Gold is trading at six year lows due to the market’s complacency. Between 2004 and 2006, the Fed raised the federal fund rate 17 times in a row to 5 percent. However, during that same period, gold increased 50 percent. Although, we believe, the first rate increase in 10 years is unlikely to match previous periods because of the precarious recovery and of course the election cycle next year, the old adage, “buy on mystery, sell on history” will prevail.
The financial industries’ biggest asset is confidence. Currently the markets are complacent despite dramatic swings. We believe the increased volatility, changing geopolitical games of chance and confusion over the policy decisions of central banks together with the consequence of their past moves will contribute to a sea change in that confidence. The combination of too many dollars, economic stagnation and a riskier geopolitical climate makes gold a better store of value as the record amounts of money finally catches fire and ignites reflation. Gold will go up exponentially.
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