Gold is an instability hedge. This is something few people understand. Some people call it an inflation hedge. This is only true when inflation is causing instability. Some people call it the fear trade. This is only true if the fear is causing widespread instability. Some people call it a safety trade. Safety from Instability.
What are the major causes of Instability in the Global Economy right now?
1) The central Banks are losing the confidence of the global investing class. Inflation is out of control - no matter what the official figures may say. Everyone can feel it. Housing is historically unaffordable. Education is historically unaffordable. Medical Care is historically unaffordable. Food is historically unaffordable. Energy is volatile but heading there. Everyone knows this. Yet the relative high rate regiem of the Fed is proving ineffective because the unaffordability has reached a level that slowing its increase does nothing to help the average citizen. A two percent target increase (which nobody believes will ever be acheived) is still two percent over an unbearable burden of inflation.
Finally the massive debt level will crack under the new 5 percent long bond regiem. Everyone knows it. WHen and how is up for debate. But that it will happen is certain. When it does the Fed will print money and lower rates. This will send inflation spiralling out of control.
Very Destabilizing.
2) Governments are losing the confidence of the global investing class. The US government has one party that is invested in shutting the government down while discrediting law enforcement and the court system. Nothing to build confidence there. The other party is invested in coddling a faction that sympathizes with terrorists that also want to destroy our government, while also discrediting law enforcement. Nothing to build confidence there. And both parties spend money they don't have like drunken sailors (just on different priorities) This is all very destabilizing. Especially since the financial system can only work if we have a stable government and enforcement system backing it up.
With a new Governmnent Shutdown looming and an election with two historically unpopular candidates on the near horizon it is difficult to see where stability will come from.
3) Hot wars are breaking out across the globe. This is very destabilizing. The areas where they are occuring are areas that determine the flow of oil - which is still the main ingedient for running the global economic system. While other major commodities are involved - like grain. These hot wars are also proxy wars that lineup the West led by the US against the East led by China and its client states like Russia and Iran. This can only lead to greayter instability - and a destruction of global supply lines that will cause ever greater inflation. Worst of all, many of the governments involved have little incentive to de-escalate the hostilities.
4) A Global Credit Crisis is brewing. Debt levels throughout the world are at records vz GDP, GDI, and most any other metric your prefer, Most of this debt was financed near zero percent over the last decade. Much of this debt will come due to be rolled over in the next year. This will have to be refinanced at 5, 6, 7, 8 percent rather than 0 percent. This will cause a credit crisis of unprecedented proportions. This is very destabilizing.
5) The massive global disparity of wealth is so pronounced that the wealthy class that controls much of the global economy really doesn't understand - or just doesn't care about - the extant and depth of the anger and rage of the 80 percent that can not pay its bills. This is massively destabilizing.
None of the these problems has a short term or even intermediate term solution. I would say nobody is currently working on a solution to any of these problems.
Expect Instability to grow.
Expect the price of gold to continue upward.
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