The issues which led to the crisis – i.e. excessive debt at every level of society – have not been dealt with. Ultra-easy monetary policy and QE have, in fact, caused global debt levels to balloon since 2011. Central banks are now stuck in a debt-trap.
Leveraged speculation has led to massive inflation in financial assets and yet the real economy globally remains stagnant – as demonstrated by collapsing commodity prices. The companies that use these commodities are cutting back due to lack of demand and deflation once again looms on the horizon.
Western central banks continue to postpone raising interest rates because if and when they do it may pop the last vestiges of the economy which give the illusion of health – the stock and bond markets.
Incidentally, many commentators erroneously suggest that rising interest rates are automatically negative for gold but not, somehow, for the other financial assets which are utterly dependent at this stage on low interest rates – particularly property. Historical data does not back this up and shows that in periods of rising nominal rates – when rates are chasing inflation – gold also rises.
The period to which Kelly refers, the 1980s and 1990s followed a period of severe monetary discipline and came about at the end of a long period of interest rate tightening. The metaphorical chaff had been separated from the wheat and it was followed by a period of strong economic activity. We are now in a twilight zone period following a bout of unprecedented monetary profligacy and experimentation the consequences of which are yet to manifest.
The 1980s was a period of stabilising geopolitical tensions. The enmity between the global superpowers, the United States and U.S.S.R. were being resolved peacefully. With the end of the Cold War, for a time it seemed like peace might prevail globally. Unfortunately we are now in a period of increasing destabilisation across the Middle East and North Africa and rising tensions between the United States and Europe on one side and Russia and China on the other.
We are in a period of historic indebtedness which will have a devastating effect on the currencies of the United States (debt to GDP, 101%), Japan (debt to GDP 230%), and the Eurozone when rates rise and debt can no longer be serviced.
Indeed, the 1980s and 1990s could not be more different than the present period.
We would like to believe that a period of peace and prosperity lies ahead of us. Unfortunately, the facts do not support this panglossian assertion. If history truly repeats it is more likely that we see hyperinflation and the sharp devaluation of paper and digital currencies in the coming years given that no experiment with money printing has ever had a positive outcome.
The macroeconomic, geopolitical and monetary conditions today or more akin to the challenging 1970s than the more benign, declining interest rate environment of the 1980s and 1990s.
Therefore, seeking historical parallels the 1970s may be a better guide to future gold prices: