News & Views Reprint Series
Open Access / Full Version
In Gold We Trust 2015
by Ronald-Peter Stoferle and Mark J. Valek, Incrementum AG, Lichtenstein
Editor’s note: Annually Incrementum, the Lichtenstein investment house, publishes the most comprehensive gold study available. In Gold We Trust 2015 comprises 140-pages of top-drawer analysis for those wondering whether or not gold should continue (or begin) to play a significant role in their financial plans. That study is published in the clear at the link to the left. We highly recommend at least paging through this important work, if not fully digesting it.
The following is an important excerpt from the study’s conclusions:
“We are strongly convinced that we are now close to a fork in the road. Over the coming three years, a paradigm change is likely to become evident in the markets, quite possibly including rising inflationary trends. We believe the following scenarios to have the highest probability:
Scenario I: The current economic cycle nears its end and the fairy tale of a self-sustaining recovery is increasingly questioned by market participants. This leads to a significant devaluation of the US dollar relative to commodities, since the Fed – as it has stressed time and again – will once again employ quantitative easing or similar interventions if occasion demands it. In this case gold would benefit significantly from wide-ranging repricing in financial markets. A stagflation-type environment would become a realistic alternative in this scenario, something that is currently on almost no-one’s radar screen.
Scenario II: Rising yields lead to an increase in credit creation and an increase in money velocity (= decline in the demand for money). Economic activity picks up, is however accompanied by accelerating price inflation. In this scenario, both financial assets (with the exception of bonds) and real assets (such as gold) would benefit in nominal terms.
Scenario III: The system hasn’t become any healthier since 2008, but has in fact become more fragile in many respects. Due to further concentration in the banking sector, the balance sheets of the largest banks have grown enormously. The volume of outstanding derivatives has continued to grow, with many off-balance sheet positions. In addition, the geopolitical situation hasn’t been this tense since the end of the cold war. The probability of a “black swan” event striking is therefore in our opinion higher than it has been in a long time. In this type of scenario, gold would likely emerge as a beneficiary as well.
Conclusion: All in all we are convinced that gold remains in a secular bull market, which is likely close to a renaissance. Should this assessment be correct, we would expect to see a trend acceleration in the coming phase. As discussed above, a variety of scenarios is possible which would mostly have positive effects on the gold price. We believe that this is a good time to provide a concrete time horizon for our long ago formulated price target. In light of the perspective discussed above, we have decided to set a time horizon of three years for our long term gold price target of USD 2,300.
Emphasis added. Reprinted with permission
• • • Also added to USAGOLD’s Gilded Opinion Library – a repository of timeless classics on matters of importance to gold owners.