How high can gold go?

In "normal" times you could easily calculate gold in terms of the purchasing power of the US dollar.  Or in terms of total us debt.  Many people use these valuation.  And they are useful.  For  example the chart above shows a strong correlation of Gold to US debt.  The second chart show gold price moving inversely to the puchasing power of the US dollar. 

By both metrics there is no reason to think gold is overvalued.  US debt is accumulating at an alarming rate with no sign of moderation even being contemplated, and the purchasing power of the dollar is dropping dramtically while the current Regime has a stated goal of forcing the value of the dollar ever lower.

But Nassim Taleb has shown in his book "The Black Swan" that events we regard as abnormal hit the markets with  alarming frequency.  They can be any sort of event that was not expected and  not built into the models regarding "normal" valuations.

Right now, the gold market is being buffeted with a number Black Swans that are all extremely bullish for gold, and which are, by definition, unaccounted for by the normal methods of gold valuation.

GOLD BLACK SWANS:

1. Tarrifs: Tarrifs on this scale have not been experienced in the global economy since the Great Depression.  Tarrifs slow growth and foster inflation.  They are stagflationary.  However, this is only part of the Tarrif effect on Gold.  Tarrifs are also a weaponization of the US Dollar and as such they provide enormous incentive for Global Central Banks to sell dollars and buy Gold - which they are all doing at a record pace.  This tail wind for gold is not likely to moderate any time soon. 

Tarrifs are also simply the tip of the iceberg in a deglobalization push that is upending 50 years of economic precedent, and the resultant uprooting of supply chains, economic and military alliances, and global trade relationships is necesserily an enormous drag on global growth and highly inflationary.

But if the Global Trade war results in Global Hot wars ( as it did after the Great Depression)  that would make gold the most  crucial asset for every portfolio. 

2. Loss of Independence of the Fed.  The Regime take over of the Fed is in progress.  The last time a Central Government controlled the central bank in a Western economy was when Hitler took control of the Reichsbank.  This was a prelude to World War II.  Ir was also a prelude to  the theft of 600 million dollars (in 1931 dollars) of  gold from European central banks.  What this signals for the US, in the short term, is the lowering of rates  down to 1 percent, and the resultant inflation, and loss of confidence in the US dollar and US debt.   This is terrific for gold.  

But the knock on effects of the world's largest economy switching suddenly from a capitalist system to a centrally planned economy controlled by one man are undertermined, but potentially cataclysmicly good for gold.  

If this were all, it would still be reason to throw out past valuations and ratchet up all expecatations of Gold's future performance.  But a number of other Black Swans could easily occur in the near future.  Among them would be a credit crisis (reference Michael Howell and Ray Dalio and David Stockman)  a crisis from reversion to the mean in financial assets (reference Jermeny Grantham, Lacy Hunt, Charly Munger among many others) a crisis from the vicious swing in passive investing (Mike Green), a nascent housing crisis (Melody Wright, Gerald Caliente) or the Hot War that occurs in every fourth turning (Neil Howe.) 

So high can gold go?

How long can this US and Global instability persist?

GOLD AND STAGFGLATION NATION

 

If you hold Gold there is nothing better than Stagflation.  This is when the economy slows to a grind and inflation rages.  This erodes the puchasing power of the currency and turbo charges the alternate stable currency: gold.

But really, all inflation hedges such are hard assets and top grade financial assets do great under stagflation.

This is by design.

Stagflation is not an unfortunate biproduct of bad policy.  It is the policy.

Staggering debt is the unfortunate biproduct of bad policy.  

This policy started in the 1980s under Reagan and Greenspan who realized that in an economy with no debt and no inflation (thanks to Paul Volker) you can smoothe out any problem with debt.  

After 50 years, that debt is now in the hundreds of trillions if you include unfunded liabilities.  And inflation, as measured by the diminishing purchasing power of the US dollar, is so far out of control that 60 percent of Americans live pay check to pay check, and can hardly pay their monthly bills, and they have nothing left over for any type of emergency.  

That is life on the edge.

Meanwhile, the current political regime is funding their current spending spree with 1 trillion dollars of new debt every quarter.

That is life in the fast lane.

So the only policy option to deal with this ever increasing, massive debt, is Stagflation - which requires ever more debt and ever lower rates which inflates the debt away while also inflating that value of hard assets and quality financial assets - and simultaneously bankrupting the vast middle class.

The only other policy option is Deflation which requires the retiring of debt, forcing the debtors to go bankrupt when they can't pay what they owe, (nobody is to big to fail) massively cutting spending, removing liquidity from the system,  and in the process, eradicating the value of all financial assets.  But preserving the integrity of the currency and the purchasing power of the middle class.

Guess which choice the regime has chosen?

The regime is clear: they want rates at 1 percent and will get that.  And they want no debt ceiling and have gotten that.  And they will spend however much they want without constraint and they are doing that to the tune of 1 trillions dollars of new debt per quarter.

Stagflation.

And, the regime has also decided to fire or prosecute anybody who stands in the way of Stagflation, and fire or prosecute anybody who reports economic numbers that suggest there is slow growth or high inflation. 

So the policy is not only to encourage stagflation, but also to deny that it exists.

I cant comment on what this means for the economy.

But is is awesome for gold. 

GOLD THE FED AND CHINA

 

Gold opened uip $25 dollars this morning - not a huge devlopement, but surprising since Gold was on schedule, according to most analysts, for a mid cycle low a few hundred dollars lower.

Of course this low could still be reached.

But a couple of new trends seem to be driving this counter trend rally:

1) The political regeim is threatening hawkish Fed voting Governors with Justice Department persecution if they don't immediately resign.  Fed Governer Lisa Cook now must decide if fighting inflation is worth a trip to a Somalian dungeon.  This developement contradicts those who point out that even if the regeim replaces Powell with a loyalist, rates can only be lowered by a consensus vote.  It seems the regeim has an answer for that objection.  They will get rates where they want them.  And that is back to ZERO.

2) Just as significant, and equally damaging to the dollar in the long run, is a news flash signalling that China is agreeing with Kenya to refinance their dollar denominated debt in Yuan..  Bid deal, right?  Kenya is just a shithole country, as far as America is concerned.  But, it seems China considers Kenya to be a terrific source of Rare Earth, and Gold mining wealth.  This developement gives teeth to the de-dollarization trend that many critics have dismissed as a fantasy.

At the same time China is is taking advantage of the US Regeim's puzzling tarrif attack on India to effect a raprochement of trade and economic developement with their long time rival.  This too poses a grave long term challenge for the dollar.

So which of these developements are driving gold's counterrally this morning?

Who cares?

Over time this is all terrific news for gold.

WHY IS THE GOLD PRICE STUCK?

 

The gold price is stuck around $3300.  That's only $800 up since the election in november.  What's wrong?

In fact for a whole three months gold has gone nowhere but sideways.  What in the world is wrong?

Maybe the tarrifs could actually work.  Maybe the current government debt binge is really no bid deal.  Maybe the world is on the verge of another Pax Americana.  Maybe the US consumer is much stronger than anyone realized.  Maybe the stock market is about to set off on another stunning leg higher.  Maybe we're on the verge of a true Golden Age.

If anything above sounds the least bit reasonable to you, Gold is really the wrong investment for you.  Stop reading and go out and buy stocks.  Or bitcoin.  Or buy calls on Invidia.  And do it all on margin.  It's a golden age: what could go wrong?

On the other hand, maybe Time unfolds on its own schedule.  Maybe the massive regressive tax that we call Tarrifs will take its own good time to destroy the the purchasing power of the US consumer.  Maybe, the back and forth media-opportunity diplomacy will yield nothing but an ever more dangerous, wars-torn world.  Maybe the debt binge that defines our current Government will lead to an EVENTUAL credit crisis.

If any of tht sounds reasonable maybe you shouldn't worry about when gold will break out on its next upleg in this generational bull market and just keep patiently stacking.

TRADE WAR, Switzerland, and GOLD

 

The axiom that everyone loses a trade war has to do with the fact that trades wars necessarily slow global growth.  This is especially true during a period that is seeing the global trade war viciously reverse 40 years of globalized trade.  Forty years of globalized supply chains that have significantly reduced transactions costs, sourcing costs, labor costs, and final product costs.  All of that necessarily becomes much more expensive for companies and consumers.

Slow global growth along with higher consumer product costs due to both the trade war and run away global debt leads to global stagflation which is the ideal environment for gold.

But the Trade War also has implications for the production, sourcing and  delivery of Gold itself,

This was in evidence this last week when the extraordinary 39 percent tarrifs levied against Switzerland included those same taxes on the large Gold bars most often used  by Comex for Stand for Delivery contracts.  

This caused  a small spike in the gold price.

The US regiem was quick to label this Fake News.  But the gold market didn't seem to care much about this characterization.  It reacted as if gold is becoming harder to source and deliver.

But this is just the tip of the iceberg for Gold.

China has nantionalized their entire gold production.  Russia is now in the process of doing the same.  And many other smaller gold producers like Niger and Mali, Burkino Fasso and Venezuela  (whom the US has dismissed as shithole countries) are nationalizing their gold production in consultation with China.  China is currently trying to foster resource relations with all global suppliers of gold who are under assault of the US Tarrif regiem.

What this will do to the sourcing of real physical gold is anyone's guess right now  We are right at the beginning of a trend that will have real implications for a resouce that is quickly becoming the global reserve currency of choice.  (If you don't believe that is so see Nasim's Talib's views on this subject).

But surely it will beome another driver in a perfect storm of conditions sending the price of gold ever higher.

Over time this will also surely affect the premium of physical gold over the spot price.  Right now, in the US, that premium is near record lows, because US retail interest in gold is still very low compared with the rest of the world.

But surely, as retail interest slowly picks up and gold sourcing becomes ever more difficult, that premium is bound to expand.

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.

WAR/MASSIVE DEFECITS/TROOPS ON THE STREETS IN THE US = VIX AT ALL TIME LOWS

 

If you looked at the chart above of the volativlity of the SP 500 you'd have to conculde that there were almost no risk on the horizon either politically, militarily, or financially to the US stock markets.

And with almost no prospect of risk of any kind, Gold is still very near all time highs trading around the $3400 mark.  That's an increase of $800 since the new US political regiem has taken power.  So far this move has been largely driven by foreign central banks seeing and protecting themselves against risk.  And the US billionaire class is also sees risk and is buying gold (check out ther services of Matterhorn Asset Management for example.)

But the average US investor still sees no risk.

Yet, it seems that there are risks.  Troops are fighting US citizens on the streets of the largest US cities.  War is intensifying in Ukraine,  War has broken out between Israel backed by the US and Iran - fully backed by China and Russia.  Iran's defenses are far more sophisticated than what we are being told in the Regiem sponsored media.  This war is also intensifying with "surrender" or "regiem change" being held up unrealistically as probabilities.  Yet the real probability is that this war goes on and on and metastacizes.

And then there is the debt storm with Debt Service being the largest portion of the current budget - and with an additional 5 trillion dollars of debt and an complete suspension of the debt ceiling being proposed as economic balm.

Everyone from Jamie Dimon to Ray Dalio to James Grant to Michael Pento to Neil Howe to Jim Rogers to Grant Williams to etc etc is warning that a debt bomb is in the process of detonating.  

Perhaps they are all wrong.  Still it seems that the must be some risk in the debt.  More than is reflected in the Vix' all time low reading.

The reason for this, of course is that eveyrone expects at the first sign of trouble the Fed will come in and bail everyone out.

And of course they will.

But the Fed's balance sheet is still at about 7 trillion dollars from previous bailouts.

How much bad debt does the Fed have to swallow before the US dollar plummets dangerously in value?

Is there no risk there?

When all these risks begin to be factored in to US investor calculation, gold will make the next move in this epic bull market.

GOLD: TRADING ON MATH VS TRADING ON SENTIMENT

 

If you trade stocks, you're trading sentiment.  First and foremost.  Yes, you're trading on earnings and innovation and brand.  But all of that is entirely dependent on sentiment.  For. stocks, sentiment is at all time positive highs right now.  And that is after 15 years of positive sentiment.  So positive sentiment has become firmly entrenched and things like Earnings multiples and disposable income really don't make any difference to anyone.

If you trade gold, all that matters is math.

For example, the trade deficit is just the sum of all goods and services purchased abroad.  That's math.

And the amount of the trade deficit exactly equals the amount of the capital surplus. In other words: The amount we puchase from abroad equals the amount of dollars we sell abroad.  That's math.

You can't say, "well we'll purchase less goods but keep selling dollars."  That is a nonsense sentence.

For gold, when we stop selling dollars abroad, that is exactly that amount of dollars NOT BEING USED BY OUR TRADING PARTNERS TO BUY OUR FINANCIAL ASSETS.  ESPECIALLY OUR DEBT.

That erodes the buying power of the dollar proportionally because we can not service our debt by that amount.  So we have to buy that debt ourselves with printed dollars.  That erodes the value of our currency.  And it sends rates higher.  Which makes our debt even more expensive to service.  Which erodes the value of the currency.

Over time, gold must appreciate by that amount that the currency is depreciating.

That's a math trade.

The same with the Budget Deficits,  When a big budget bill adds 5 trillion dollars to the debt over time.  That erodes the purchasing power of the US dollar proportionally.

Over time gold will appreciate by that propotional amount.

That's a math trade.

Of course, you can make up fantasy stories like "When you cut people's taxes you actually get more tax receipts so you can run a bigger deficit and it will get paid for."

That's just a story.  It's a type of sentiment.  So stocks can take comfort from it even though it's not true.  Stocks may rise on it.

Gold only moves because of math.  So that story will not keep gold from rising as the currency depreciates.

Of course, when the retail buyer plunges into gold, as happens periodically, gold can get a sentiment boost.  But ultimately it will fall back to reflect the purchasing power of the underlying currency.

This is because all the central banks of the world know more or less how much they are debasing their currencies and they purchase gold to protect the value insofar as they are able.

In that way gold has held it's value over that last 5000 years of human history.  

To be clear human history is only 5000 years old.  That is not to say gold wasn't used before that by civilizations.  It was.  We know that from paritially deciphered languages,  But languages we undersand (History) going back to Ancient Phoenician (1000 bce) Ancient chinese (2000 bce)  Ancient Egyptian (3000 bce) and Ancient sasnskrit (3500 bce) all record the use of gold as the monetary metal of choice.

Once upon a time, silver was also used as a monetary metal.  But that was back before financialization created so much debt that only gold had a sufficient value to offset the value of the debt,  That is why the value of gold is now 100 times the value of silver rather than 10 times.

Of course, if sentiment turns completely against a currency because faith in the government that issues it erodes irrecvocably, then the value of gold can soar to any level.

But that is because the value of the currency crumbles.

It is still a mathematical relationship.

HOW TO INVEST IN GOLD

If you're reading this you're probably already on the gold train.  However, there's a lot of confusion even among long time gold investors about the best way to protect yourself with gold.

Here's the salient point about this particular gold move in this particular economy:

CENTRAL BANKS ARE BUYING BULLION.  AND THEY ARE EVER INCREASING THEIR PURCHASES.

YOU SHOULD TOO:  CENTRAL MINT GOLD COINS AND BARS.  US EAGLES.  CANADIAN MAPLES.  KRUGERANDS.  PHILHARMONICS.  ST GAUDENS.  LIBERTYS.  SOVEREIGNS.  FRENCH ROOSTERS.  ETC.

Ther corallary to this: CENTRAL BANKS DON'T BUY GOLD STOCKS.  CENTRAL BANKS DON'T BUY SILVER.  

That's not to say you shouldn't.  Maybe you know a lot about gold stocks and silver shortages etc etc etc.

But Gold Bullion is the only TIER ONE CENTRAL BANK RESERVE ASSET other than the US Dollar Denominated Debt (and possibly Bunds.)  

So don't overthink this one.  Just do what the central banks of the world are doing because they have driven this entire gold move.  Asian private citizens also buy gold.  European private citizens are buying gold now.  US citizens are not.  Eventually they will.  So that is alot of money that has yet to come into this market.  

Maybe some will rotate into gold stocks or silver,  Maybe not.

But follow the central banks.  They get that debt levels are such that they must Inflate or Default.  The only thing that will protect the value of thier currency is Gold Reserves.  So they are buying.

That is the only thing that will protect the value of your asset base.

After you have a satisfactory level of bullion, you should consider a pure a leveraged play on bullion:

That is bullion based collector coins: PERUVIAN 100 SOLES.  FRENCH 5 FRANC SOWERS.  BRITISH 5 SOVEREIGNS and BRITISH MASTER ENGRAVER RESTRIKES.. FRENCH GOLD ANGEL 100 FRANCS.  These are all bullion issues of relatively short prints that have already increased in gold in high grade.  Some of these now sell at 2-3 times bullion.  Five years ago they all could have been bought at bullion prices.  More recent issues of very low mintage can still be bought very near bullion.  So the risk is still very low on those issues that hevent yet caught on.

From there you can move back in history.  Fifteen years ago Alexander Thet Great Gold Staters from 300 BC could be had for 3-4 times bullion in lower grade.  Now they are worth much more.   But there's still room for profit if you know what you're doing. 

But this is a specialized market.  It takes expertise.  If you don't have any expertise - stay away.  

And start with bullion.  And if you just stick with bullion you'll be fine.

GOLD'S ROBUST YIELD

 

The stock jockey rationale against gold is that it has no yield.

This is a misunderstanding of yield.

A financial yield is the income an investment generates over a period of time.  Gold's current yield this year is 25 percent.  Last year it was 27 percent.  That's pretty good.

A 10 year treasury yields about 4.5 percent and is trending higher so the price of this invesment is trending lower.

In a booming economy that yield might be indicative of economic health and might signal less of the need for gold - especially if the debt situation was well under control

In an economy that is currently growing beneath the 1 percent trend growth - this yield is indicative of debt market that is nervous - perhaps frightened about the health of the underlying currency.  Especially when the debt has exploded to 125 percent of GDP and is trending rapidly upwards.

Then the 4.5 percent yield (trending higher) is indicative of a powerful need for Gold as a hedge against debt and currency instability.

Because that's what gold is: AN INSTABILITY HEDGE.  In debt crisis gold is the only monetary hedge.  And make no mistake, by massively increasing our debt (the big burdensome bill) and incentivizing other countries to dump our debt (that is what Tarrifs do when you have the reserve currency, and that's math not opinion) we are rushing head first into a debt crisis.

Throw in a chaotic trade war that has already destabilized the global economy and you have a global rush out of US debt and into GOLD.  

To be sure, gold has appreciated 8 percent a year since 2000 while stocks have appreciated 7 percent.  

But with stocks trading a record multiples and the stock mania at all time highs (as measured by the VIX and by the percentage of stocks that make up the net worth of the US invsestor) while US and Global GDP are trending down towards zero with Global Debt at 300 percent of global GDP, and you have a recipe for massive financial instability wherein the gold price can only move upwards both in real and relative terms.

And with gold currently returning about 25 percent - that seems like a worthwhile yield - as a reward for moving into the ultimate safe haven investment.

Big Burdensome Boondoggle

 

The US Congress is fighting hard to add 5 trillion dollars to the massive fiscal deficit plaguing the debt soaked economy our children will inherit.  

That's on top of the 2 trillion dollars a year they are spending now - (not counting the 100 trillion dollars of of off budget unfunded liabilities that gernerations have paid into - but which has already been spent by our profligate congress (social security, medicare.))

What about Doge?  Oh yeah they saved 60 billion dollars by cutting all spending on Science (who needs clean air and water and food - if you're a billionaire you can live on top of a mountain in Aspen and drink mountain stream water and have your foie gras flown in). 

But congress has been spending like this for the last 50 years - so what's the probelm?

Here's the problem: Congress had a 20 percent Paul Volker interest rate to cut every time the economy slowed.  That lasted a good 50 years.  Now,  that is gone.  

And Congress had a globalized economy wherein we were happy to sell our dollars all around the world so that our trading partners could subsidize our debt thus keeping rates low (the Capital Surplus that is the other side of the balance sheet to the Trade Deficit).  That is gone.

Now, as the economy slows with real rates negative (under the cost of real inflation) and with nobody to buy our debt but the Fed or the US banks subsidized by the Fed (same thing) - all we can do to fight a slowdown is flood the economy with printed dollars and thus create MASSIVE INFLATION.   

And here's the dirty little secret about inflation: things only get more and more expensive relative to disposable income.  The INFLATION RATE that the government prints is not a meausre of inflation but the the rate of change of inflation (by their anemic measures.  In fact the BLS has been ordered to make sure their inflation prints are in line with the Regime's projections)   But all the inflation that's occured the last 50 years is STILL THERE.  It's simply growing at a faster or slower rate.  

Nothing will ever be less expensive than it is now.

And that includes the interest payment on the US DEBT.

And that is why even as the economy slows long dated treasury rates are rising and the dollar is sinking.

That is the behavior associated with  an emerging market economy.  Not the Reserve currency economy.

All the central banks of the world have noticed are dumping dollars and buying gold. 

Maybe you should consider the strategy.

Is gold expensive? S&P 500-gold ratio historical performance: The big picture:

 

THE CAPITAL WAR: WHO WILL WIN?

 

Everyone's  talking about the Trade War.  The fact is nobody wins a trade war.  Some lose more than others.  It's fun to talk about who loses most.  But that's not what will change the economic world.

What will change the economic world is the Capital War.

What is the capital war?

It is the other side of the coin of the trade war.

When you buy a good or a service you are also SELLING A DOLLAR.

The US has been selling its dollars all over the world for the last 50 years.  And we have been running huge CAPITAL SURPLUSES.

This is the heart of American Excetionalism.  

Why?

Because we have the reserve currency.  That means when all the other countries buy our dollars they use them to turn around and BUY OUR DEBT,   Because our debt is a Tier 1 Capital Reserve Asset.  

This underwrites our huge debt.  It also provides liquidity to the huge Eurodollar debt market.  And it keeps our rates low so we can refinance our debt cheaply.  AND When we sell our dollars we get cheap well made goods it return, which keeps our inflation rate low.

And most important: it provides tremendous liquidity for all dollar denominated Debt Markets.  

Without this liquidity the potential for a global debt crisis becomes dangerously high.

If liquidity dries up in the debt markets the only response is a massive infusion of printed money by the global central banks.  This will be highly inflationary.  Great for Gold.  Great for the super wealthy who own most of the hard asset market.  Not so good for everything else.

The US Capital Surplus (the other side of the Trade deficit) has been the single greatest Deal in recent economic history, bringing unpredcedented prosperity through unprcedented global liquidty.  That is why evey administration for the last 50 years have engaged in it.

Unitl now.

Now are undoing this deal.  

Why?

To bring back manufacturing which is only 20 pecent of our economy and will go to automated factories over the course of the next 20 years so few  jobs will be  created.

Doen't seem like a good trade.

Especially since now GOLD is also a TIER 1 reserve asset.

So now we are agressively demanding other countries not buy our dollars and thus not buy our debt.

And they are obliging.   

So what do they do with their excess capital now?

Well, they buy the only other Tier 1 reserve asset: GOLD.

HOW TO VALUE GOLD?

Now that gold has broken out into new all time territory the question remains: How do you  value gold?

How high can it go? 

How far can it fall?

Is it fairly valued here?

You can not answer this question without understanding the very first principle of gold valuation: 

GOLD NEVER MOVES.  THE PRICE OF GOLD OVER TIME IS ABSOLUTELY CONSTANT AND HAS BEEN SO FOR THE LAST 6000 YEARS OF HUMAN HISTORY from about 3500 BCE to about 1973 AD.

What moves NOW - since 1973 -  is the purchasing power of the Reserve Currency; the US dollar.

THE US dollar's stability was originally  pegged A) to NATO and B to the Petrodollar, the two underpinnings of a unipolar world.   Furthermore the US Treasury was the reserve asset of choice in a world wherein the US ran a trade deficit and a fiancial account surplus, which enabled other countries to keep buying our debt and financing our liflestyle.

At the same time the dollar's stability was regulated by the LBMA and COMEX.

NOW: NATO is dead.  The Perodollar is all but dead.  The US has weaponized Treasuries so nobody wants them anymore.  The world has become multipolar.  And the LBMA and COMEX have been neutured by stand for delivery Contracts as the world's reserve banks sell US Treasuries and load up on gold.

At the same time the US debt has spiraled completely out of control.

And it is a about to get much worse with a new round of tax cuts.

The "savings" from geting rid of some government workers will add to the debt as they will all have to go on the dole rather than providiing essesntial services.  And if there is no dole, the savings will simply go into "Sovereign wealth funds" which buy Crypto and other useless assets.

So in this new world what is the value of GOLD?

Nobody knows.

All you can know for sure is the direction things are moving.

And right now things are spinning faster and faster towards a world where nobody want Treasuries (except domestically as a short term hedge against recesssion) and everybody wants Gold.

Invest accordingly.

POP QUIZ; ANSWER THIS AND YOU WILL UNCOVER THE SECRET TO INVESTING:

 

QUESTION:  WHAT ARE  THE TIER ONE RESERVE ASSETS THE GLOBAL CENTRAL BANKS ARE ALLOWED TO HOLD UNDER BASEL 3? 

ANSWER:  US TREASURIES AND GOLD

QUESTION: UNDER THE CURRENT ADMINSITRATION WHICH CENTRAL BANKS ARE ADDING US TREASURIES AS THEIR TIER 1 RESRVE ASSET:

ANSWER: ONLY THE US CENTRAL BANK

QUESTION: UNDER THE CURRENT ADMINISTRATION WHICH CENTRAL BANKS ARE ADDING GOLD AS THER TIER 1 RESERVE ASSET?

ANSWER: CHINA, RUSSIA, POLAND, INDIA, GERMANY, FRANCE, AUSTRIA, INDONESIA, ITALY, SWITZERLAND, NETHERLANDS, THAILAND, SAUDI ARABIA, KHAZAKSTAN, UZBEKISTAN, TURKY, SINGAPORE, UAE, EGYPT, QATAR, BRAZIL, VENEZUELA, CHILE, ETC ETC ETC

NOW WORK INDUCTIVELY AND FIGURE OUT WHY THIS IS SO.

THEN YOU TOO CAN INVEST LIKE A BILLIONAIRE - OR A CENTRAL BANK

GOLD: US VS THE REST OF THE WORLD: ONE OF THESE THINGS IS NOT LIKE THE OTHERS

 

Central banks stay bullish on bullion in January

• Central banks reported 18 percent of net purchases at the start of 2025 
• Emerging market central banks remain at the forefront of net buying, with Uzbekistan, China and Kazakhstan the top three buyers 
• Poland and India also continue to accumulate gold reserves 2025 – both central banks added 3t to their respective reserves in January

China sees record gold ETF inflows in February, jewelry demand should stabilize as the economy improves – World Gold Council

“European funds saw their largest monthly inflow since March 2022," with strong demand in the U.K. and Ireland dominating trading activity. Regional ETFs added 39 tonnes of material to take total holdings to 1,327 tonnes. AUMs rose $3.4 billion, to $120 billion.

Gold breaks records, US ETF retail investors pull back—inflows crash 47%!

   Someone is missing the boat,  You decide who it is.

GOLD MAKES ANOTHER ALL TIME HIGH - EVERYONE NOTICES BUT AMERICA

Gold  made another all time high, and another all time closing high today.  Still nobody in the United States seems to notice or care.  Everybody here is still looking for a bottom in risk assets.

But all around the globe everyone else is buying gold.

Central Banks around the world are buying gold because ithe only Tier One Reserve Assets are gold and US Treasuries.  And nobody wants to hold US Treasuries any more.  There is no longer any guarantee the debt will be honored.  Everyone must prepare for the possibility that it will be seized and confiscated, or simply defaulted upon at the whim of our chief executive.

That may seem absured to most Americans.  The problem is it doesn't seem absurd to the other central bankers of the world.  That's why the comex is being overwhelmed with Stand For Delivery orders and the price of bullion is rising.

Similarly Gold is the only monetary asset that has no counter party risk.

Think about that.  It can not be hacked or hypothicated or confiscated or diluted or defaulted upon.

And is has a liquid and easily disvoverable value anywhere in the world.

That gives it a pretty special status in today's Kleptocratic Economy.

It is the citizens' only monetary defense against the State.

If you don't think that is valuable right at this moment, then don't buy it.  Now.

You can just as well buy it later.  Though it may be much harder to find.

THE BULLION PREMIUM STARTS TO MOVE - DON"T BE THE LAST ONE IN

1 oz American Gold Eagle Coin BU (Random Year)

Top Pick 

$3,047.89

GoldPrice. 
WHERE THE WORLD CHECKS THE GOLD PRICE

Holdings 

2,911.17

-9.02

-0.31%

Premium over spot gold: %4.6 

The above is the basic gold price for a quantity of US Gold Eagles at Apmex the largest US bullion dealer. The premium in historical terms is still quite low.  This tells us that despite the impressive run up in the gold price, very few Americans are buying gold.

It also tells us that this is currently changing.  The spread has widened a almost 2 percentage points in the last 2 weeks.

The US domestic economic situation it rapidly deteriorating.  All those who thought that Tarrifs were simply a clever bargaining ploy have been proven wrong.  They are now premanent policy.  And they accomplish three important things for GOLD.

1) They are highly inflationary, as they are paid for almost entirely by American business and consumers.

2) They are a massive drag on business activity and economic growth.  These two factors spell Stagflation, which has entered the vocabulary of almost every economist not employed by the current administration.

3) Perhaps most important for Gold: Tarrifs weaponize the US dollar thus destroying the usefulness of the US dollar as a reserve currency. 

Even as the US was running a current account deficit (trade deficit) we were also running a commensurate financial account surplus.  This meant that while other countries sold us goods they also bought the US dollar which they then recycled into US DEBT thus financing the US lifestyle, keeping goods cheap, inflation under control and growth humming.

This game is DEAD.

And the only beneficiary is gold.  Every Central Bank in the world now understands this.  The central banks of the world are selling US debt and buying GOLD.

At some point the US consumer will catch on to this new game.  Then Gold will really move.

Don't be the last to catch on.

 

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