- Created on Monday, 28 January 2013 07:00
- Published on Monday, 28 January 2013 07:00
- Written by Chris Hunter, Investment Director, Bonner & Partners
- Hits: 1131
So says Russia's central bank. "Japan is weakening the yen and other countries may follow," declared Alexei Ulyukayev, deputy chairman of Russia's central bank at a conference in Moscow last week.
He was fretting over the possibility of a renewed currency war in 2013... now that Japan's new prime minister is stepping up pressure on the Bank of Japan to print the country back to growth.
Outgoing Bank of England governor Mervyn King is also alarmed. Speaking at a recent meeting of the Economic Club in New York, the man who sanctioned the printing of over £325 billion ($520 billion) had this to say:
I do think 2013 could be a challenging year in which we will, in fact, see a number of countries trying to push down their exchange rates. That does lead to concerns. Will other countries react in kind? What will happen? The policies pursued by countries for domestic purposes are leading to tension collectively.
These central bankers are right to be anxious.
Over the past six years the maestros of the world's printing presses have injected a total of $11 trillion into the global economic system. And they show no signs of slowing down.
And today, 38 countries around the world are pursuing a zero or negative real interest rate policy.
To have every developed country printing money at the same time is unprecedented. I have never seen anything like it.
Yet since October last year, the gold price has been trapped in a trading range. You can see this clearly in the chart below.
There are a number of good reasons for this: less fear over a breakup of the euro... the return of the risk-on trade and a rush into higher-yielding assets... a sense that we're starting to experience a real recovery.
But don't expect gold weakness to last long. Markets can defy logic for longer than you think, but they can't continue to do so forever.
The bottom line is that we are living in a brave new world of money-printing.
In fact, we have never seen anything like this amount of fiat money being added into the system in modern history. It is speeding up the debasement of paper currencies around the world.
This process is only just beginning. As it accelerates investors will seek to protect their buying power by loading up on gold.
As you can see from the chart above, gold has been trading in a range of about $1,550/oz to $1,800/oz.
Sooner or later it WILL break out. And given the hyperactive liquidity injections from central banks... it's likely to do so to the upside.
So watch a breakout for gold above $1,800 an ounce. If this level is breached, it will run to the mid-$2,000s, as the shooting war among the world's central banks heats up.
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