Michael Lombardi: Gold bullion isn’t getting much respect these days…and that’s perfectly fine with me.
The Goldman Sachs Group, Inc. (NYSE:GS) says the precious metal has a risk of going below $1,000. Bank of America Merrill Lynch cut its forecast for the yellow metal as well. Its forecast says gold bullion prices in 2014 will be around $1,294 an ounce. (Source: Market Watch, September 27, 2013.) Other big banks have similar opinions.
While the big banks were proven right back in April and June when they said gold bullion prices would decline (and much had been written on that “forced” price decline), I don’t think their predictions will come true this time.
At the very core, gold bullion is a store of value, and it protects against uncertainty and currency fluctuation.
As readers of Profit Confidential know, I believe central banks will ultimately be the biggest buyers of gold bullion, and they will ultimately be responsible for higher prices.
Long-term, history has proven when there’s too much money in circulation, the value of paper money goes down and the hard asset prices go up. This economic cycle will be no different.
In fact, at his point in history, central banks in the global economy are printing paper money in overdrive mode, and they presently don’t seem worried about any consequences. Our own central bank is printing, the European Central Bank is printing, and the Swiss National Bank said it will print an unlimited amount of paper money if that’s what’s needed to keep its currency value low.
And while developed nations are printing, money printing in emerging markets is out of control. (In the end, it will be the central banks in the emerging countries that will be the ones desperate for gold bullion.)
Just look at these hard facts:
The basic money supply (paper notes and coins in circulation) has increased 156% since January of 2006. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 27, 2013) And the printing continues in India.
The situation is similar in China. The basic money supply there more than doubled from January of 2008 to this June. (Source: Ibid.)