Gold Geared Up for another Bull Market — With Greenspan’s Tacit Support
It seems that it is impossible to miss the advertisements and articles urging Americans to invest in gold. Radio and television commercials, news articles and online ads are abundant. Various economists insist that gold is currently undervalued and that this yellow metal is the safest hedge against inflation. However, when a former chairman of the Federal Reserve Board becomes vocal about the advantages of owning gold, more people tend to listen. The former chair is none other than Alan Greenspan, who agrees that gold is poised for a bull market.
What Has Greenspan Said Regarding a Bull Market for Gold?
According to GoldPrice.org, the price of gold in the United States dropped 28.3 percent in 2013, 1.5 percent in 2014 and 10.4 percent in 2015. Thus, many people were surprised when Greenspan advocated investing in gold in 2014. During an interview in October 2014 that was published on Newsmax.com, Greenspan stated that in five years, the price of gold would be “measurably higher.” He also predicts that interest rates will rise considerably and warns that hyperinflation is a possibility; increases in interest rates and inflation have historically led to increases in the price of gold. In addition, during a July 2016 interview about the United Kingdom’s vote to leave the European Union, Greenspan stated that if Brexit signaled a change of direction or correction in political and financial systems, gold could be in the early stages of what he called a “major bull market.”
Does Greenspan Advocate Returning to the Gold Standard?
Throughout his career, Greenspan has been an advocate and defender of the gold standard. In June 2016, he stated that America would be “fine” if it returned to the gold standard and adhered to it as it existed between 1870 and 1913. However, in the aforementioned interview posted on Newsmax.com, Greenspan stated that it is not possible for “welfare states” to be on the gold standard although he stopped short of calling America a welfare state. Entitlements and social programs can be extremely expensive, typically requiring governments to keep printing money to meet obligations. On the gold standard, the government could only print money if it had sufficient gold reserves; at the time that the United States abandoned the gold standard, the requirement was $40 dollars of gold for every $100 of currency in circulation. Given that America owns less than $500 billion in gold and has a deficit of almost $20 trillion, a return to the gold standard is not likely to happen soon.
What Are Other People Saying About a Bull Market for Gold?
Jake Klein is the executive chairman of Evolution Mining Ltd., the second-largest gold producer in Australia. In an interview with Bloomberg, Klein stated that the United Kingdom’s vote to leave the European Union could signal a global increase in financial and political instability. If so, he stated, gold stands at the precipice of a bull market. Gold prices soared after the Brexit vote, and Klein noted that when uncertainties rise, investors turn to gold as an alternate currency.
In May 2016, Goldman Sachs increased its three-month forecast for gold prices from $1,100 per ounce to $1,200. Justifications for the forecast included a weaker dollar, the inability of the Fed to lower interest rates enough to depreciate the dollar and a Chinese economy that had only limited ability to weaken the dollar. Interestingly, the price of gold was more than $1,260 per ounce on the day that Goldman Sachs released its revised forecast, and it was $1,321.70 on July 21, 2016.
It is not just American investors who are turning to gold. In July 2016, CNBC reported that the average volume of gold contracts traded on the Tokyo Commodities Exchange increased 45 percent during the first six months of 2016. One bullion retailer in Japan reported that during the first quarter of 2016, his sales increased 30 percent over the first quarter of 2015.
Consumer demand during the first quarter of 2016 was 6.8 tons in Japan, 241 tons for mainland China and 117 tons in India. These three countries also have substantial official reserves of gold; China reportedly has 1,800 tons, Japan has 765 tons and India has 558 tons.
The report issued by the World Gold Council for the first quarter of 2016 is also telling. Demand increased 21 percent over the first quarter of 2015; since records have been kept, only one quarter has ever seen greater demand. Central banks have always been strong buyers, and during the first quarter of 2016, they purchased 109 tons.
Will Gold Prices Continue to Rise?
Gold prices are still far short of the prices achieved in 2011 and 2012. It is impossible to predict whether gold will continue to rise in value, but Alan Greenspan and many other economists believe that it will. To learn more about the gold market, visit PersonalMoneyStore.com.