Global Inflation May Drive Gold to ‘$1400-$1500 This Year’

29/03/2017 10:48 AM

Global Inflation May Drive Gold to ‘$1400-$1500 This Year’

It is refreshing when a fund manager discusses their opinion before completely loading up. This speaks of confidence in their view, integrity in theri words, and a long view that is not worried about siggles i nthe day to day events. Incrementum AG’s MP Ron Stoeferle is such a person.

We’re now seeing a pick-up in inflation all across the globe. Incrementum AG says that Gold ‘may be in the early stages of a [bigger] bull market’. The drivers behind this are negative real interest rates as a byproduct of inflation. Prices may climb to $1,400 to $1,500 an ounce this year, said Ronald-Peter Stoeferle, managing partner at the Liechtenstein-based company, which oversees 100 million Swiss francs ($101.5 million).

Incrementum on What they Will Buy

“For the short term, it’s in a bit of a technical no-man’s land, we also see that seasonality is not really favorable,” Stoeferle said in an interview in Singapore on Tuesday. “The real pick up in momentum might start beginning of summer. It’s in the very early stages of the bull market, so everybody is still kind of cautious or slightly negative, but this will improve. “As soon as we get the signal for rising inflation, we’ll invest in inflation-sensitive assets again such as silver equities, gold equities, energy and the broad commodity complex,”

On Negative Real Rates

While higher U.S. rates typically buoy the dollar and can hurt bullion, the commodity has advanced during previous hiking cycles. Trump’s recent talking down of the greenback’s strength should also be positive for gold, according to Stoeferle.

Gold is poised to rally to levels last seen four years ago as rising inflation and negative real interest rates combine to boost demand, according to Incrementum AG, which says that the precious metal may be in the early stages of a bull market.

Soren K Group: Real rates will remain negative despite rate hikes

We believe this is likely going forward with intervening hiccups (and accerations) from QEs, trade wars,Brexits, Helo Drops etc:

  1. Rates will rise- and the headlines will be “Gold yields nothing, Buy Bonds”
  2. Rates will still rise at the long end as Fed Funds go higher to stem the weakening USD- The yield curve will steepen and Banks will profit
  3. At some point the markets will realize that the Fed is chasing inflation- and Gold will accelerate

In the end, it will be heralded as a good thing that they chased inflation to make sure they did not derail the economy. It will optically look like you should be buying bonds or dividend stocks as Gold yields nothing.

But in the end, real rates will have been negative and your cash will be shrinking in buying power because the Fed chased inflation up.

Incrementum on EU Inflation Evidence

“Inflation is picking up,” said Stoeferle, citing what he termed monetary inflation as well as rising assets such as equities, and prospects for price inflation. “We’re seeing a pick-up in inflation all across the globe. We’re seeing it in the U.S., where basically every inflation indicator is constantly rising and making new highs. We’re seeing it in Europe, we’re seeing it in Asia.”

Bloomberg: “Consumer price inflation has been picking up in Europe, too. Euro-area inflation was 2 percent in February, the fastest pace since January 2013, according to data from the bloc’s statistics agency. In the U.K. the same month, inflation was 2.3 percent, reflecting sterling’s slump since the Brexit vote in June, as well as an increase in oil prices.”


From Our Previous Article: The UK is Ground Zero for Inflation

This is Inflation. Right here, Right now- U.K. Edition: Nothing has made sense. Fundamentals are useless. Active management is devalued. Stocks go up on bad news, and up on good news. Correlation Lock is on the horizon again. Here is something that finally makes sense.

  • Fact 1:The UK has the best-performing major equity market this year 12.08%
  • Fact 2: In constant-currency terms, it’s the worst-performing. GBP/USD=-16.67%

Translation? Stocks are up as a proxy for a weaker GBP. Right now they are offsetting the GBP weakness, but that will not last long. And if you are buying bread in the UK, you are going to be screwed. Inflation will almost quadruple to 2.7 per cent over the course of 2017, according to the Centre for Economics and Business Research.

Inflation is the end game:

From Our Analysis of a Jim Rickards interview

On Fed Intention: Aim is to raise rates so they can cut in next recession, but do so without causing a recession is tricky business.  (Our Aug 26 post concurs)

Comment on Recent Market ActionAn inflation endgame can still have a deflation detour. I focus on the endgame.

On Central Banker Fear of Deflation:The stronger the deflation, the harder government works to cause inflation.

Deflationary pressures are worse than We Know– The whole world is heading to zero in fits and starts. Deflation is like a vortex out there.

On Gold’s Purchasing Power Increasing- No, it will have the same purchasing power. Everything else will have 90% less purchasing power.

On The Failure of QE- QE is just one tool in the toolkit. There are many others like SDRs.

Fed Rate Hike chances– They can and they will. The only analytic issue is: when are conditions right?


Bearish Caveats Heard

Not everyone is bullish. Societe Generale SA recommends selling on rallies as it sees gold declining amid further tightening by the Fed and only limited impact from political events. The bank has forecast an average of $1,125 in the fourth quarter. That’s is line with the outlook for $1,230, according to the median of estimates compiled by Bloomberg.

Earlier this year, BNP Paribas SA — the most accurate bullion forecaster in the final quarter of last year, according to Bloomberg rankings — also sounded a note of caution. Bullion would probably decline as the Fed pursued rate hikes, keeping the dollar strong, the bank said in January.

Good luck with that.

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