‘The more money there is the less it is worth’ reads like a pithy proverb or Zen Koan ready to be copy-pasted into an Instagram reel but, of course, it also happens to be one of the golden rules of economics.
Indeed, it is the underlying principle that drives inflation and, significantly, drives investors to literal gold.
It is then, little wonder that gold prices are suddenly soaring when the latest bailouts in the latest banking crises more-or-less mean more QE (quantitative easing – aka increasing liquidity, aka increasing the money supply, aka money printing).
The price of gold is moving back above US$2,000 an ounce and could soon see US$2,100 which is when the ‘real bull market’ starts, according to Eric Strand founder and portfolio manager at AuAg Funds.
Both as a safe haven and as an inflation interest is rising for gold in the wake of banking sector volatility brought on first by the collapse of Silicon Valley Bank which sent waves and ripples through US regional banking, before Europe’s more seismic shift brought on by Credit Suisse failing.
Strand in an interview with Proactive predicted that gold prices will continue to rise, stating that they have not yet hit an all-time high in some currencies.
As central banks are expected to continue quantitative easing, he believes gold prices will continue to increase.
When asked whether there is a ceiling to the rise of gold prices, Strand explained that he sees this as just the beginning.
The US dollar is expected to be weaker than the Euro, and with quantitative easing taking place, he highlighted, adding that he believes the Fed cannot raise interest rates much more, so gold prices should only increase further.
Strand said he is also wary of measures being taken in the wider markets in an attempt to settle markets.
Changes in the rules and the potential for a small bank run on smaller banks could create problems, which only further adds to the bull case for gold.
Strand said that changes in the rules, for example bypassing shareholders in the Credit Swiss situation, will create a lot more uncertainty in the financial system.
“When something happens, the rules are changed. So suddenly we can't do a bailout, that is forbidden within the European Union. You can do a half bail-in or half-bailout hybrid, or whatever you call it,” Strand said in the interview.
“The Credit Swiss situation, you bypassed the shareholders. I mean, you changed your law again.
“So this will create a lot of insecurity. What are the rules for the system if you change them as fast as something happens? So this medicine, will create a lot of problems.”
Ultimately, Strand reckons the Credit Suisse bailout effectively results in central banks restarting quantitative easing, which will cause gold to soar.
He predicts that gold prices will continue to increase due to the weakness of the US dollar and quantitative easing. It is nonetheless, a fast moving and evolving market, and he cautions investors to be careful amidst the volatility.
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