Two words that will send gold prices higher: debt monetization - ForexLive
Central banks have one main role in society: control the amount of money floating in the system. However, according to Adam Button, chief currency strategist at ForexLive.com, they are abdicating that role.
Last weekend Adrian Orr, Governor of the Reserve Bank of New Zealand made only small ripples in financial markets when he said that he was open-minded about monetizing his nation’s debt last week.
Button said that he was haunted by those comments during the weekend as this could be the start to global currency debasement.
“The game kind of continues to go on. That really might be the story of the next 10 or 20 years: how far we can go down this road of monetary financing. If you lower the level of the currency, everything else kind of rises relatively,” he said. “You can play this game with yourself that your wealth really isn't being eroded.”
Button said that the one asset that will shine in this environment is gold. He noted that although gold prices have had a nice run so far this year, investors still haven’t bought into the currency debasement trade. However, he added it won’t take much to bring investors back to the market on mass.
“Once we get to new eight year highs and then eventually to new all-time highs, then that money just starts to flood in,” he said.
In a world that is battling its worst downturn since the 1930’s Great Depression, Button said that he sees a new normal of trillion dollar deficits. He added that in this environment, all-time-highs is just the starting point for gold’s rally.
“I think that's the direction we're heading. And for now, I'm not so sure it's important to put a target on it.
Long-term Button said that he is also bullish on gold as confidence begins to erode in the U.S. dollar and the U.S. economy.