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Perspective
By Rich Checkan
Slowly but surely, the belief that gold is expensive is being replaced by the Fear of Missing Out… FOMO.
My take?
Still… at all-time highs… gold is dirt cheap.
And no… you have not missed out on anything.
The Sleeping Giant Awakens
Thanks to buying from central banks and retail investors in Asia, the gold price consolidated for four years at all-time highs.
Here in the West, few cared at all.
They had their paper stocks making new nominal all-time highs on a regular basis. Nobody seemed to care that the Dow and the S&P 500 still are only 60% of the way to their all-time highs during the Dot.com Bubble in 1999… as measured in gold.
Still, to this day, few realize that even though the S&P 500 is up over 500% since December of 1999 with reinvested dividends, that gold is up over 800%.
After all, that is not the message the mainstream press is paid to tell us on a daily basis.
But make no mistake, since Chairman Jerome Powell and the Federal Open Market Committee (FOMC) slashed interest rates by 50 basis points on September 18th, gold, the sleeping giant, is wide awake.
And gold’s trusty sidekick, silver, is wide awake as well.
As of a couple of days ago, gold is up 29% for the year. Silver is up 32%.
A Strong Economy
When Chairman Powell announced the rather large initial rate cut, he stated that the U.S. economy was “very strong.”
But if the U.S. economy is “very strong,” why was such a drastic cut in interest rates either appropriate or necessary?
Unfortunately, I am not privy to Mr. Powell’s thoughts, nor am I privy to the thoughts of the FOMC participants. But, as a commonsense observer, it is clear to me that the actions of the FOMC do not match-up with their rationale.
I see several reasons why the FOMC would make such drastic cuts…
• They waited too long to cut rates, did more harm to the labor market than they thought, and this caused a knee-jerk reaction by the FOMC.
• The FOMC was painfully aware that the interest being paid on $35.5 trillion of debt was crippling to any budget at 5.25%.
• The FOMC needed to protect the Wall Street bankers and brokers because they serve them.
• The FOMC needed to take steps to ease the economic stress on voters prior to the upcoming election.
All are plausible reasons to cut rates drastically. A “very strong” economy is not the reason at all.
What’s Next?
I expect gold will continue to rise.
Historically, that is what gold, silver, and gold and silver mining stocks do following the first rate cut after a rate tightening cycle. Historically speaking, six to twelve months down the road look particularly good for hard assets.
Further, we are about one month away from choosing our next president. And while both sides of the aisle are desperately making the case that choosing their opponent is the end of democracy as we know it, the reality is that both sides of the aisle have been killing the American dream for decades.
And neither candidate is suggesting a change in that trend.
Both candidates have vowed to leave entitlements like social security, Medicare, and pensions alone. Yet, as long as these unfunded liabilities are not cut, the budget will never be balanced, and the debt will continue to grow.
And although they get there in different ways, both their budget proposals result in continued deficit spending and a growing national debt.
Chairman Powell is powerless to fix that with interest rate manipulation. The money supply will expand (the very definition of inflation). And prices of everything will rise.
That is very bad for the U.S. dollar, our economy, our standard of living, and our way of life.
But that is also very good for gold.
Be Your Own Central Bank
The central banks of the world have seen this coming for some time.
They bought more gold in 2022 than they had at any time in the previous 60 years. Then, in 2023, they darn near did it again. They bought 96% of what they did in 2022.
This year, central banks are on pace to shatter the 60-year record again.
Central banks are buying gold because they print money like there is no tomorrow.
You should buy gold because central banks print money like there is no tomorrow.
Politicians have no desire to stop deficit spending. It would be political suicide. They would lose all the voters if they ran on a platform of no longer giving free stuff to large chunks of the population.
As a result, I do not see positive fiscal change coming. I do not see fiscal responsibility on either side of the aisle.
So, to protect your family, you need to do exactly what the central banks have been doing… and what they continue to do at a faster pace.
Buy gold to preserve your purchasing power… to Keep What’s Yours
It is not too late. You have not missed out.
Buy gold. Protect your future. Sleep peacefully.
No government is coming to save you. You need to save yourself.
The good news is that gold at all-time highs is still dirt cheap… and silver at 60% of all-time highs is even cheaper!
Buy on our website directly… www.assetstrategies.com. Call us at 800-831-0007. Or send us an email.
Yesterday, you should have received a survey from us. It should only take five minutes to complete, but it would be extremely helpful for us to understand how to better serve you as this bull market in gold takes off. And… you could win a $100 gift card to use on our website! If you missed it, here’s the link.
—Rich Checkan
Editor's Note: Dan Denning will be our next featured On The Move webinar guest on November 6th, register in advance. Dan began working with Bill Bonner at the Agora Companies in 1998. Dan Denning’s belief in free markets, sound money, personal liberty, and small government have underpinned everything he’s done during his time in the financial publishing industry. Join nearly 70,000 subscribers at Bonner Private Research, for daily, weekly, and monthly investment research and analysis for individuals from Bill Bonner, Tom Dyson, Dan Denning, and others. For a short time, BPR is offering an exclusive 62% discount on a one-year subscription for ASI readers, which automatically renews at the same price! Subscribe today.
Feature
The Gates of Vienna
By Dan Denning
The U.S. is entering a debt crisis of its own making with the prospect of a wider war with Russia. But if the next President saddles up a War Horse, the move in gold could be higher than we expect.
The painting above is Polish King Jan Sobieski outside the gates of Vienna on September 12th, 1683. Sobieski and his three thousand winged hussars broke the lines of the Ottoman Turks in a victory which European historians consider the beginning of the end of the Ottoman Empire (Vienna was as far as the Turks ever got into Europe). The battle began the day before, on September 11th, and there’s some speculation that Al Qaeda picked 9/11 for its attack on the World Trade Center because of this historical setback for the Ottomans (one it hoped to avenge and reverse by attacking iconic symbols of American power).
What the picture above doesn’t show you is how many people pushed and jostled me while I was trying to take it. Hardly anyone stopped to look because hardly anyone knows what it commemorates. I only knew it was there because my faculty advisor in college was Professor Francis Zapatka, a Jesuit-trained literature Professor with Polish roots who told the story more than once.
It’s hard to miss though. The painting is actually the largest painting on canvas in the entire Vatican Museum. I’d seen it once before, in college, when I spent a semester studying in Rome. I came back in the spring of 2018 for a vacation, where I had more time (and money) to enjoy everything Rome has to offer lovers of history, art, and architecture.
Even for the Eternal City, a lot has changed since the mid 1990's in Rome. Like all the beautiful places in the world, the Vatican Museum is crowded these days. Most people rush by the Sobieski painting on their way to the Raphael Rooms with no idea that an important turn in the historical tide of history is depicted right in front of them, larger than life. But I stopped to take a picture to remind myself that there are some periods in history–even particular days–where everything changes.
Political Risk
You’ll read a bit more about the Ottoman Empire in the Private Briefing I’ll publish on Sunday. Our latest guest was none other than the great Doug Casey. Doug’s spending the summer in Virginia and was kind enough to take an hour out of his schedule to talk about the state of the world (or the absolute state of chaos).
We talked about 9/11, famous (and infamous) Empires in history which the United States currently resembles, and what to expect from financial markets as the U.S. election approaches. If you know Doug or have ever seen or heard him speak, you know he doesn’t hold back. It wouldn’t be a Casey conversation without a little controversy.
I was most interested in what Doug sees as practical solutions to our political problems. From Doug’s point of view, political risk is THE clear and present danger right now. For Americans in particular, our politicians seem hell-bent on leading us into a wider war with Russia (something Putin warned about this week).
Meanwhile, the gold market is telling Fed Chair Jerome Powell and Treasury Secretary Janet Yellen that the ultimate casualties of their feckless policies will be the U.S. dollar and U.S. government bonds. We may be watching the biggest de facto dollar devaluation in decades. Let’s examine the ugly guts with the graphic below.
U.S. fiscal arrangements are falling apart rapidly now. The government deficit for the month of August was $380 billion, according to the Monthly Statement of the U.S. Treasury. The entire national debt was $389 billion at the end of 1970, just before Richard Nixon replaced the Gold Dollar with the Credit Dollar.
There’s one more month left in the government’s fiscal year. By then, the total deficit for the year will be close to $2 trillion. When you dial back from the monthly level, you’ll find that net interest expense for the year is $843 billion. Total spending on war and armaments (defense spending is what the government calls it) is $798 billion. It already costs us more to pay previous creditors than to pay our soldiers, Marines, airmen, and space warriors.
Here’s the most alarming part: The TOTAL interest figure, year-to-date, is already over $1 trillion. It’s buried in the fine print. The ‘gross’ interest expense, which includes interest payments to government agencies that own Treasury bonds, bills, and notes, went over $1 trillion in August. That’s the first time that’s ever happened. The debt default train has left the station.
Gold usually trades lower on a Friday. Nobody knows why (although traders in the paper gold market seem to have a habit of hammering it down.) But we’re looking at a three percent gain for the week and a close of about $2,600 for the first time ever ($2,602.20/ounce to be exact). Why?
US deficits are out of control. Neither candidate for President meaningfully addressed what they’d do to avert the coming dollar crisis. And despite all that, the market expects the Federal Reserve’s Open Market Committee to cut interest rates by either 25 or 50 basis points when it meets next Wednesday (even with core and ‘supercore’ inflation above the Fed’s target).
Precious metals are breaking out as fiat money breaks down. That’s what I noted when I looked at the table above from goldprice.org. Note that gold is up over 20% in ALL major currencies year-to-date. That didn’t even happen in the last big run up of 2010 (gold in Swiss francs was the laggard in 2010). With today’s close, gold is up 24.5% year-to-date in US dollar terms.
Fiat money (inflation via the printing press) goes hand in hand with the Warfare State. Not to beat a dead horse, but perpetual war requires perpetual debt. Central banks fund the war machine. The US would be entering a debt crisis of its own making with the prospect of a wider war with Russia (or Iran, or China). But if the next President saddles up a War Horse, the move in gold (in all currencies) could be even higher than we expect. How high?
Just a reminder that we haven’t hit an inflation-adjusted all-time for gold yet. That’s still about $1,000 a way, based on the January, 1980 gold price in the chart above from Ron Griess at thechartstore.com. As Tom pointed out earlier this year, the recent triple top in gold is a line of resistance that will become a line of support. Once that line is broken, it would not surprise me to see gold move up in $100 increments on a daily basis (not without a lot of volatility, mind you).
Another factor, which I won’t get into in detail this week, is the maturity profile of US Debt. There is a line of criticism in markets that Treasury Secretary Janet Yellen has tried to influence this November’s election outcome by issuing more short-term government debt this year (Treasury bills rather than Notes or Bonds). We’re talking around $2 trillion in Treasury bill issuance, so it’s no small figure. Yellen has been suppressing concern about a US debt crisis.
Two things. By definition (and duration), T-bills (three months, six months, nine months) mature faster than Notes or Bonds. That means Janet has to roll them over, or refinance them, faster and more often. And when rates are rising, it means interest costs go up even faster as the previously issued Bills mature. The last thing America needs is a higher monthly interest expense on the national debt. But Yellen has virtually guaranteed that’s what we’ll see…but after November…when all the ballots are harvested and all the votes are counted.
The second thing is that Yellen has done her best to hide Washington’s fiscal train wreck from financial markets. Had she auctioned longer-term notes or bonds, the market (via the bond vigilantes) would have set the required interest rate to buy that debt. It’s unlikely that any of those auctions would have failed. But if demand for longer-term debt was lower than expected, or required higher yields to entice buyers, it would have been impossible to ignore the signal that US government debt is no longer ‘risk free’ or ‘safe’.
Judging by the gold price action, the markets are now fully aware that the US debt crisis is entering a new stage. It is both a dollar crisis AND a bond market crisis. But as Doug has famously pointed out, with every crisis, comes opportunity.
On the precious metals side, we’re already well-positioned for the move. On the bond or equity side, please note the chart above. IEF is an exchange traded fund that tracks 7-10 year US Treasury prices. There’s been a bit of a bull market in IEF since late October 2023. It was not the sort of thing we’d bother trying to trade (too little upside, too much risk, and we’re not traders).
But now, please note the Relative Strength Index (RSI) on IEF is at 70. That traditionally means it's over-bought and due for a correction. And IEF itself is trading at the same level as it was in the summer of 2022. It’s either different this time, or it isn’t.
You COULD make the argument that if the Fed is about to enter a rate cutting cycle (recession, higher unemployment) that would be good for bond prices (and that US bonds still get a reflexive ‘flight to safety’ bid during a geopolitical crisis). But I’m not going to make that argument. And here’s why…
First, as the old saying goes, if it’s in the news it’s in the price. This Fed rate cut has been widely telegraphed for weeks. That’s why IEF is ALREADY trading so far above its 100-day and 200-day moving averages. Buy the rumor, sell the news etc.
Second is the point Doug made in our Private Briefing. In this latest stage of the ongoing crisis, the major political risk resides in Washington, not Moscow, Tehran, or Beijing. Given the state of its finances, you’d have to have a vivid imagination to describe American government bonds as ‘safe’ or ‘risk free.’
The dollar/bond crisis in DC will cause capital flow to other alternative and ‘hard’ assets. Does that include value stocks or ‘deep value’ equities? Maybe…
The Least Efficient Market
There’s a new paper I’ll read next week before I meet with Bill and Tom in Dublin. Remember, we have a two-part strategy to the big political and geopolitical issues I’ve raised this week. First, preserve your purchasing power and your capital by staying in Maximum Safety Mode. Second, be prepared to deploy that capital in great businesses that compound returns over time…when you can buy them at the right price.
Into to mix is a new paper from Clifford Asness at AQR Capital Management. It’s called The Least Efficient Market Hypothesis. The title of the paper references one of the mainstays of mainstream financial thought, the Efficient Market Hypothesis (EMH). EMH holds that the stock market constantly and accurately incorporates all relevant known information and that stocks, as a result, are always perfectly priced.
Of course information changes all the time (although not all of those changes are meaningful nor relevant to the price of stocks). But the implication of EMH is that it's hard, if not impossible, for an individual stock picker to beat the market (or an index fund). The market is just too efficient, according to the theory.
Asness disagrees!
I’ll read the paper in full this weekend. But the crux of his argument is that technology has accelerated the distribution of bad information while also increasing (through commission free online trading) the amount of irrational trading.
The markets are neither rational nor efficient! And social media technology is a force multiplier for stupidity, amplifying the ideas of the dumbest and the loudest.
If he’s right, the upside is that the less efficient markets are at pricing great businesses, the greater advantage YOU have in buying those businesses at an attractive valuation. Stock pickers should be able to pick apart an inefficient market. In theory.
The downside is volatility. In less efficient markets, especially where holding periods for positions are shorter than ever, and technology increases emotional decision making, the day-to-day price action in a security may become completely uncoupled with its value (present OR future).
You might be right about the business, but stupid investors and stupid index funds will prevent you from being vindicated through a higher share price. The market can remain moronic longer than you can afford to stay in Maximum Safety Mode.
Like I said, I haven’t read all of the paper yet. It could be the sort of ‘sour grapes’ argument that blames index investments for the poor returns of stock picking value investors over the last twenty years. In the last two decades, liquidity is a quantity that has little respect for quality, preferring growth at any price.
Or, it could, when combined with the report on long-term returns in stocks I mentioned last week (Money Talks), be a strong argument that the other side of this debt crisis will be the single best opportunity for investors and stock pickers of your lifetime. For example, lower oil prices and higher gold prices ought to be an earnings sweet spot for well run mining companies. Stay tuned for more!
Editor's Note: This article was originally published in the Escape Artist newsletter on September 23, 2024. Rich Checkan is a regular Escape Artist contributor.
Hard Stuff
Everything Gold is New Again
By Rich Checkan
This global currency is often under appreciated but never undervalued.
“Gold is money” J.P. Morgan liked to say. “Everything else is credit.” As one of history’s savviest businessmen, it’s no surprise his name sits atop one of the largest banks in the world.
Gold has been money around the world for more than 5,000 years. Generations may regularly forget about its importance, but they quickly remember gold’s power when it’s needed. And despite the multitude of financial instruments competing for investor dollars—stocks, crypto, and beyond—gold remains as relevant today as it was centuries years ago.
In fact, given our shaky global economic climate, this seems like an excellent time to realize—and once gain embrace – the power of gold.
A few months back, I was asked to join a panel discussion on financial innovations that included experts on cryptocurrency, special purpose acquisition companies (SPACs), and other new tools. Why was the gold expert invited? While it’s not new, the ways in which investors can access and leverage gold have made huge advances in recent years, making it as useful and relevant today as most other forms of currency.
Gold’s History of Ups and Downs
We don’t have the time or space to recount gold’s full story here (a good subject for a future column), so I’ll start in 1971, when President Nixon “closed the gold window.” In other words, he ended Americans’ ability to directly convert gold into U.S. dollars, and vice versa.
At the time, the U.S. had begun winding down its military presence in Vietnam, a war that cost the country dearly in lives and money. Domestically, Americans were beginning to struggle with stagflation—a combination of anemic economic growth and crippling inflation.
With the legalization of gold in the U.S. in 1975, its value soared to new all-time highs of about $850 per ounce. Then, the collapse of the Soviet Union brought the Cold War to a close and ensured American economic primacy.
As conflict declined globally and freedom and democracy spread, gold became an after-thought and its value fell to $250 per ounce from 1999 to 2001, down 70 percent from its 1980 highs.
With the dawn of the digital age in the early 2000s, the U.S. economy began another period of expansion as countless investors got rich from the explosive growth of many tech businesses. The Great Recession, the housing bubble and the global financial crisis collapsed markets worldwide, spurring a “re-learning” of gold’s value.
In September 2011, it hit a new all-time dollar-value high of $1,921 per ounce, just as governments swooped in to bail out markets, banks and investors with an easy money policy that lasted for the next decade.
Back then, the price of capital was cheap. You could borrow money at next-to nothing to invest in anything from cryptocurrencies to high-flying tech stocks. Values soared thanks to inflated currencies worldwide.
This up-and-down pattern continued as gold sank to $1,050 an ounce, then came the COVID-19 pandemic. Markets tanked and gold made another comeback.
Under Appreciated. Always Valuable.
For 5,000 years, gold has held great value but has not always been greatly appreciated. Fickle investors fall in and out of love with it, which is why famed economist John Maynard Keynes described it as a “barbarous relic” in 1924.
Yet when gold is needed, it always delivers. Today, America’s rampaging national debt has a negative financial impact on governments, businesses, and consumers. After a rapid increase in interest rates in virtually every major economy, rate cuts are on the horizon as governments, corporations, and individuals struggle under the weight of massive debt.
Economic hardship is leading to social unrest and geopolitical crisis. Our world is fractured and reeling. And just in time, gold is again achieving new heights. In fact, it has been consolidating at all-time highs for five years and may now be headed for another surge.
Historically, gold and gold stocks significantly outperform corporate stocks following the first rate cuts at the end of a monetary tightening period. For the world’s reserve currency, the U.S. dollar, that highly anticipated first rate cut is set to come this month.
Given the historical pattern and the performance of gold in previous bull markets, at some point in the near future I expect the value of gold to peak at two to three times the previous bull market's high of $1,921 per ounce.
An Abundance of Options
The numerous ways to invest in gold today enhance its attractiveness. You might choose to own certificates or warehouse receipts, which represent gold held by a third-party depository, either onshore or overseas. Alternatively, you can invest in shares of an exchange-traded fund (ETF) that tracks the gold price, provided the fund manager is competent. Another option is to buy stock in gold mining companies. Additionally, you can trade gold futures and options, essentially speculating on gold’s future value.
At the same time, you can still wear your gold wealth as jewelry or own the most popular government-issued coins, like the U.S. Eagle or the Canadian Maple Leaf. You could buy from the finest refineries, such as Perth Mint gold bars, and it’s all approved by the London Bullion Market Association (LBMA) —the standard bearer for gold—so you know it’s top quality.
These options allow for unprecedented flexibility in how you hold your gold. Asset manager Dimitri Speck likes to say, “Gold is the only thing that can cross borders without a passport.”
His point is not that gold is an accomplished traveler, but that there’s no better global measure and store of value. This is why gold will remain an excellent investment and should be an essential piece of any informed expat’s portfolio.
So if you live overseas and are wondering where to invest, take a look at the latest trends in gold. Despite its ups and downs over the centuries, gold is as valuable today as it has ever been—possibly even more so.
It’s not the least expensive precious metal (that’s silver) or the heaviest (platinum), but like J.P. Morgan said, it is the best store of value.
Editor's Note: Kirk Chisholm is a wealth manager and principal at Innovative Advisory Group, Host of the Money Tree Investing Podcast and all around interesting guy. He is an outside the box thinker who provides a different perspective on many commonly held beliefs in personal finance. He has a rare expertise with alternative investments held in self-directed IRAs which has helped many investors invest in their passion. Kirk was recently recognized as one of the top 100 most influential financial advisors in the US by Investopedia.
The Inside Story
Golden Protection for Your Portfolio
Do you have proper protection for your portfolio? If not, gold might be the solution for you.
Rich Checkan and Kirk Chisholm discussed the "stealth gold market" on The Money Tree Investing Podcast a few weeks ago.
They delved into the cultural differences in gold ownership between Eastern and Western investors. They also touched on the distinct dynamics of the silver market and the industrial uses and market behavior of platinum and palladium. They also discussed the manipulation of gold prices and the broader implications of the massive money printing and national debt on the gold market.
Click the link below, or find it on Spotify or iTunes.
Click to check it out.
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