Gold is the insurance you need in 2021 to protect against spiraling debt - Sprott's Grosskopf
Kitco News has launched its 2021 Outlook, which offers the most comprehensive coverage of precious metals markets in the new year. Trillions of dollars were pumped into financial markets in 2020 and that won't come without consequences. Economists expect that investors will be Bracing For Inflation in 2021.
In a recent telephone interview with Kitco News, he reiterated his stance that gold prices are in the early stages of a bull market. He added that he sees gold firmly in the $2,000 range in 2021; he said that price can easily go to $2,300 or $2,400 in a world where global debt is spiraling out of control.
"There is a growing need for investors to hold more insurance as we continue to see uncontrolled government spending and deficit building," he said. "If we continue at the pace we are going; eventually there's going to be some pretty dire consequences. It's just a question of how much insurance you are going to need."
Grosskopf's comments come as the gold market sees further selling in gold-backed ETFs. SPDR Gold Shares has seen nearly 24 tonnes of gold flow out of its holdings. December's decline comes after more than 61 tonnes of gold fled the world's largest ETF in November.
Although record holdings in gold-backed ETF present a significant risk to the market, Grosskopf said he doesn't see a 2013 scenario.
"The odds are high that people will want to add to their physical gold positions and that more money will flow into the ETF market because of the increasing need for insurance as the yields are artificially repressed for longer periods of time, and as people realize."
Grosskopf said that with interest rates at unprecedented levels, the next significant policy move from central banks in 2021 will be yield curve control.
"The Fed put will be alive and well in 2021," he said. "The economy is strongly correlated to equity markets and markets are tied to monetary policy. Fed has no choice but to stay on its current path," he said. "If they do stop, the investors need to look out below. The everything bubble will pop."
Not only will the central bank be forced to keep interest rates lows, but Grosskopf added that as inflation rises as economic growth picks up in the second half of next year, holding cash will be even more punitive for investors.
Grosskopf noted governments can either try to grow their way out of the growing debt crisis or inflate their way out of it and debase currencies. He added he thinks pushing inflation is the only viable option governments have.
"You just have to look at the changing demographics. There is no way governments can grow their way out of this,' he said.