The Midas Touch: Will Gold Continue to Shine?
The Midas Touch: Will Gold Continue to Shine? by Mark Skousen for TownHall
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“The impact of the rate of inflation on the price of gold is like tracking the footprints of an animal.” — Julian M. Snyder (“Maxims of Wall Street,” p. 151)
Gold gradually has been moving up in fits and starts in 2020, but suddenly has taken off, and it hit $1,800 an ounce earlier this week. Silver is over $18 an ounce. See the chart below.
As you can see, gold has been a more stable growth investment than stocks or oil in 2020.
Investors are wary of the stock market and the economy, especially after Dr. Doom, American economist Nouriel Roubini, predicted this week that we would see a bad recovery and a “Greater Depression,” to use the phrase made famous by Doug Casey.
Three Reasons Why I’m Loading Up on Gold
What is driving gold higher?
There are three reasons why I’m bullish on gold and have substantially added gold and mining stocks to my investment portfolio.
First, the Federal Reserve and other central banks have cut interest rates to practically zero. That makes gold, which doesn’t pay interest, more appealing. Some mature mining stocks do pay dividends, but usually only 1-2% a year.
Second, the Fed also has expanded the money stock with quantitative easing (QE), buying Treasury securities, mortgages and corporate bonds to stimulate the economy during recession.
In fact, the broad-based U.S. money supply (M3) is now growing at a 25% rate, the fastest rate in peacetime history!
Source: Tim Congdon, Institute of International Monetary Research
Third, government spending is out of control, causing the deficit to rise to $5 trillion or more. The Fed will undoubtedly increase purchases of government bonds to keep interest rates low.