Gold price to $10,000 within 10 years if inflation picks up, look for record highs in December

Similar to the growing concerns about climate change, one European investment firm is warning investors that central bank monetary policy and government spending are reaching a tipping point and the global economy is on the cusp of a new decade in inflation.

Thursday, Incrementum AG published its 15th annual In Gold We Trust reported and highlighted the growing inflation threat in the global market, which is expected to drive gold price higher through the next decade.

In their latest research, fund managers Ronald-Peter Stoeferle and Mark J. Valek, reiterated last year's call that gold prices could push close to $5,000 an ounce within the next ten years. However, they added that the risk is growing that gold prices could nearly double within the decade.

"If the decade was plagued by stronger inflation, a price of USD$8,900 could be expected at the end of the decade. With the monetary economic climate change that we are witnessing this year, the risk of inflation is growing visibly," the analysts said in the report.

Meanwhile, taking a more short-term focus, the firm sees gold prices pushing to new record highs by the end of 2021. According to options market positioning, the firm said there is a 45% chance gold will hit a 52-week high in December and only a 5% chance of falling to a 52-week low.

Although the world is awash in uncertainty as nations continue to deal with the COVID-19 pandemic, Incrementum said that the most significant factor for financial markets this year remains the growing inflation threat as central banks maintain ultra-loose monetary policies to support the global economy.

"A side effect of monetary climate change is the almost unlimited wave of liquidity that has been flooding the markets since the beginning of the Covid-19 pandemic, and that is already causing a noticeable increase in both asset price levels and consumer price levels. One of the most dramatic consequences that the new monetary climate could bring is the renaissance of consumer price inflation. In our opinion, we are currently only in the early stages of this inflationary development," the analysts said.

Although inflation is rising, the investment firm warned investors that another shoe can still drop as the global money supply velocity remains fairly low. The looming threat will grow even larger as consumers start spending the money they hoarded during the pandemic, the analysts said.

"The probability that this decade will go down in history as an inflationary decade has increased significantly, particularly because the inflationary dynamics already in evidence have proceeded without any significant acceleration in the velocity of money in circulation. The potential for a significant rise in inflation in the coming years should not be disregarded," the report said.

Not only do Stoeferle and Valek see the inflation threat growing, but they noted that evolving technology and the inevitable development of Central Bank Digital Currencies (CBDC) will add a new layer to financial repression.

"In our view, CBDCs are a wolf in sheep's clothing. It seems as if the excitement around "digital assets" is being exploited to market state-owned digital currencies as a great achievement. In fact, these would enable the implementation of even deeper negative interest rates as well as permit the most extensive pushback against anonymous cash that we have yet witnessed," the analysts said.

Not only are central bankers going to keep interest rates low in the rising inflationary environment, but Stoeferle and Valek also see a new evolution in monetary policy with yield curve control.

The analysts explained that the only way governments will be able to deal with the growing debt is through financial repression.

"A look at the history books might answer the question. The U.S. ended World War II with debt at nearly 120% of GDP, while in the U.K., it stood at 250%. By the early 1970s, the debt-to-GDP ratio had fallen to about 25% in the U.S. and below 50% in the U.K. How was this achieved? The answer: by financial repression, i.e., by capping the yield on government bonds – significantly – below the rate of inflation," the analysts said.

"We believe that real interest rates will remain in negative territory for the next decade. In such a market environment, tangible assets, especially commodities, selected equities in the right sector, and obviously precious metals should form the solid basis of the portfolio," they added.

One last highlight from the report, the analysts noted that this year will represent the 50th anniversary of the U.S. moving off the gold standard.

"Since then, no currency has been backed by a scarce asset like gold. Central banks can create money without any restrictions and are increasingly making use of this privilege," the analysts said.