Analysts: Gold prices could double in 5-10 years as investors become skeptical of fiat currencies

The core consumer price index (CPI) rose 3.1% year-on-year in July, and consumers continue to face higher inflationary pressures. However, one market analyst said this inflation is only a small 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, Professor Emeritus of Economics at the University of Bayreuth said that gold and silver are on the verge of an important structural breakthrough due to the unchecked expansion of the paper money system.

"There is an urgent attempt to acquire safe haven assets," he said. "There is growing scepticism about the purchasing power of all fiat currencies, which is reflected in the global gold market."

Gold has not only held steady gains above $3,300 an ounce, but also hit record highs against the Japanese yen and near all-time highs against major currencies such as the British pound, the euro, the Canadian dollar, and the Swiss franc.

"Global debt is increasing everywhere and that is driving inflation," he said. "Not just in the US, but in Canada, the UK and Europe."

Polleit pointed out that in this environment, central banks are unlikely to raise interest rates, because raising interest rates would increase the cost of servicing all this debt, which in turn would dampen economic growth.

But that's 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 controls.

Financial repression is an indirect way for governments to use private-sector funds to service public debt, using subtle measures like zero interest rates and inflation to reduce their own debt.

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

Markets now expect a 25 basis point cut next month and a 60 per cent chance of two more cuts before the end of the year. While expectations of easing have risen in recent weeks, the 10-year yield has remained relatively high, holding on to key support levels above 4 per cent.

Polleit said it was not surprising that yields remained high because investors needed to see higher returns against rising debt risk. However, he added that he sees a ceiling on the 10-year yield, which is not expected to exceed 5 per cent.

Polleit said the Fed may want to lower the long-term end of the yield curve by lowering short-term yields.

"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 [government bonds] again," he said. "Once yields fall, gold prices will rise further. Gold has huge potential and momentum and I expect to see higher prices before the end of the year."

Looking to the long term, Polleit said he is not at all surprised to see gold prices double in the next five to 10 years.