You may have seen the Bloomberg interview of Bridgewater’s CIO, Bob Prince at Davos last month. For those of you who may have missed it, you can see it below.
Central bank monetary policy around the world is in uncharted territory. We have negative interest rates and quantitative easing (QE) in Europe and Japan. In the USA we have artificially low interest rates, QE which has exponentially grown the federal balance sheet over the last decade, and a forecasted one trillion-dollar budget deficit in 2020. This loose liquidity has been converted into inflation in financial assets around the world. We don’t have any historical precedence as to how things are going to turn out. That’s why it’s useful to hear from someone like Bob Prince who is widely respected for his analysis of world markets.
Bob believes that cash in this environment has become very unattractive and is now only good as a funding mechanism. Cash is being debased by artificially low interest rates and QE. He also states in this video that gold is the inverse of money; as the value of money goes down, the value of gold in money terms will go up. He believes that in the USA, the Federal Reserve is in a box. They can’t raise rates or they will kill the markets, and they don’t want to drop rates and end up with negative interest rates like Europe and Japan. If they need to stimulate the economy, they will more likely turn to further QE in the first instance and this can only be positive for gold.
Please watch the video below.