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The Gold Bubble – Why Not? There’s a Pill for That Too.

The Gold Bubble - Why Not?  

BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS

July 6, 2018

I believe central banks are pretending things aren’t, or haven’t been, out of control. In an effort to manage every problem, major or minor, printing money has become quite a popular pastime among these institutions.

Their never-ending interference has opened a Pandora’s Box that may have both unknown and unintended consequences. Central banks around the world have prescribed to a kind of pharmaceutical cascade – perhaps a parallel to big pharma’s unending pill-pushing that has resulted in drug upon drug being proffered to an ageing and receptive customer. Since the FDA loosened restrictions on direct-to-consumer drug advertisements in 1997, it has been a veritable free-for-all for drug companies.

The central bank rate push started about 15 years ago and has become a drug of its own. Central banks around the world have jumped on board the expanding regimen of addressing each and every problem with a spicy cocktail of monetary stimuli. Open market operations, setting interest rates, dictating bank reserves and quantitative easing (QE): There’s a pill for whatever ails you.

Techwreck? There was a pill for that.
World financial crisis? More pills for that.
Hiccup in congress? Mmm, pills.
Downturn in the economy? Pill it up.
Debt ceiling problems? You guessed it: pill.
Political and geopolitical uncertainty? Keep on popping.

Once you start something addictive, it can be hard to stop. If central banks are truly interested in weaning themselves, it’s bound to cause some upheaval in capital markets. Expect this higher volatility regime to persist. As world economies begin to show economic weakness, banks may be pressured to start prescribing again.

Gold bubble? Why not? Many pills have been taken and there have inflated assets as far as the eye can see. Upheaval, inflation and a continuation of volatility… gold likes it all. The gold chart below shows solid support around the $1,250 level, where it recently bounced. There is plenty of inflation in the U.S. economy and the Fed is hawkish, but there are signs of the aforementioned slowing in global growth. The U.S. dollar is certainly a safe-haven, but it’s overextended – high debt levels and staggering deficits should take their toll. As soon as everyone else has had their turn, get ready for gold to inflate too. Some investors think so as well – we’ve seen an uptick in the Horizons Enhanced Income Gold Producers ETF (HEP) lately.

chart1-(1).jpg

Source: www.seekingalpha.com, June 25, 2018.

chart2-(1).jpg

Source: Bloomberg, June 25, 2018.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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