldwide phenomenon. Thus, we may see a change in inflation psychology somewhere else before we see it in North America, and such a ‘sneak peek’ may enable us to understand better how the process is likely to evolve.

For the moment, however, it seems as though folks are totally sanguine. In the UK inflation expectations have ticked up to 3.3%; as for Japan, yields there are hovering near all-time lows. This suggests that, thus far, the power of currency printing has pushed bond markets higher, while its consequences have not concerned enough people to matter.

The same is true in the US, where currency printing has helped boost the stock market and the economy, with the latter looking even better due to faulty seasonal adjustments and assumptions. The combination has powered the Dow and the S&P500 to record highs, causing journalists to write all kinds of glowing stories about the US stock market and economy and, by extension, the dollar.

“In the perverse world of money printing, if you conjure enough paper, you can get all your asset markets to rally, along with the very currency you are debasing. It is a wonderful world, until it isn't. Think 2008—only worse.”

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