What's Up With Gold? What Does That Suggest For Stocks?

I've written extensively about my bullish views on gold and how it is the one universally known and accepted currency that is in relatively scarce supply, in the context of the world's monetary base. My bullish stance is thus not based on an expectation of crisis, or volatility in the market, or perhaps inflation, nor is it directly related to the dollar.

The driving force to me that underpins the emerging gold bull market is technology. Let me explain. Technology has led to massive improvements in productivity which create, I think, almost impenetrable shields against inflation. Sure, wages are increasing, and I do expect commodity prices, in general, to trend higher, as demand increases and the cost of production is less influenced by the tech revolution than other industries. 

Still, the market has a buffer of efficiency that not only leads to lower costs of production but creates the opportunity for leveraging new ideas that can and will have enormous impact. 

So what does that mean? It means capital is also more productive, which on the margin means demand for capital is marginally less, which means that everything else being equal, interest rates will be lower than otherwise would be the case. 

Incredible increases in productivity and efficiency are happening all over the world, and of course, interest rates around the world are far below those of the United States. 

The net result is that interest rates have moved into a newer realm that is a far cry from what many of us who have been in the markets for decades have historically experienced. Yes, many of us in the market did expect rates to normalize at higher levels, but I am now beginning to realize these fundamental changes may lead to a permanence in today's interest rate regime.

These lower rates, naturally, mean that the cost of carrying gold is less, and returns on alternative investments, across the board, is also less, both bullish for gold. 

The bigger picture remains the relatively small supply of gold, its historical role, and the resulting demand that is occurring around the world and, notably, bids from central banks.

And another very important observation... stocks with high dividends, secure balance sheets, and reasonable valuations remain a tremendous value, since I would not be surprised if analysts continue to ratchet up interest rates in their discounted cash flow analysis, as they go out into future years discounting cash flows... with those rates leading to lower company present values than would be the case with a flatter curve. 

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