Consumers continue to face high inflationary pressures as the core consumer price index (CPI) rose 3.1% year-on-year in July. However, one market analyst said this inflation is just one part of a broader picture of the declining purchasing power of fiat currencies, which will continue to support long-term demand for gold.



In a recent interview, Emeritus Professor of Economics at the University of Bayreuth stated that gold and silver are on the verge of a major structural breakthrough due to the uncontrolled expansion of the paper money system.

“People are desperately trying to get to safe haven assets,” he said. “There’s growing skepticism about the purchasing power of all fiat currencies, and that’s being reflected in the global gold market.”

Not only is gold holding steady above $3,300 an ounce, but it's also trading at a record high against the Japanese yen and near all-time highs against a number of major currencies, including the British pound, euro, Canadian dollar and Swiss franc.

"Global debt is rising everywhere and that's driving inflation," he said. "It's not just in the U.S., government debt is rising in Canada, the U.K. and Europe."

Polleit points out that in this environment, central banks cannot raise interest rates because this would increase the cost of servicing all this debt and thus curb economic growth.

But this is just the beginning, Polleit said he expects central banks to not only cut interest rates this year but also return to financial repression and possibly even implement yield curve control.

Financial repression is an indirect way for governments to use private sector funds to repay public debt. Governments use subtle tactics such as zero interest rates and inflationary policies to reduce their own debt.

Polleit’s hawkish views come as the Federal Reserve, unlike most major central banks, maintained a neutral monetary policy stance in the first half of the year.

The market is currently pricing in a 25 basis point rate cut next month, with a 60% probability of two more rate cuts before the end of the year. While market expectations for easing have risen in recent weeks, the 10-year Treasury yield has remained relatively elevated, holding onto key support above 4%.

Polleit said it's not surprising that yields remain elevated, as investors need to see higher returns for rising debt risk. However, he added that he believes there's a ceiling for 10-year Treasury yields and doesn't expect them to exceed 5%.
Polleit said the Fed may hope that by lowering short-term yields, it can also lower the long end of the yield curve.

“If that doesn’t work, if long-term interest rates can’t be lowered, then it’s reasonable to assume that central banks will start buying (Treasury bonds) again,” he said. “Once yields fall, gold prices will rise further. There’s so much potential and momentum in gold, and I expect to see higher prices before the end of the year.”

Looking longer term, Polleit said he would not be surprised to see gold prices double in the next five to 10 years.