We’re in the final phase of a bull rally in gold, and the current phase will see the most upside action for the precious metal. That’s according to Frank Giustra, chairman of Leagold (TSX: LMC.TO; OTC: LMCNF).
Giustra told Kitco News, “I think we’re in the third and final phase of the gold market that’s started in 2001, and this will be the most explosive phase for gold.”
According to Giustra, the Fed’s past monetary policies have helped to fuel gold’s bull cycle over the last eleven years.
“In 2008, I predicted that we wouldn’t have a depression, a lot of people were afraid we were going to go into a depression. I said, it’s not going to happen because we’re going to get all of this printed money that’s going to create a floor on the economic system,” Giustra said. “We’ll pay the price later, but gold’s going to run, and as you know, starting in 2009, when I created the second gold mining company, Endeavour, gold began a run up to 2011.”
Giustra noted that the Fed’s policy reversal in July, when it cut its benchmark rate for the first time in a decade, signaled the beginning of a bull rally for the yellow metal.
“Had you normalized rates to 5 or 6 percent, you would have imploded the whole system, so I always predicted they would only be able to rase rates to a point, and then when they paused, that rang the bell for me, and when they started to drop rates, I predicted this will be the beginning of the next really big run,” Giustra said.
Gold has soared higher this year on increased demand for safe havens amid the U.S.-China trade war and a slowdown in global growth, prompting central banks around the world to adopt a more accommodative stance.
Since the central bank cut rates at its July meeting, gold has risen 7% to $1,516.94, as of Thursday – its highest level in six years. The Fed is widely expected to reduce rates again at its September 17 – 18 meeting.
And BNP Paribas SA says gold will surge above $1,600 per ounce as it expects the Fed will cut rates four times between this month and June 2020 to combat slowing U.S. growth and the fallout from the trade war with China.
Harry Tchilinguirian, head of commodity research at BNP Paribas, said in a note that as nominal yields fall with each of these reductions, “real rates will move and stay in negative territory, raising the appeal of holding gold.”
“The trade war is unlikely to be resolved quickly,” Tchilinguirian said in the note. “In this context, gold has resumed its traditional role as a safe-haven asset.”
As for the economy, Giustra says the next recession could be even worse than the Great Recession of 2008.
“I think the world is in uncharted waters right now,” Giustra said. “We’re living in a world with a global debt bubble, and any time you get debt bubbles of this magnitude that are global that are fueled by speculation, something’s going to happen.”