Gold bulls will need to be patient

Low real interest rates are helpful, but the cyclical trend isn't bullion's friend.

Andrew Hepburn 4 July, 2017 | 5:00PM

Gold certainly has a way of getting investors' hopes up. Most recently, it neared US$1,300 per ounce in early June, prompting optimism among bulls about a meaningful breakout to come. Alas, gold failed to push through that level, and now sits around the US$1,250 mark. There are, of course, bullish and bearish arguments to be made but, on balance, gold is currently facing serious headwinds.

That's not to say, however, that there isn't a long-term bullish case for gold. There is, but it may take years to play out. Simply put, the world is awash in too much debt, be it household, corporate or government.

Just how much? According to an October 2016 report by the International Monetary Fund, gross global debt (excluding that of the financial sector) stood at US$152 trillion, representing an all-time high 225% of world GDP. This overhang risks prolonged economic stagnation, if not a worse outcome. At some point, central banks will be forced to engineer higher inflation rates to lessen the burden of all this debt. Realizing this, investors can be expected to embrace gold as the ultimate safe haven.

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About Author

Andrew Hepburn

Andrew Hepburn  Andrew Hepburn is a freelance financial writer based in Toronto. He writes about investments, market trends and personal finance. He has written for Maclean's, the Globe and Mail, RateHub.ca and Canadian MoneySaver.

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