During a CNBC interview, former Federal Reserve Chairman Alan Greenspan said gold prices are surging because investors are looking for hard assets that they know will have value in 20 or 30 years.
Gold is up more than 21% on the year and is trading at levels not seen since 2013.
During the interview, Greenspan focused on an interesting fundamental he thinks is driving both the bond and gold markets - the aging population. He said there has been a shift in time preferences as people recognize they will likely live longer and they will need to finance those longer lives. This, he says, is increasing the demand for hard assets like gold.
One of the reasons that the gold price is rising as fast as it is … that’s telling us essentially that people are hard resources which they know are going to have a value 20 years from now, or 30 years from now as they age, and they want to make sure they have the resources to keep themselves in place. That is a clearly fundamental force that is driving this.”
Historically, gold has served as an inflation hedge and a wealth preserver. It makes sense that investors concerned about maintaining their savings well into the future would turn to gold. This is especially true given the likelihood of increasing inflation as the Federal Reserve continues to try to prop up the economy with low interest rates and quantitative easing.
Peter Schiff has said that eventually, the world will drown in an ocean of inflation.
Every central bank has bought into this nonsense that we must have inflation and that interest rates need to be negative. Inflation needs to be high enough to have real negative rates all over the globe. That’s where we are heading. So, if that is the case, people have no place to hide except gold and that is why they’re buying.”
Greenspan also talked about negative interest rates. He said the aging population is also one underlying factor in falling bond yields. An aging population is driving demand for bonds, pushing up the price and driving down yield. He says he eventually expects to see negative yields in the US.
You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States.”
There is now more than $15 trillion in negative-yielding debt globally. Greenspan said when there is a significant change in the attitude of the population, the “look for coupon.”
As a result of that, there’s a tendency to disregard the fact that that has an effect in the net interest rate that they receive.”
As far as the economy goes, Greenspan said it “seems to be sagging.”
Former Reagan OMB director David Stockman had another take on falling bond yields, saying recently that the bond market is in the “mother of all bubbles.”
What we’re seeing is rampant speculation in the bond market. Investors are banking on continued bond-buying by central banks. They believe this will continue to push prices up and they’re speculating on the rising prices. It’s nothing but a massive bond market bubble.”