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By Liu-Yue (Louie) Lam, Co-Founder, CEO, & Chief Investment Strategist, Oxstone Capital Management,

Recent studies have shown that current investments in gold as an asset class are still heavily underinvested as a percentage of an investor’s overall portfolio (less than 5% of Americans own gold).

The global liquidity released by the Fed and the Japanese central banks are igniting high inflation around the world as seen in commodity prices.  The new economic strategy for many in G-8 is competitive devaluation, but this will likely spark trade wars and a period of anti-globalization.   Gold still presents a terrific opportunity to diversify your overall portfolio and protect yourself from inflation and currency wars.

In general, I personally do not like to invest in gold because it is a non-yielding asset, which means it does not provide any returns other than price appreciation. There are also high costs to holding physical gold.  However, in recent years the introductions of Gold ETFs have made investing in gold much easier and much more cost effective.  Please check out our ETF list section for Gold ETFs.  My favorites are GLD and PHYS.   

https://oxstones.com/stock-lists/

A Case for Gold Investing and Gold Catalysts

Emerging Market Central Banks Buying Gold

In the past decade, central banks were net sellers of gold.  However, in recent years central bank selling has stopped, which have provided additional support for gold prices.  In 2010, central banks became net buyers of gold for the first time since the 1980s. That trend will only accelerate as central banks across emerging market economies continue to diversify their holdings out of dollars and Euros and into gold and other hard assets.

Global Competitive Devaluations and Sovereign Debt Crisis

Fiat currency debasement by G-8 countries and euro debt crisis will likely continue to act as major catalysts for further gold price appreciation.  The sovereign debt crisis in Europe is not over.  Many countries will likely need to restructure or default on their debts in the years to come.  The sovereign debt crisis in the U.S. is still many years away.  You can expect to see even more quantitative easing  – Part III, IV, V in the USA, UK, Japan, and other developed world economies; who are all caught in the debt trap.  For many that is their only option left.

Global Liquidity and Rising Inflation Expectations

With interest rates rising, investors are only now turning their attention to the expectations for much higher inflation in the near term horizon.  This is another catalyst for gold prices. Gold has been a stable storage of value for over a thousand years.  The peak inflation adjusted price of gold in 1980 was $2,100 to $2,300.  I think gold prices will likely march higher to around $1,500-$2,000 in the next 18-24 months.

Negative Real Rates

Current interest rates are still extremely low.  In fact many countries still have negative real rates.  As long as interest rates remain in negative in real terms I believe we can expect gold prices to continue to march significantly higher.  With the majority of leading developed economies caught in insurmountable debt traps I don’t expect them to raise interest rates anytime soon. Even many emerging market countries have decided to accept the consequences of higher inflation and keep liquidity flowing rather than deal with social unrest from any economic disruptions.

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Tags: asset allocation, big picture, central bank buying gold, debt traps, diversifying reserves, Dollar debasement, emerging market central banks, food for thought, GLD, global competitive devaluations, global liquidity, gold, gold ETFs, gold price predictions, gold prices, inflation, Japan Central Bank, Liu-Yue (Louie) Lam, negative real rates, Oxstone Capital Management, Oxstone Investment Commentary, oxstones, oxstones investment club, PHYS, Quant Easing, sovereign debt crisis, The Fed