Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold, Debt, Deflation and the U.S. Dollar

Commodities / Gold and Silver 2015 Mar 18, 2015 - 07:52 PM GMT

By: Aden_Forecast

Commodities

The markets have been very volatile. This has led to many questions and the most frequently asked questions follow...

Q. We're hearing a lot about deflation, but how bad is it?


A. Currently, it's intensifying. Inflation is declining around the world and it's gone negative (deflation) in the Euro area and most recently in the U.S. (see Chart 1).

Consumer Prices

The central banks are fighting these forces with quantitative easing (QE) economic stimulus programs and negative interest rates to help boost their economies and get inflation up to at least 2%.

At this point, the biggest danger would be a deflationary downward spiral, which is what everyone wants to avoid.

Here's the bottom line...

As interest rates fall, it becomes more attractive to borrow rather than save.

So central banks are hoping that banks will lend more money to consumers who will spend, as opposed to just holding the money in their bank reserves. That's primarily why the velocity of money has been falling.

The money created via QE programs has been sitting in banks but it needs to get out there and circulate. That's the main reason why inflation has been declining.

That will also help turn the deflationary pressures around and get inflation to finally pick up. It's not happening yet, but hopefully it will.

Q. What are the chances of another economic crisis?

A. Based on the fact that the stock market is still bullish, despite its recent decline, and it tends to lead, the economy should continue to plug along in the months ahead. But the global economic foundation is not healthy.

The biggest problem is debt and we believe it's passed the tipping point. That is, it's become a real drag on the global economies.

In 2007, for instance, world debt was $142 trillion. In 2014, it had soared to $199. That's a 40% increase in seven years.

So nothing has really changed since the last big recession. In fact, it's gotten worse. There has been no deleveraging and debt is much bigger than the world economy can handle.

Many feel this will lead to another crisis or a collapse, and it's indeed a possibility. Remember, during the last crisis in 2007-08 the world was taken to the brink.

Every major U.S. bank would have failed if the Fed hadn't intervened. And something along these lines could happen again.

Debt is a Deflator

Debt, for instance, is definitely keeping a lid on global growth. In the U.S., average annual economic growth has only been 1.2% over the past eight years. And that's the best it could do after years of QE and super low interest rates.

Plus, median wealth for over half of the people has also dropped 40% since the last recession.

The rich, however, are getting richer via assets that're rising.

So despite the good economic news you keep hearing about, you can see that the underlying economic foundation is on thin ice.

Q. How will this affect gold?

A. Gold prices fell further, hitting an almost four month low, quickly approaching its November lows. The soaring dollar and expectations of higher U.S. interest rates have pushed gold to the back seat.

GOLD: 2nd in currency ranking

Low interest rates are bullish for gold because gold is then not competing with the currencies. And with most major countries dealing with low to negative rates, gold moves up in the currency ranking.

And indeed it has. Gold, as the ultimate currency, is only second to the U.S. dollar in terms of major currency strength. But the soaring fast paced dollar rise is now causing turmoil in the currency market.

This is now very interesting.

It almost seems unreal for investors to think the U.S. will raise rates when the dollar is soaring. It already has the highest rates in the major countries.

But anyway, at some point coming up pretty quick, the dollar rise will be stemmed, either by intervention or exhaustion.

And when that happens, a dollar decline will give gold a boost. To think that gold did not hit new lows near $1143 already during the dollar rise, shows its underlying, subtle strength.

By Mary Anne & Pamela Aden

www.adenforecast.com

Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com

Aden_Forecast Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in