Gold is now finally bottoming, says Ronald Stoeferle, publisher of the definitive annual report, "In Gold We Trust."
In a recent interview with Financial Sense Newshour (click here for audio), the widely followed gold analyst—once named 2nd most accurate by Bloomberg—provides an excellent view into the mental hopes and fears of most precious metals investors right now.
With 2013 being a great year for stocks but absolutely devastating for the yellow metal, Stoeferle believes that the last of the gold bulls have finally thrown in the towel and that we are now very close to a bottom.
"A lot of technical damage has been done to the price of gold," he says. "A lot of trust has been destroyed and it just takes a while to correct the situation... Therefore, I think at the moment we are probably at the very end of this bottoming process."
Like many, Stoeferle voices major concern on the over-reliance of the market on central banking monetary policy and the lack of options available should another financial crisis emerge.
"Nobody knows what the Federal Reserve and the ECB will do if we see another crash and another crisis. And it's only an accident waiting to happen. The big question from my point-of-view is what will the Fed do if the S&P tanks 10-15%? Now, every stock market bull at the moment says, 'As soon as we're having a minor correction the Fed will step in and help out.' From my point-of-view, if we are above the inflation target and at the moment we are above 2% on a year-over-year basis, so if we are significantly above it, the Fed will not have any chance to launch another round of QE. I think if there's another major crash similar to 2008 what should the central banks do? They've already tried QE three times and it didn't really work. There's no room to lower interest rates any more and we should not forget that all those stimulus packages by the states caused a major surge in debt levels. So I'm really curious what's going to happen when the stock market tanks. It will happen sooner or later, but then I think there will probably be no opportunity for central banks to step in because we are seeing this declining marginal utility [of monetary stimulus]."
Stoeferle also says that central banks are now more accepting of higher inflation rates and that more comprehensive measures, like MIT's Billion Prices Project, are signaling that "rising price inflation will be the big topic going forward."
"We are already seeing increasing acceptance of price inflation. Janet Yellen said, to me a wise and humane policy is occasionally to let inflation rise even when inflation is running above target. There are plenty of examples and quotes from central bankers and the World Bank and IMF and so on really recommending higher inflation rates. Now, the problem from my point-of-view is that the dynamics of inflation are really hard to grasp and…I think it’s impossible those forces and therefore I think at the end it will be highly inflationary...it seems that since June we're seeing rising inflation again and that's also what we're seeing with gold, for example, and for the mining stocks and so on. But there's also—I think this is highly interesting—there’s the so-called Billion Prices Project by MIT and they're collecting millions of prices in 70 countries on a daily basis and this billion prices index already shows rising inflation rates and it’s got a very good track record and it’s definitely leading the CPI. So, I think at the moment still, high price inflation is a contrarian view but I'm absolutely certain that this will be the big topic going forward and that's what the market already shows us.”
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