Hi,
The increasing global debt has led to investors’ renewed focus on gold as a defensive mechanism. Across the world, governments, companies, and households are borrowing at historically high levels – and the drag of the debt is starting to manifest. For those who keep track of the markets closely, it may be evident that the influence of such debt may be one of the most definitive factors that could accelerate gold prices in the future.
A World Drowning in Debt
The world’s debt has been estimated at over $315 trillion as of late, a staggering figure that’s now over three times the size of the global economy. Whether it’s the US and Europe or Japan and China, governments are resorting to borrowing to finance various stimulus packages, infrastructure projects, and social security measures.
The problem with that approach is that the more debt that accumulates, the more difficult it becomes for central banks to increase interest rates without triggering a shock to the financial system. That in turn drives central banks towards an environment of high inflation – an arena where money flows like water and fiat currencies rapidly depreciate.
As a result, it’s only natural that investors turn to gold as an asset that has been worth something for thousands of years.
Debt and the Decline of Confidence
High levels of debt not only affect the budgets of governments but also affect the overall faith in the monetary system. As investors feel that governments won’t be able to finance the debt without printing money, the faith in paper money erodes.
At the same time, it usually leads to an increase in the demand for hard assets like gold. For instance, gold cannot be printed like currencies. In addition, central banks do not have control over it. In most cases, it acts as a haven where people invest when they lack faith in money.
In the past, phases of increased debt and unstable finances have been observed alongside strong gold rallies. This includes instances such as the 1970s inflation crisis and the 2008 financial crisis.
Why Gold’s Role Is More Important Than Ever
Today, world economies face a tightrope of slow growth and high inflation levels. The central banks that were once suppliers of gold by unloading their stocks in the markets were forced to buy gold at a record high to improve their balance sheets.
Such an approach provides a clear indication – gold is undoubtedly among the very few assets that tend to possess the capacity to ensure stability within an unstable world. In an environment where the levels of debt increase and currencies come under the threat of devaluation, the rarity and value of gold become integral to an investment portfolio.
Final Thoughts
Although it’s impossible to foresee the future course of gold prices, it’s absolutely clear that the bigger the growth of global debt levels, the more sound the investment in gold will be. Early movers tend to have an advantage.
If you want to safeguard your finances during these uncertain times, look at the various gold bullion offerings by AU Bullion that come at very affordable rates. AU Bullion holds the distinction of being an Authorized Royal Canadian Mint Bullion DNA Dealer. They deal in both online and in-store transactions within Canada and the US.
