A large amount of debate currently exists over the validity of the running gold prices we’ve seen in recent months. Frankly, there is discussion about the valuation for all precious metals, for that matter. The bear camp generally believes that low inflation and capital flows, away from gold and toward other high-quality classes like equities, will continue.
Both camps are discussing the potential impact the massive amounts of fiscal stimulus from government and monetary stimulus from central banks around the world will have on gold and other precious metals. Inflation is certainly a factor.
I definitely find myself in the bullish group with respect to precious metals, for a couple of reasons. In addition to the aforementioned inflation arguments, low interest rates have, by necessity, forced savings away from fixed income assets toward other defensive asset classes. These asset classes are called zero yield which become more attractive under these conditions.
Those who need to hedge their equity exposure with bonds may therefore simply choose gold as a viable alternative. Secondly, I see devaluation potential for the U.S. dollar on the horizon, as a secondary effect of massive monetary stimulus measures.
Such currency devaluation is broadly bullish for all commodities including precious metal based in U.S. dollars. Canadian investors who believe gold valuation is on the horizon, would be well served adding precious metal exposure now.
Invest wisely, my friends.
