Who owns gold?

 

For stocks there are two classes of investor: Retail and Institutional.  In general if you measure retail bullishness against institutional bullishness you get a pretty good idea of where the markets are headed.  But in the short run there is a balance between these two speculative forces.

For bonds there are three clases of investor: Retail, Institutional and Govenment.  Here the funding needs of Governments competes/conspires with the bank/broker/dealer system that dominates this market.  Retail has to simply read the tea the leaves to try to get on the right side of this trade

For Crypto there are thee classes of investor: Retail, Institutional (like Microstrategies) and criminal.  In crypto the criminal element (including the political classes that use crypto for extra-legal purposes).  dominates the market.  Yet the highly speculative retail flow can cause swings in the price.

For Gold there are three main clases of investor: Retail, Institutional and Cenral Bank.  The Central Banks dominate this market because they have unlimited access to electronic/paper money, since they can print/generate it.  

But the worldwide retail market for gold also can move prices at the margins. 

Worldwide, the retail investor holds about 10 percent of their assets in Gold. 

In the US that number is less than 1/2 of 1 percent.

Even now with the gold price at all time highs and global ineterst,  both global retail and Central Bank buying accelerating year over year, the US investor is competely oblivious to the Gold market.

Who really cares about the reasons for this disconnect?  Surely some of the same reasons US citizens are far more likely to fall for consipiracy theories than any other developed nation (and most third world nations.)   For example the only country on earth more likely to believe climate change is a hoax is Nigeria at 32% vs the US at 31%.  Or the only country whose citizens are more likelly to believe Biden stole the previous election is Russia (at 37% vs US at 33%)

Clearly US citizens are more likley to believe the US is in the middle of a Golden Age because their leaders tell them this is so even though the labor market fell off a cliff three months ago and inflation is raging at record levels.  So who needs gold?

But over time it seems that even the US citizen is more likely to join the rest of the world in understanding that run away Government Debt does lead to either Stagflation or Hyperinflation.

And no country on earth is accumulating debt faster than the US.

So, when the US retail investor finally wakes up, they will provide another fantastic tail wind for gold.

Meanwhile, if your reading this, you're probably one of the few in the US who have already realized this.  

Lucky you.

GOLD PRICE FORECAST

 

Where is the Gold price headed?

To know this you have to understand the basic elements of the two principles at play: Gold price, and Time.

Both are elastic.

The Gold price is elastic, but in a surprising way: the more expensive it gets, the higher the demand.  This is because it becomes expensive when other currencies erode and then begin to fail.  And as they erode you need more and more gold to protect yourself.  And since gold price is primarily central bank driven there is no limit to the amount a central bank will buy to protect its economic viability, thus driving the price ever higher.

But as it gets ever more expensive it becomes ever more necessary for the retail investor but they never realize this until their paper currencies become extremely compromised and by then they have to buy smaller and smaller quantities, fractions of ounces.  But as gold is divisible this is never a problem for gold.  The premium on quarter ounces and tenth ounces simply blow out.

But figuring out what price it will reach at what time is not possible when you take into account the elasticity of time.

For example we know there are cycles, like the 8 year cycle, or the 13 month cycle.  Or the ellliot wave cycles.  All of these can by instructive to some degree or other.  But none of them take into account the elasticity of TIme itself.  One year can whip by.  Another drags on forever.  This is not merely an illusion of subjectivity.  Rather our measurement of time is the illusion of subjectivity.

Just as our prediciton of price at a certain time is an illusion of subjectivity.  

What this means for price discovery is that the conditions that create a Gold bull market are the determining factor for price.  And the various methods of measurning the time of a gold bull market tend to be useless.  You just have to accumulate and let the price unfold as it will.  As long as the paper currencies are being eroded, gold tends higher.

That is why bullion is the only sensible way to accumulate gold.  Because you will not be tempted to trade gold bullion.  And trading a gold bull is the fastest way to lose all your assets.  Because it is impossible to measure the elasticity of Time.

Platinum the not-extremely-wealthy man's gold

 

As gold rockets ever higher, fueled by central bank buying, (though it is in a very temporary holding pattern through until the Asian buying season kicks in in August).  There has been a lot of interest developing in other monetary metals.  Especially Silver and Platinum.

There's been an extraordinary amount of chatter about silver's imminent breakout.  Wealthy entities have been standing for comex delivery on silver as they have been on gold.

But silver has a drawback for those buying 1 ounce coins rather than tonnes.  And that is the fact that hundreds of millions of ounces here in the US (and all around the world) have been minted over the last few centuries and all that silver is still available on the open market.  So if you go out and look at "structural imbalances" of what being mined and global demand it just doesn't take into account the fact that all the silver that been used as money of the last several centuries is still out there on the open market for the retail buyer.  Morgans,  thalers, 5 fancs, crowns, and more recently: liberties, maples, philharmonics etc etc

Platinum, on the other hand, has only been minted as coinage for the last couple of decades.  And even so, in very small quantities.  It is also very expensive to mine and only occurs naturally  in a few areas globally, most of which is in Politically-challenged South Africa.  And as retail inerest ramps up it will take at least a decade to get new mines on line.  It is genuinely scarce in the retail arena.

The other interesting thing about Platinum is that, like gold, it is inert.  It doesn't tarnish or oxidize.  So it holds its value over time.  And, like gold, it is divisible, durable, malleable and it is considered beautiful by the wealthy classes who appreciate platinum jewerlry.  All the Platonic characteristics of Money but with an historical scarcity that made it impractical as Money.

And its industrial use is in the growth industries of the future: as a catalyst in various advanced chemical and electrical processes: fuel cells, catalytic converters etc.

In the recent past, before the massive central bank accumulation, platinum was more expensive than gold.  Now, it trades at about a third the price of gold.  It may never again be nearly as valuable as gold, because it does not have the same reserve currency use.  But, for my money, it is a far better bet as a secondary monetary metal than silver.

THREE GOLDEN BLESSINGS

 

The first driver of gold is debt.  And as long as debt is the weapon of choice for each and every successive administration as a means for driving an inflation soaked nominal GDP - Gold must keep rising.  That's math, and if you don't get that, gold is just the wrong investment for you.  Buy something else.

But right now there are two other amazing blessings for gold that are turbo charging the gold price.

1) Tarrifs.  Again, this is math.  Tarrifs are not only a tax on goods, but on the international dollars used to buy goods.  A tax on international dollars equates to the weaponization of the currency.  This destroys the value of the dollar's use as a reserve currency.  The only other Tier 1 international reserve currency is GOLD.  What a wonderful blessing for gold.

2) The destruction of the independence of the FED is the other wonderful blessing for Gold.  The Fed sets rates independently.  It also oversees, along with the Treaury, the creation and distribution of money. As soon as the independence of the Fed is called into question the stability of the currency is also called into question.  What an inecredible blessing for the only other alternate currency recognized by the international banking system: GOLD.

We live under the confluence of these three extraordinary blessings for Gold.  

If you understand what this means, act accordingly.

If not, really, buy something else.

THE PRICE OF GOLD V INFLATION

 

The price of gold is on an almighty tear.  Which leads most Americans who have missed the entire gold move to wonder: Is it too expensive to get in here?

The answer is simple: Gold has to keep rising because inflation has to keep rising.  There is simply too much debt for anything else to happen.  The debt must either be defaulted or inflated away.  Inflation is the only politically viable solution.

Gold moves in relation to inflation because they measure the same thing: the erosion fo the purchasing power of the elctronic/paper currency.

To understand where gold is headed you only need understand where inflation is headed.

That doesn't mean the "Rate of Inflation."  This is a political number created by the government to reflect what the government wants the citizen to think about the job it is doing holding down the cost of living.

In most cases the "Rate of Inflation" corresponds to the CPI Consumer Price Index.  That sounds as if it should reflect the cost of living for consumers.

I does not.

Because of what is excludes: 

I doesn't measure the cost of health care.

It doesn't measure: the cost of buying a house.

I doesn't measure the cost of insurance: medical insurance, car insurance, home owner's insurance, life insurance, etc etc

It doesn't measure the cost of food. (core cpi)

It doesn't measure the cost of energy: gasolline, electricity, heating oil, etc etc (core cpi)

It doesn't measure the cost of education.

It doesn't meaure the cost of child care outside of education: child health care (physical, mental psychological and special needs), child pre school, child tutoring, child music, sports, and other ineterests.

It dosn't measure almost everything that makes up the cost of non discretionary spending.

In short it measures the cost of your toilet paper and your air conditoner and your Iphone.  But even with your Iphone it doesn't measure the real cost because of "Hedonics" which makes up a pretend price based on reductions of your actual dollar outlay for things like "AI" which the governement says makes the same Iphone cheaper even though you pay more for it because it "does more."  Hedonics is applied to all comsumer items.  They say your LG air conditoner costs less than you paid for it because it has a function which lets you turn it on from your Iphone (which also makes your Iphone cost less in CPI terms).  Like you can't just push the button on the remote.

Real inflatioin grows at about 10 percent a year as measured by the 500 most purchased items (iincluding everything) in the 500 largest cities in the US every year.  See the CHAPWOOD INDEX.  

Or go see SHADOWSTATS which measure the CPI with exactly the same metrics the government used in the 1980's,  which still reveals a near 10 percent inflation rate even excluding food energy education health care, insurance etc.

The problem is the government lies.  And most financial analysts you see on TV are multimillionaires (like the plutocrats running the govenment) who don't really feel the inflation because when you have that much money it's not a big deal.

But for most Americans it is the biggest deal on earth.  Because they can't afford to live.

But the point of this post is that GOLD has to keep appreciating because INFLATION is embedded into our financial system wherein the US Dollar is a unit of DEBT rather than a store of value.

There is no way out except a DEBT DEFAULT which would lead to a DEFLATIONARY DEPRESSION.  Or to just keep inflating away the debt which makes more and more debt.

The more debt we have the more debt we need to issue just to pay the service on the debt - which is now the largest item in the Federal Budget.  And this is why the Debt Ceiling has just been eradicated.

So, don't think there is limit on the natural price of Gold until there is a limit on the unvirtuous DEBT/INFLATION spiral in which wer are ensnared.

And the longer you wait to accumulate a gold position, the more you will eventually have to pay for it.

THE DIRTY SECRET OF INFLATION

The dirty secret of inflation is that it never goes down.   It is cumulative.  

Inflation is the erosion of the buying power of a currency.  And all that erosion that has occured over time will never be reversed.  It continues to erode at faster and slower rates.

Look at the chart above.  It is accurate.  That is inflation: the dollar buys less and less every day.  And over decades that adds up to the destruction of the purchasing power of the dollar. 

Of course it you extend the chart out to current day, the erosion has accelerated terribly.  

The RATE OF INFLATION changes.  It is meaningless to people living in the world.  It only has meaning to traders who make a living off minute rates of change.  And of course to corrupt lying politicians who make a living off convincing their miserable constituents that things are getting better.  

Unfortunately, the financial press that serves the trading community and kowtows to the political elite will also talk endlessly about changes in the RATE OF INFLATION.  In other words minute changes in the RATE at which inflation is accelerating or deccelerating in the very short term.  But this has no meaning at all to average citizen living and shopping in the world.

All the inflation that has ever occured continues to destroy the purchasing power of the dollar.

The only thing that brings inflation down is a true deflation which brings about a depression.

That's the other dirty secret about inflation.

It takes political suicide to reverse inflation.

Because such a  reversal into deflationary depression wipes out the wealthy class along with the middle class.  Because all assets deflate in a deflationary depression.   

The poor suffer too.  But they are already suffering.

The only class that suvives a deflationary depression is the class that owns the only curency that holds its value during a deflation: THE GOLD OWNING CLASS.  Because the gold is then used to purchase real assets that have finally derpreciated in value.

But the politcal class will never again allow deflation to take place.  Their only ammunition against this defation (that is the natural result of massive debt) : is to create helicopter money - infinite quantities of electronic chits: Hyperinflation, or at best: vicious stagflation.

Ironically the only class that survives a hyperinlflation or a vicious stagflation (which is where we are currently headed) is the class that holds the only currency that holds its value against hyperinflation: the Gold owning class.  Because gold inflates in value as the electronic/paper currency erodes.

If you are a trader, you can keep focusing on the Inflation Rate.  And trade off minute changes in that rate.  And if you're really sharp (like Drukenmiller sharp) you can do well.

If you're just a normal  person arming yourself agaisnt the evolving DEFLATION V INFLATION wars, you'd be better off just owning gold.

I CAN SEE THE FUTURE OF GOLD

 

I can see the future.  Even if the market can't.

The market doesn't look towards the future.  In stead it looks at the current trajectory of the underlying asset and projects that out into the future, while lurching up and down according to the rumors, lies, data points and underhanded trading schemes that affect each passing second.  

But over time it is easy to see where things are heading.

And with Gold the overarching ineluctable driving force is debt.

Debt and Interest Rates.  Because rates and debt control the fate of the value of the paper currency.

And over time we know the debt is heading ever higher.  Higher and Higher and Higher.

And now we know where rates are headed.  Because our politcal leader has told us he wants rates back to ZERO.  If he has to charge Jerome Powell with corruption to get him out early, he will.  He's telling us that every day.  Believe him.

And even if he has to wait a year to put in a puppet Fed Head, we still know where rates are headed: Back to Zero.  He's telling us that.  Believe him.

At least short term rates.  Then if long term rates still back up, as they most certainly will:  We'll get quantitative easing and negative rates.

So with rates at Zero and Debt headed towards infinity where will Gold go?

Up and Up and Up and Up.....

Regardless of short term gyrations, that is the future for gold.