Gold and silver will shine when consumers lose faith in central banks as inflation picks up – Degussa
(Kitco News) - Inflation pressures continue to rise, which has pushed real interest rates deep into negative territory. This environment has not benefited gold, but this doesn 't change the metal 's long-term value, according to one precious metals firm.
In a report published Thursday, analysts at Degussa explained that the market 's lackluster performance is partly because central banks have successfully convinced consumers that higher prices are just temporary. Nevertheless, the analysts added that both gold and silver would continue to benefit from ultra-accommodative monetary policy.
"As market players hold fast to their faith in central banks, for the time being, gold and silver are currently not ranking higher on people 's value scale, the analysts said. "Having said that, investors with a long-term horizon should consider the current pricing of gold and silver as a highly attractive opportunity to expand their physical precious metal portfolio."
The European precious metal firm said there is a growing risk that the central banks lose control over inflation expectations.
"It is very likely that central banks ' balancing act will no longer work at some point and will most likely lead to a brutal inflation problem: If and when they have to choose between letting the financial and economic system go bust or printing additional money (to ward off the "big crisis"), it is very likely that central banks will opt for the latter rather than the former," the analysts said.
Degussa also warned that central banks are being a little too complacent and optimistic that rising inflation pressures will significantly ease. They noted that while supply disruptions in the market are driving some inflation, it is also being driven by the significant increase in money supply as a result of central bank policies.
"To make matters worse, there is no end to the inflationary forces insight. The truth is that economies are burdened with record levels of debt after years of very low interest rates," the analysts said. "The Institute of International Finance (IIF) estimates that by the end of Q1 2021, global debt had reached 289 trillion US-dollar or 360 percent of global gross domestic product. Against this backdrop, it is hard to see how central banks could raise interest rates without triggering the next severe credit or financial and economic crisis."