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'Best time to buy gold is before crisis': watch inflation risk and $3K gold price target, says industry expert

Kitco News

(Kitco News) Inflation is a significant risk facing investors, which is why now might be the best time to turn to safe-haven assets such as gold, said Adam Trexler, founder and president of Valaurum.

"The best time to buy gold is before a crisis. This is now a really good time for people to be stocking up, as it were. Because in the event of widespread inflation, we think the gold price will go up much more," Trexler told Kitco News.

There is a perfect storm out there that could trigger high inflation, which involves the U.S. government increasing spending to achieve its employment goals.

"There will be more and more spending, and there will be strong pressure to ignore inflationary concerns to achieve those targets. The Fed will be very slow to react, which is a recipe for higher and higher inflation," Trexler explained.

The U.S. economy could end up with the Fed that is much less concerned with inflation than in the past. Trexler pointed out that he is already seeing his own manufacturing company costs going up by double digits. "That tends to take a minute to filter into consumer prices, but that's coming," he said.

Inflation could run up to 10%, according to him. "When you start to see that rate of inflation, it will be very damaging for people on a fixed income. It will make savings very problematic. What you will have is a fundamental loss of wealth for people's savings. You'll also tend to see a lag between inflation and people's salaries. That could lead to a decline in real wealth. It's also a potential ingredient for greater social upheaval," Trexler stated.

The people who will be caught off guard the most will be the everyday investors, he said. "Those who are not balancing their portfolio with precious metals and diversified assets are exposed to real individual risk when we see this kind of inflationary volatility."

The equities market is also running hot and could be due for a correction soon, which is why now might be a good time to look at taking some profits off the table to diversify portfolios.

"I am looking to diversify further, take more of a defensive position, and allocate more funds to gold, cash on hand, and safe-haven assets. There's a risk of a major market correction. So now is a good time to consider taking more profits and take a more defensive position," Trexler said.

Many U.S. investors are less aware of gold's role in protecting against inflationary risk because the U.S. dollar has been so strong over the last 50 years.

"Gold has been used all over the world as a hedge against the national economy you're in and against currency risks. It's used in India and China for those purposes. It is used in South America for those purposes," Trexler stated. "People tend to flee to it in times of economic stress. We saw that in the financial crisis, we saw that during last year's COVID crisis. It tends to outperform and even be countercyclical for these kinds of situations."

Aside from the inflation narrative, gold has two other significant drivers coming together. Western investor demand and Asian gold jewelry consumption are likely to both surge towards the end of the year.

"If you have gold jewelry consumption rising, which we think it will towards the end of the year, coupled with Western gold investment demand going up, then you have a recipe for sharply higher prices, Trexler described.

With all of these drivers pushing gold higher, the founder of Valaurum is not ruling out gold at the $3,000 an ounce level.

"In real dollar terms, with inflation coming, we'll see gold over $2,500. But we'll see a devaluing of the dollar. That devaluing is very difficult to predict. But if you see 10% inflation, the dollar number value of gold could be much higher. I don't think $3,000 gold is impossible. But if we see a hyperinflation scenario, it could be significantly higher," he noted.

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