-- Published: Friday, 31 July 2015 | Print | Disqus
By Peter Cooper
What could revive gold and oil prices from their current cyclical lows? It was quantitative easing that pushed prices up after the last global financial crisis. Is it about to happen all over again?
Central banks in the Western world have set the scene for an ‘even bigger version’ of the 2007-2008 global financial crisis, Societe Generale’s bearish strategist Albert Edwards said in a research note yesterday.
Chinese stock market crash
Mr. Edwards said that China’s intervention to stabilize its volatile stock market was part of a larger global story, in which ‘rock bottom’ interest rates and large fiscal deficits in the western world were pushing the global economy towards a fall.
‘QE will be stepped up to such a pace that you will hear the roar of the printing presses from Mars’ he said. ‘I have not one scintilla of doubt that the western central banks have set us up for an even bigger version of the 2008 Great Financial Crisis.’
This form of money printing has been a mainstay for several major central banks in the wake of the last crisis, with money created to buy assets like government bonds, helping to inject liquidity into markets with the aim of stimulating the broader economy.
Given his forecast step up in money-printing, Mr. Edwards said that gold, which tends to perform well during periods of high inflation, was a ‘must-have’ safe-haven investment. By extension oil or black gold would also recover in price as it did in 2009.
While Edwards forecasts a prolonged period of ultra-easy monetary policy, many investors expect an interest rate hike by the US Federal Reserve as early as September.
However, this will be the apple that finally tips the cart over in the view of contrarians like Mr. Edwards, and he is not alone in that belief. Both equity and bond markets are not going to take higher interest rates kindly.
Indeed, it is partly the anticipation of these rate rises that kicked the cart over in China on Monday with an 8.5 per cent crash on the Shanghai stock exchange. This may just be a dress rehearsal for a Wall Street Crash in October, the traditional month for meltdowns.
Mr. Edwards point is that central banks will have no other option than QE as a reaction because the classic policy response of slashing interest rates is not open to them this time around as rates are still so low.
Money printing is most immediately reflected in rising commodity prices. That is to say having more money in the system causes price inflation, and at the first whiff of such inflation both gold and oil prices will soar from their current lows.
Mr. Edwards has made some good and bad calls in the past, this one looks a winner.
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-- Published: Friday, 31 July 2015 | E-Mail | Print | Source: GoldSeek.com