Why Gold Will Rise—the Financial System Has Changed
The comments below are an edited and abridged synopsis of an article by Matthew Piepenburg
Gold’s recent price action, in an otherwise ideal inflationary and negative real rate environment, was just a momentary calm before the storm. The storm is gathering strength however, and gold will rise, but not in a straight line.
Despite inevitable (and extreme) volatility (war and inflation-driven) and legalized price fixing (including $100 intra-day price moves) from the increasingly discredited paper Comex markets, gold will keep rising as CPI inflation hits 7.9%.
Nearer term, gold’s price will gyrate depending on whether tensions in Ukraine escalate or de-escalate.
But Western financial responses to the crisis in Ukraine have changed the global system, yet no one noticed. Longer-term, this bodes well for gold and its potential to rise.
Up for discussion: A nod to Goldman’s Jeff Currie; weaponized finance—be careful of the safety trigger; the catalyst no one sees; de-dollarization coming full circle to bite the West; the Fed—nowhere to go but crazy; and recession and leverage ahead—will gold rise.
Given that the US (with a debt to GDP ratio of 122%) is effectively broke yet spending like crazy, the future, as well as policies ahead, are not hard to see.
It’s worth asking how US spending for entitlements, defense and treasury outlays will be paid for. In short: Where will the money come from? Will Uncle Sam cut spending?
It’s likely that the Fed will suspend Supplementary Leverage Ratios (SLR), meaning banks will be allowed to use more leverage to buy US debt from within at no charge.
Governmental guarantees of commercial bank lending are already in play, and this means more leverage, more debt, more risk and more autocratic rather than natural markets.
Expect more QE, which means the inherent value (as opposed to relative strength) of the US dollar, like all other fiat currencies, is getting weaker by each inflationary second, minute and hour.