Gold’s Silent Comeback And The Middle-Class Rebound

The comments above & below is an edited and abridged synopsis of an article by Cliff Droke

Historically, economic improvement following a major downturn like the last recession goes from the highest economic classes to the lowest. The upper class always benefits first from increasing credit and money supply, then the upper middle, then the middle, and finally the lower class. Economic momentum takes time to build, but when it becomes established it tends to be self-sustaining.

One indication that things are about to improve for the middle class is the price of gold. Gold serves two primary functions in today’s economy. The first is as a reflection of how much fear exists among investors as it pertains to the future outlook. The gold price is one way of gauging how much confidence stakeholders (producers, consumers and investors) have in the future prospects for business.

More than this, gold is a measure of future inflation expectations. When the economy was fragile between 2009 and 2011, investors placed a high premium on gold ownership as reflected in runaway gold prices. When it became clear in late 2011 that the US recovery was under way, gold lost its attraction as a safe haven and it became less desirable for investors to commit the bulk of their investment capital to it. Risk assets became more attractive.

But gold has embarked on a comeback, effectively ending a 4-year bear market. It has been consolidating its gains as it prepares to continue its long-term rebound. The going has been slow, mainly because inflation has been slow to return and equities continue to steal some of gold’s thunder. The M2 velocity chart, however, shows that inflation should increase in coming years. This would brighten gold’s prospects and make gold ownership more attractive to the average investor once again. A moderate amount of inflation, besides boosting gold’s allure, would help the middle class to recover.