No Driver For Growth
A commentary on recent events by National Gold Group’s Chris Poindexter – September 20, 2011
Gold prices sometimes relate to the economy in ways that aren’t always inherently obvious, but make sense once you see the relationship.
If you think of gold like economic ballast, the weight in the bottom of a boat that keeps it stable in stormy seas, it makes relationships easier to visualize. The concept of gold as economic ballast is why I keep looking for growth when making a long-range assessment of where precious metals prices might be headed.
Since 2000 our economy has been driven by growth in a series of bubbles. It started with the tech bubble, which popped in early 2000. That was gradually replaced by the housing bubble which carried us through to around 2006. But the artificial “growth” of the housing market bubble, inflated by funny money in the form of mortgage loans, did not fool the gold market.
As I look at the economic situation in Europe and the U.S. issues like sovereign debt and whether Greece is going to default or if Italy will default, none of that would matter if there was a driver for sustained growth.
It’s not going to be the housing market, at least not in the U.S. With the number of cash sales steadily rising, years of foreclosed inventory on hand and nearly 77 percent of Fannie Mae’s mortgage business being refinancing of existing loans, the housing market looks to be dead for another five years with more contraction in the short-term.
The tech bubble in the late 90s was unsustainable growth, but it was real. Where is that growth going to come from to lift the economy and spur hiring today? If the economy was growing and companies were hiring, then I could see a future where gold prices would start drifting down. When economic seas are calm, you don’t need as much ballast for your ship.
Right now I’m not seeing it any real driver for sustained economic growth in the U.S. or Europe. We’ve torched the housing market, one of the few things we could make that couldn’t be outsourced to low-cost countries, globalized the tech field and outsourced our manufacturing capacity. Wall Street has exhausted the stock markets ability to make money with money and companies have robbed all they can from employee pension funds, the 401(k) plans of average Americans, and wages. The only thing left to steal is Social Security.
So, what does all that say for gold prices? Long term, I don’t see prices going down unless a driver for growth emerges. Short-term, we’re still in that unsteady equilibrium around $1,800. We’ll break out of this narrow range before long, and my guess is still that it will be to the upside.
I’m still comfortable with gold at $2,400, maybe not this year but $2,000 by the end of the year seems within reach.
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Chris Poindexter. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.
