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Currency Debasement Will Result In Gold Gain

Currency Debasement
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EDITOR NOTE: The idea that gold will continue to shatter historical price records on the back of a “massive currency debasement” is something that most investors are already aware of. That’s why gold (and let’s not forget silver) has been rising parabolically over the last few months. But let’s not forget that gold has been rising slowly over the last few years. What does that have to do with it? The debasement that SkyBridge Capital talks about in this article is not a temporary matter, not a short-term slump. It’s a potentially long-term trend, if not a terminal event. It's also why we hold gold and silver.

Gold will extend its record-setting rally on “massive currency debasement” and expectations for further stimulus, according to SkyBridge Capital, which recently added exposure to the metal after exiting in 2011.

“When you think of currency debasement the question is, what is the dollar going to weaken against, and when you look around the globe, it’s hard to be excited about alternative currencies,” said Troy Gayeski, co-chief investment officer and senior portfolio manager, listing the euro, yuan and emerging-market monies. “So, gold is obviously a natural alternative currency.”

The precious metal surged to a record well above $2,000 an ounce earlier this month -- although prices have stumbled since then -- as central banks including the Federal Reserve unleashed vast stimulus to support economies hurt by the coronavirus pandemic. That’s spurred bets that paper currencies will lose their value as money supply jumps. Goldman Sachs Group Inc. calls gold the currency of last resort and has forecast more gains.

Gold is “fairly rich versus oil or other real commodities, but it hasn’t appreciated nearly as much as money-supply growth since its previous peak in September of 2011,” Gayeski said in an interview. “It wouldn’t surprise us if by the end of next year, it’s around the $2,100-to-$2,200 range.”

Spot gold hit an all-time high of $2,075.47 an ounce on Aug. 7 as the dollar weakened and real interest rates fell well below zero. On Thursday it climbed 0.4% to $1,936, up almost 28% this year. Prices eased midweek after minutes from the Fed showed it edging away from a step that would underscore a commitment to an extended period of ultra-loose policy.

Ultimately, the driver for gold is “you have massive currency debasement, particularly in the U.S.,” Gayeski said.

Originally posted on Bloomberg

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