Gold Investment Compelling As Fed Likely To Create Next Recession
Is the Fed about to kill the business cycle?
16 out of 19 rate-hike cycles in past 100 years ended in recession
Total global debt at all time high see chart
Global debt is 327% of world GDP ticking timebomb
Gold has beaten the market (S&P 500) so far this century
Safe haven demand to increase on debt and equity risk
Gold looks very cheap compared to overbought markets
Important to diversify into safe haven gold now
by Frank Holmes via Gold.org
Global debt levels have reached unprecedented levels, pension deficits are rising and the US interest rate cycle is on the turn.Frank Holmes, chief executive of highly regarded investment management group US Global Investors, believes that investing in gold is a logical response to current, unnerving conditions.
For centuries, investors and savers have depended on gold in times of economic and political strife, and its investment case right now is as compelling as it’s ever been.
As I write this, gold is trading above US$1,330 an ounce after a strong rally that took the metal to its highest levels since August 2016. Tensions over North Korea, a weakening US dollar, political uncertainty in Washington, an overvalued US stock market, surging public and private debt and negative interest rates around the world have all boosted demand for gold as a reliable and time-tested store of value.
I often refer to this as the ‘Fear Trade.’ For centuries, investors and savers have depended on gold in times of economic and political strife, and its investment case right now is as compelling as it’s ever been.
Let’s look at debt for the moment. Most market-watchers are aware that US government debt currently stands at just under US$20 trillion, an unfathomably large figure that will only continue to climb as the interest compounds.
Chart 1: A Ticking Time Bomb?
U.S. Total debt balance in Trillions of dollars
Source: New York Fed Consumer Credit Panel, Equifax, U.S. Global Investors
Worrying as this is, it doesn’t take into account other forms of debt that I believe pose an even greater risk to capital markets. US household debt, which includes mortgages, auto loans, credit cards and the like, reached a mind-boggling $12.73 trillion in the first quarter of 2017, according to the Federal Reserve Bank of New York. That’s $150 billion more than the end of 2016 and $50 billion above the previous peak set in 2008.
Even more worrisome is the fact that the number of delinquencies grew for the second straight quarter this year, as more income-strapped Americans binged on credit. As we all remember, this is what ultimately burst the housing bubble only 10 years ago.
Totalglobaldebt levels reached an astronomical US$217 trillion in the first quarter that’s327%of world GDP.
But let’s not stop there. According to the highly-respected Institute of International Finance (IIF), total global debt levels reached an astronomical $217 trillion in the first quarter-that’s 327 percent of world gross domestic product (GDP). Note that before the financial crisis, global debt was only around $150 trillion, meaning we’ve added close to $70 trillion in as little as a decade. Much of the leveraging occurred in emerging markets, specifically China, which is spending big on domestic and international infrastructure projects. Some are calling this mountain of debt the mother of all bubbles or the everything bubble.
Paying down this debt will not be easy, whatever you call it.
The situation is aggravated because global pension levels are sharply on the rise. People are living and drawing pensions for longer periods of time and birth rates are in decline in many advanced economies, so there aren’t enough new workers to help pay for those pensions. In May, the World Economic Forum (WEF) estimated that by 2050, the size of the retirement savings gap-unfunded pensions, in other words-could grow to as much as $400 trillion. The US alone adds about $3 trillion every year to the pension deficit.