Weekend Gold Forecast Nov. 1, 2020

The US elections are next week, expect a significant uptick in volatility.

The markets hate uncertainty, so a close or disputed election could send stocks reeling.

Covid numbers are on the rise globally, and we are starting to see more shutdowns. This could impede the recovery and disrupt supply chains.

I see a generational buying opportunity in energy-related assets.

THE RETURN OF INFLATION

Inflation has been tame for nearly 40-years, but I think that’s about to change. Forced government shutdowns and supply chain interruptions have reduced productivity. To combat the slow growth, governments have printed obscene amounts of money. This is all very inflationary, in my opinion.

The last time inflation was out of control was during the 1970s. During an inflationary period, investors flee fixed income for assets with some inflation protection (commodities). It doesn’t make sense to be locked into a Treasury yielding 0.7% if inflation annualized is significantly higher. During the 70s, I believe the annual inflation rate exceeded 8%.

By the late 1970s, nobody wanted to own Treasuries – no matter what they were yielding (sounds like energy stocks today). Bonds were considered “certificates of confiscation.” BusinessWeek’s August 1979 issue was titled “The Death of Equities” how inflation is destroying the stock market. At that time, 30-year Treasuries were yielding something like 14%, and no one wanted them. That turned out to be a generational buying opportunity.

Fast-forward 40-years, and here we are again. However, this time it’s the opposite. The April 22, 2019 issue of BusinessWeek was titled “Is Inflation Dead?” and had the image of a Dinosaur. Could this be yet another contrary indicator? I believe it is, and I think a new inflation is getting started.

When inflation rages, the price of “things” go up. By “things,” I mean anything we use or consume or anything out of the ground. Precious metals are an excellent inflation hedge, but I believe all commodities will go higher.

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Disclosure: None.

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Comments

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William K. 8 months ago Member's comment

Quite an interesting article, and several interesting comparisons. Certainly gold is always an indicator of a lack of confidence in the dollar, and in the wisdom of our fed, more specifically. At least that is the way that I see it. Others may not agree. Oh Well.

Inflation is not dead, it is just siting and waiting for the chance to do the most possible damage to the general population, while giving a short term boost to the market. Always the Fed supports it's friends. That seems to never change, no matter what else is done.

David M. Goldstein 8 months ago Member's comment

Now's the time to buy gold. All hell may break loose on or right after election day. Better to be safe buy buying into safety.

Alexandra Gray 8 months ago Member's comment

Well election day is here. Time to see if your prediction is right.

David M. Goldstein 8 months ago Member's comment

From what I've read, stores are boarding up their windows in preparations of rioting, so I'm not the only one.

Angry Old Lady 8 months ago Member's comment

Either Biden will win as expected, in which case Trump will tell everyone that the election was rigged and his armed militias will riot, or Trump will be successful in his efforts to suppress the vote and he will win. Then Antifa and those on the left will riot for having the elections stolen from the will of the people.

I literally see no possible outcome that does not involve mass protests and wide-scale rioting. And our president actually encourages this, which is something this country has never experiences even once in its history! So yes, time to invest in gold and canned goods!