JP Morgan made a remarkable about-face in its views on gold, last week. In January, the bank remained negative on the precious metal, as it had been for the last few years, targeting an average price of $1,104 for 2016. However, last Friday, JP Morgan announced a significant change of course.
Suddenly, the bank sees gold prices rise to $1,400 by the end of this year. Apparently, the realization that negative interest rates are omnipresent and here to stay, and that this is destructive to the value of money and bonds, has dawned on the elite bank. Gold has always been derided in the past because it does not return yield (it does not return interest or dividend to the holder). Now that owning currency or bonds is encountering negative interest rates, this property is suddenly an advantage and will enhance gold’s safe haven status, according to JP Morgan. Even after years of ignorance you’re never too old to learn, we would say. Furthermore, JP Morgan expects central banks will increase exchanging their foreign exchange reserves for gold.
Bondholder Pimco, in a hypothetical argument, proposes a large forced appreciation of the gold price in order to stimulate the real economy. The Fed would buy up private gold at a price of say $5,000, which will bring financial power to Main Street, rather than Wall Street, as has been the case in all recent QE programs. Spending power and inflation will rise as a consequence.
While this latter proposal is unlikely to get much support, these news snippets are remarkable in that both come from two financial mainstream parties, parties you would expect have an interest in maintaining the status quo. Has the pressure on the financial system now finally become so high that we are nearing a financial reset?