Gold soared Friday morning to just below $1,475 an ounce, but by the afternoon the gains were gone and gold was down almost $9 an ounce. Though poised to end the day almost unchanged, the yellow metal was still up for the week and it’s anybody’s guess where it goes from here.
Michael Pento, president of Pento Portfolio Strategies and author of the new book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market, has been invested in gold since 2001 and is certain that it’s only going higher from here.
“Gold is real and honest money,” he tells The Daily Ticker, noting it will hold value even while currencies fluctuate against each other.
Pento says there are several primary reasons to own gold:
- The U.S. Debt-to-GDP ratio continues to grow
- The level of U.S. debt has remained near $1 trillion annually for the past four years
- Real interest rates are negative
- The Fed continues its quantitative easing policy
“What piece of economic data can you point to that would make Bernanke slam on the economic brakes?” asks Pento.
Pento claims that as long as the Fed maintains its aggressive easing policy and government debt continues to increase, inflation will rise and the dollar will lose value.
“The balance sheet of the Fed will be $4 trillion by the end of this year,” he says. "Who can tell me that a balance of that size can be unwound successfully?"
Pento claims that gold is being destroyed by the Fed.
The latest U.S. GDP report, showed that growth is increasing at a lower than expected 2.5% annual rate, it also showed that U.S. inflation is well-contained. The Personal Consumption Expenditures Index, which measures changes in prices, rose just 0.9% in the first quarter- the smallest increase since the second quarter of 2012. Excluding food and energy that gauge increased 1%--well below the Fed’s 2% target, suggesting that Pento is right to expect continued Fed easing.
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