70s-style inflation: Biggest risk is 'invisible wealth destruction,' gold price going to $20K this decade
(Kitco News) The main risk facing investors this decade is not a stock market correction but invisible wealth destruction due to high levels of inflation that are here to stay, said Briton Hill, president and partner at Weber Global Management.
"Let's say if the SP goes up 5% or 6%, but the inflation rate is up 8%. On paper, everybody made money, but in real terms, they actually lost money because the inflation rate is so high," Hill told Kitco News. "That's more likely what we're going to see if the U.S. continues to print money and buy up assets.
If the inflation rate outpaces the rate of asset appreciation, investors will end up losing money. And the tricky part of this risk is that a lot of people miss this until it is too late, Hill added.
"If you aren't paying attention, you can miss something like that. And by the time it's over, it's too late. You already lost a lot of the wealth," he said.
Overall, the inflationary pressures are a lot stronger than what most people have priced in.
"Food prices have risen more than 10%. Gas has almost doubled. Healthcare costs continue to go up at a rate of anywhere from 10 to 15% a year. It wouldn't surprise me if inflation is already at 10% right now, it just was not fully recorded yet, but we're currently living it," Hill pointed out. "We could have inflationary pressures at least for the next three to five years."
The argument that inflation is transitory because the economy is just getting back to normal is something of "a smokescreen."
"It's a lot deeper than that," Hill noted. "What we're seeing is dramatic effects rippling through the economy from the trillions of dollars of stimulus created. And there are still trillions of dollars of cash on the sideline, which is predominantly controlled by the wealthy people who are going to continue buying up assets."
According to Hill, nearly every single asset class is rising. "It is so easy to make money if you have money right now. You just buy something, and you wait, and you're going to make money on it. Whether it's crypto, cars, stocks, real estate."
However, the reality is with inflation becoming a reality, investors would be wise to hedge as best as possible, and Hill likes the commodity sector right now, especially gold, silver and oil.
His projections see gold rising to $20,000 this decade based on the precious metal's technical trends as well as the inflationary macro environment.
"You can't produce trillions of dollars with 0% interest rates and not introduce inflation. Long-term, we could be entering a cycle similar to the 1970s, where the precious metal sector rose by thousands of percentage points. And if we see something like that happen again in the next 5-10 years, we could easily see $5,000, $10,000, even $20,000 gold," he said. "Gold could easily hit $20,000 an ounce in the next day decade."
From a technical point of view, gold bottomed at around $1,675 an ounce and could test its August record highs once against this year.
"We are very bullish on gold and silver. When we shot up through the $1,675 level and broke through $1,800, to us, that was a sign that the nine-month-long correction was over and we're starting a new bullish cycle that hopefully takes us to record highs," Hill explained.
The Federal Reserve's ammunition is limited at this point because the central bank can't lower interest rates anymore to stimulate the economy if needed. On the other hand, the Fed can't start hiking rates dramatically to battle inflation without rocking the markets.
"The only way is to continue to print money, which is going to further create an issue as far as inflation goes," he said. "The Fed, while trying to remain optimistic, very much feels like they're backed into a corner here."
And one more thing to keep in mind is that the Fed wants to appear in control as not to cause panic buying, which could exacerbate the problem. "It could be a disaster," Hill said.