Gold prices have been under pressure lately but still showing signs of life as they brush off the latest economic data. Investors are betting against the yellow metal en masse, but time may be running out for the shorts, depending on how quickly things change. Daniel Oliver of Myrmikan Research, who writes extensively about credit bubbles and economic cycles, tells ValueWalk that he sees gold prices heading north of $10,000 an ounce.
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History repeats itself… over and over again
In his August update, Oliver highlighted the many bailouts the U.S. government has had a hand in over the decades. He noted the credit cycle that repeats over and over. Inevitably, the Federal Reserve ends up printing money and devaluing the U.S. dollar to bail out the speculators responsible for bubbles. Indeed, it seems like lessons are never learned from the past because regulators are often doomed to keep repeating it.
This time around, Oliver said he’s waiting to see the first sign that the current credit bubble is about to pop. He generally looks at such bubbles through the lens of Austrian theory, and he notes that whenever regulators raise interest rates, credit bubbles inevitably pop. Thus, it’s only a matter of time before the current one pops.
He’s waiting for “some small bank to roll over, or reports of a rouge [sic] trader at a large bank, or a pension fund to collapse,” all of which could be signs the credit bubble is about to pop. We already know that many large pension funds in the U.S. are close to collapsing, so that certainly wouldn’t a surprise.
Will it be pensions… or the Turkish lira crisis?
For example, Central States Pension Fund expects to be insolvent within seven years, while CalPERS and CalSTRS are both facing extreme levels of unfunded liabilities. The pension crisis is only expected to get worse in the coming years. In fact, the entire pension industry seems like a classic case of what Oliver has been writing about: officials kicking the proverbial can down the road so they don’t have to fix a problem which can only be fixed by making an impossible decision.
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