This past September, The Bank for International Settlements warned of excessive borrowing, mostly in dollars, by emerging-market companies. Therefore, as US interest rates rise and the dollar gets stronger, correspondingly, as clearly evidenced by current events forming future trends, emerging-market currencies will weaken. That, in turn, will dramatically increase their debt-repayment burden.
In late September, the World Trade Organization warned of a “dramatic” global trade slowdown and cut its global growth forecast to just 1.7 percent. Several days later, the Brookings Institute parroted the Trends Journal’s Top Trend of 2016, “Global Recession,” proclaiming the global economy is “sliding back into the morass.” And, just one month before Election Day, the International Monetary Fund downgraded its global growth forecast of advanced economies while warning a record $152 trillion of world debt poses a serious threat to the global economy.
In developed nations, cheap money, not corporate earnings, boosted equity markets with record-breaking merger-and-acquisition activity and record-breaking stock-buyback activity. As interest rates rise, and the cost of borrowing increases, true price discovery and market fundamentals will drive the markets.
Therefore, while a stronger dollar will initially push down gold prices, in a climate of equity-market volatility and increasing geopolitical unrest, we maintain our forecast for gold to remain a strong safe-haven asset.