Gold is the only true measure of value in our growing multipolar world - Byron King
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(Kitco News) - Gold may not fit the classic definition as a critical metal as only around 7% of global demand is used in industrial applications; however, according to one market analyst, it plays an essential role in society and financial markets.
In a recent interview with Kitco News, Byron King, precious metals expert at Agora Financial and author of the Whiskey & Gunpowder report, said that the era of rampant government spending and low interest rates has ruined the value of fiat currencies worldwide.
He added that the world is now feeling the effects of more than a decade of loose monetary policies as inflation remains stubbornly high. While inflation has been a significant drag on consumers as their purchasing power weakens, King said the problem is much bigger than just higher costs.
"If you can't get inflation under control, you lose the ability to plan for the future. All projects require planning, whether you're going to remodel your kitchen, build a big office building, or even a bridge," he said. "You can't properly plan a budget if you don't know what your currency is worth."
Although King said that he doesn't see the world returning to a gold standard; however, he added that gold can create some stability and a sense of value.
King added that he expects gold to play a more critical role in global financial markets as globalization continues to decline and a multipolar world emerges with more than one reserve currency.
"Maybe 50% of global trade is settled with U.S. dollar, and maybe 25% is in yuan and maybe 10% in euros and the rest in seashells or something," he said. "When everything is eventually settled up, gold might be the means by which they do the settling up."
King said that investors and consumers can already see the start of a multipolar currency market as China continues to buy gold. Updated data from the People's Bank of China showed that it bought 24.9 tonnes of gold in February, its fourth consecutive month of purchase.
King said that he suspects the Chinese government holds a lot more gold than is reported in the official numbers. He noted that China is the world's biggest gold producer and many mines are run by state-run companies.
"China, with its gold purchases, is trying to tell the world: 'We are a, we are a reliable banker,'" he said. Whereas the United States, certainly in the last year, but over the last 15 years, perhaps has become an unreliable banker to the world."
Along with gold's role as a global reserve currency, King said it will also remain a vital inflation hedge for retail investors as consumer prices are unlikely to come down anytime soon.
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The green energy transition demand for critical metals and waning globalization are two significant trends that will drive consumer prices higher, King said. He added that in this environment, there is little central banks, led by the Federal Reserve, can do that will cool inflation.
King's inflation outlooks came before the U.S. Labor Department said on Tuesday its Consumer Price Index saw a 6.0% annual rise in February. At the same time, core inflation rose 5.5% for the year, well above the central bank's target of 2%.
King said that if the Federal Reserve really wanted to cool down the economy, it would have to take interest rates to at least 10%. Market expectations, while fluid, see a terminal rate below 6% in this current tightening cycle.
"I don't think anyone has the political courage to push interest rates high enough to bring inflation down," he said.
Although King didn't give an official price target for gold, he said that in the current environment, he expects prices to push to new all-time highs this year.