GOLD BREAKS OUT AND NOBODY NOTICES - THANK GOODNESS

 

Yesterday gold made a monthly closing high.  Today 12/1/2023 gold made a weekly closing high.  It has yet to make an all time daily closing high.  But the fact that nobody in the United States of America is making a big deal of this gold move is awesome.  

To be sure, a lot is going on.  

A) An election is ramping up that might well change the course of democracy.  Argentina and Holland have recently elected anti-democracy plutocrat populists (Yes - it sounds absurd but we may do the same.)

B) Two hot wars with Western proxies vs Russia and Iran (and their proxies) could well presage world war III.

C) Though government statistics indicate inflation is dropping and extremely wealthy analysts are worried about deflation - everything from Housing to Education to Healthcare to Food is still so expensive that 62 percent of Americans would become homeless and starve is they miss a single paycheck.  If you don't believe that, it shows you're  part of the lucky 38 percent.

So, sure, why notice a gold market that is beginning a massive breakout?

After all this is the fifth try to break out over $2100.

BUT - this time gold is breaking out in advance of the next recession that many still don't see coming and in advance of the most massive dollar denominated debt refinancing in the history of the world.  Hundreds of billions of dollars of corporate debt around the globe and trillions of government debt originally issued to around ZERO PERCENT will have to be refinanced at much higher levels in 2024 and 2025.

There isn't anyone from Drukenmiller to Zulauf to Paul Tudor Jones to Ted Oakley, to Lacy Hunt to James Grant to Marc Faber to Jim Rogers to Ray Dalio etc etc who don't see this refinancing causing massive cracks in the global economy.  Cracks that can only be filled by extreme Central Bank Injections of Liquidity.  So extreme that nobody has any idea what the result will be.

Except everybody understands this will vastly weaken the purchasing power of the world's currencies with respect to real hard assets.

So maybe it's time to notice the gold breakout.

GOLD AND THE DEBT BOMB OF 2024

 

Everyone knows that the US government is drowning in debt.  US debt including unfunded liabilities is at about 120 trillion dollars.  

But everyone also knows the US government owns the global printing press.  It is true that China,and Russia are leading an international coalition that now include some of the world's largest oil and commodity producing countries in developing bilateral trade agreements and perhaps even a commodity backed currency to settle trade outside the dollar.  But still the dollar is the world's reserve currency for the foreseeable future

BUT - many seem blissfully unaware that US publicly traded companies will have to refinance about a trillion dollars of debt in 2024 and another trillion in 2025.   This is debt they acquired at around ZERO percent that will now have to be refinanced at 6, 7, 8, 9 percent depending on the deals they can get from banks that are very reluctant to lend right now.  Banks whose own balance sheets are suspect.

The effect this will have on the Quadrillion dollar debt derivatives market is entirely unkown.  Because that market is over the counter, unregulated, and often poorly understood even by the experts who design and sell the instruments.

Debt and debt derivatives are now  in the portfolios of most of the nation's pension funds - both public and private.  If you think the managers of these pension funds have any understanding of the instruments they buy from the largest Private Equity Firms who market these things - well, I have a bridge in Brooklyn I"d like to sell you.

These companies and funds do not own a printing press.  They will go bankrupt unless the Fed bails them out.  Which means flooding the market with tons of printed dollars which will cause inflation to shoot to the moon.  Hyperinflation.

DEBT DEFLATION OR HYPERINFLATION.  Take your pick.   I know what the Fed will choose.

And the global Eurodollar market is comprised of over another 5 trillion dollars of dollar denominated debt, much of which was also borrowed near zero must be refinanced at much higher rates in the next two years.  And none of these other countries own a printing press that prints dollars.

A debt bomb is going to explode in 2024 and continue through 2025.

And the only thing I know that will protect you from this is gold

AN OLD MARKET IS REDISCOVERED

 

Una and the lion medallion sold at heritage auctions for $144,000 in 2021

Medallions, especially in gold have always been the prized possessions in the cabinets of Kings and Queens, Emperors and Tzars.   If you go to the British Museum, or the Hermitage or the Louvre for example you can see large gold medallions that were once the prized possessions of Royalty.

When you think about the idea of Intrinsic Value it's not hard to understand.  Medallions were struck for the pleasure of monarchs by the great engravers of their eras.  They celebrate momentous occassions: Coronations, Victories of War,  Peace Settlements, Artistic and Scientific acheivements, and the like.  Most any large gold medallion you can buy would have been originally owned by an historical figure of note.  

But after the bullion price of gold collapsed after Volker crushed inflation in 1980, which coincided with an activist Federal Reserve Bank keeping real rates negative for the next 50 years along with the US government's systematic dismantling of its regulatory agencies and systems, a strange thing happened.  Momentum Trading began to replace Value Investing.  

Not all at once.  But persistently.  And as it did Hard Asset Investing took a hit and Historical Gold medallions took a back seat to the momentum trade herd mentality chasing whatever could be hyped.  In the coin world it was mostly US rartities like Lincoln Pennies from rare dates one of which sold for nearly 2 million dollars.   This happened as the price to earnings multiples of stocks rapidly expanded, debt to equity ratios blew up and new industries developed like the Leveraged Buyout Firms that sold junk debt to unsuspecting banks and insurance companies destroying value and killing jobs.  All the while the Fed kept lowering rates to make the debt fueled orgy more and more compelling. This moirphed into the Private Equity Business that now control and systematically destroys the value of Hosptals, Schools, Universities, Nursing Homes, Real Estate, Super Markets etc - making everything extraordinarily expensive while gutting these institutions of all value.

Is it any wonder that value investing in hard assets of intrinsic value took a hit.

But a strange thing has happened in the last few years.

People started to become wise to this cynical game.  And investors started to seek to protect themselves against the currency devaluation that accompanies the cynical explosion of debt and debt financings.

This coincided with the steady rise of the gold bullion price - and the rediscovery of Hard Assets and especially Historical Gold Medallions.

The Brtish Series of Coronation Medals began to catch a serious bid.  The Queen Anne gold coronation medal for example which as readily available for $5000 ten years ago now sells for $50,000 in High Grade.

Then the Holy Roman Emperors caught a robust bid.  This Leopold gold Coronation Medallion sold for $360,00 in 2021

Medallion of the Russian Tzars caught a bid. Medallions of French Kings, and here in the US Betts Medals and Indian Peace Medals and the Medals pertaining to George Washington were rediscovered

                                     Washingtom funeral gold medal $372000 at Heritage auctions 2023

To be sure, the momentum trading that had dominated the last 50 years of investing still has a hold on market psychology.

But the explosion of debt has finally resulted in a pernicious inflation that can no longer be disguised by fictitious government data.  Everyone knows real things are getting more and more expensive vis a vis debased currencies.

And more and more investors are seeking the safety of Real Things of Intrinsic Value.

So what exactly is the Intrinsic Value of Large Gold Historical Medals?

1) Most obviously large gold medals are comprised of a lot of gold of high purity.  As the price of bullion inevitably rises for many many reasons so must the price of high grade gold artifacts.

2) These medallion are historical artifacts.  As such they are objects of of Historical Interest - perhaps even historical importance.  

3) Beauty,  These medallion were most often engraved by highly skilled artists with unique and beautiful designs.

4) Absolute Rarity. Historical Gold Medallions were minted in amounts limited to the VIPS who attended the specific ceremonies.  Even commemorative medallions that were minted for collectors at or near the time of these events were issued in tiny mintages because those who could afford to pay for a large gold artworks were only the extremely wealthy.  Most often only a small handful - perhaps 5 to 10 pieces, perhaps less, are available in decent  collectable grade on the market.

But like the price of bullion gold, the Large Gold Medal Market is really only newly rediscovered.  There is so much room to grow - because the dirty little secret of modern debt financing is that the debt has reached sufficient levels that through the burden of Debt Service alone it must continue to spiral ever out of control.  And as rates spriral higher debt service becomes ever more expensive, currencies are debased,,,

And so Hard Assets of intrinsic value will become more and more valuable.

MODERN GOLD RARITIES - a New Market Comes of Age

 

Republic gold 100 Soles 1952 MS66 Prooflike NGC Price realized: 37,200 USD   

Heritage auctions 3 November 2023

The 100 soles coin above with a very low mintage of 126 pieces was purchased 4 years ago for $12,000.  It has tripled in value in the last 4 years.  SImilar coins from years of higher - but still limited mintages - in high grade have also tripled from values that 4 years ago were closer to bullion.

Coins that once were purchased from bulk dealers like apmex have now found their way into exclusive high end auctions.  

Not all coins that started out as bullion - as all coins once did - attain great collector value.  But modern rarities that strike collectors' fancy are attaining the high prices.

For example the coins above: France Republic gold Piefort 5 Francs 1960 MS67 NGC mintage: 50

Price realized: 9600 USD Heritage Auctions  3 November 2023

THis coin was purchaed only three years ago for $4200.  THe thing to realize is that the price of bullion gold over this period has been relatively stable.  UP a little down a little.  I think the bullion price will eventually break out when people realize the economy is too debt laden to do anything but sink over time taking the value of the dollar with it.

But meanwhile all sorts of limited issue high grade modern coins that were issued as novelty bullion issues have sky rocketed in value in the last few years.

Canary in the coal mine.  

These coins go up in value ahead of bullion because bullion is fungible.  One bullion coin is exactly like the next.  But bullion that has an atractive design (the famous Oscar Roty sower image above) and is issued in very limited numbers is catching a major bid.

Even coins issued in the last few years :

Elizabeth II (1952-2022), gold proof Two Ounces of Two Hundred Pounds, 2020, Three Graces, struck in 999.9 fine gold, sold for 15,000 USD in the Sovereign Rarities aucion of 26 September 2023

THats's a pretty hefty price tag for a bullion coin minted four years ago.  THe mintage was 335 pieces.  Not tiny - but the design is tremendously popular and the mintage is small enough.

This doesn't seem to be an abberation.  There are enough issues catching a greater and greater bid auction to auction year after year that the trend seems well established.

Many coins and medals from the mid 20th century that were once bullion pieces are now hotly pursued collector's items.

And Central Government mints in Paris, London, Utrecht, Jablonec, and British dependencis like Alderney, Ascension Island and St Helena and others are getting a piece of the action with new limited edition pieces sometimes with mintages as low as 20 pieces.

If you take a shot on an attractie low mintage design already graded as MS 70 and buy somewhere near bullion it's tough to see the downside.

More and more collectors are doing it.

And the trend seems sustainable as long as the world's major currencies are being debased to pay for astonishing debt service levels.

Which would appear certain into the foreseeable future.

Owning Gold: Beyond the Basics; Seeing the Future

 

Conviction in any market is a key to making money.  Because in the short term anything can happen.  Martkets can be irrational.  Because people are irrational, emotional, psychologically bizarre animals.

So seeing the future clearly can help navigate the vagaries of our fellow animals.

Seeing the Future leads to Conviction.

It's easier than it sounds,  All you have to do is ignore what everyone else is saying, tweeting, posting, writing, lecturing, expounding.  You need to use your own brain.  And look at the things that are most obvious.

1) All governments are being run on deep deep deficit spending, facilitated by negative real rates, and have been doing so for decades.  Because of the Interest on the Accumulated Debt, the deficits must grow exponentially.   

This is excellent for gold (and all hard assets of intrinsic value) and very poor for everything else - in the long run.

2) Most  Coroporations have been running on the same principles.  They have been financing irresponsibly for decades because real rates have been deeply negative.   Often money has been available at O percent.  This has led to a debt soaked coroporate - and banking - structure that can not survive higher rates for long.  And as the debt grows, inflation grows, and rates eventually rise.

This is terrible for the gobal economy and great for gold and hard assets - in the long run.

3) Negative Real rates have caused a massive inequality of wealth.  This has led to tremendous resentment and anger in the mass of the world's populations.  Most people don't know they are angry because of Negative Real Rates - also referred to as Financial Repression.  That's hard to understand.  So they blame the OTHER.  Immigrants.  Jews.  Elites.  The Woke.  The Establishment.  The Deep State,  Blacks.  Browns.  Whites. Colonialism.  The Patriarchy.  Any stupid catch phrase that obviates the need to think and helps provide an outlet for rage.

This blame leads to the embrace of Strong Men Leaders - Fascists - on the left and the right who promise to Punish the Guilty, and redress wrongs.

This is terrible for solving problems and leads to greater and greater instability.

This is bad for the global economy and great for Gold.

4) Realizing all this the question becomes not whether to accumulate Gold and Hard Assets but how to do so.   There are many ways.  They need researching and careful consideration.  But most of all they need conviciton.

Owning Gold: The Basics

 

If you want to own gold but don't know how here are some basic rules.

1 Gold is money.  Gold has always been money.  All Central Banks own Gold.  We are in a period when most central banks are accumulating more gold.  

2) You can't trade gold.  Gold is a stability hedge.  As gold rises it is a baromater of unstable financial conditions.  The US Central Bank - the Fed - knows that.  They try to cap the price of gold in dollars by knocking traders out of the market with massive Futures sell orders through proxies at the bullion banks like JP Morgan.  You will lose your position if you try to trade gold.  

3) The Fed can affect the day to day trading of gold.  Nobody can affect the Primary Trend over time.  The late great Richard Russel taught me that and it is a trueism of all markets.  The Primary Trend of Gold is UP as long as the Global Central Banking system is run on Deficit Spending.  That is a certainty for the foreseeable future.  So accumulating gold over time is a winning strategy.

4) Physical gold in the form of Central Bank Issued coins is a good way to buy bullion gold.  It is easy to identify. It can be exchanged in any major city in the world for any currency.  But it takes effort to buy and sell so you can't impulse trade it.  That makes it good for accumulation.  Buy from a reputable dealer.

5) Gold Stocks are not gold.  They are stocks.  So gold can go up and they can go down.  For many many reasons.  However GLD tracks the price of gold.  If you accumulate it and don't trade it it's a good way to reap the benefits of a gold upward primary trend.

6) Other precious metals are not like gold because Central Banks own gold and Central Banks don't own other precious metals.

7) Because Gold has always been money there are about 5000 years worth of Historical Gold Coins and Medals and a vibrant global market that trades this Historical Gold.  You can see dozens of auctions listed during any given month on line at Numisbids.  

As long as the primary trend of gold is up these markets will rise.  But buying and selling in these markets takes Expertise.  You need a good grasp of the history of the period in which a gold coin or medal is minted  You need a good grasp of how Hard Asset Markets work.  You need conviction and a reasonable time frame in which to accumulate in an area you understand.  If you have these things, or if you can learn these things these can be very profitable markets.  If you dive in without expertise they - like all markets - can be dangerous.

GOLD: APPROACHING THE EDGE OF INSTABILITY

 

Gold is only just beginning to attempt a fourth breach of the old highs.  This is not really very impressive considering the value of the dollar has broken down significantly since gold made it first top back in 2011 after the MBS crisis of 2008.  At that time the Fed showed it was willing to bail out the economy at the then massive cost of a 3 trillion dollars given away to the banks that caused the crisis.

This engendered a newfound respect for the Fed.  Somehow.  It was thought it showed the Fed was able to bail out any crisis no matter how big, so your money would always be safe in the US banking/brokerage system,

The covid crisis hit and the Fed bailed that out with ten trillion dollars given away to the largest banks, brokerages and bond holders.  They again showed their awesome power to save the day.

Now all that money creation has created the most out of control inflation we have experienced since the 1970's.  But in the 1970's the US economy was burdened by NO DEBT.  No BURDEN NO DEBT (as Bob Marley once sang).  Now we have 32 trillion dollars of Federal Debt, and another 200 Trillion of unfunded liabilities.  Along with many hundreds of trillions of Corporate Debt Financed near Zero percent that will have to be refinanced soon.

What's A Fed to do?

Well, raise rates up to 5 percent to attack the inflation.  It's beginning to work in the sense that the rate of inflation is coming down - but the prices that are already devastating the vast middle class are still rising - just a bit more slowly.  Meanwhile the hundreds of billions financed at zero percent are beginning to show serious cracks.

And suddenly the Fed has a million critics.  They waited to long to raise.  They raised to high.  They have no plan.  They are data dependent but all their data is backwards looking.  ETC ETC.

The main thing is that Economic Proffessionals who used to praise the Fed to the skies have turned on the Fed.  

This makes the Fed's ability to control the economy - and the gold price - more difficult.

And the competing Central Banks in China, Russia, the Middle East are working against the Fed by buying gold hand over fist.

So as gold makes its fourth attempt to break out the Fed's ability to control the gold price through dumping massive sell orders on the Futures Markets through the Bullion banks is being challenged in a way that it has never had to contend with before.

Add to that a major hot war in the the World's Oil Producing center and Instability begins to seriously worry the world's financial proffesionals so the potential for a gold breakout becomes that much more likely.

And you can bet your bottom dollar that whoever becomes President in 2024 will install a Fed dove to try to jumpstart the economy - and then inflation will really soar.

So there is much that would lead one to believe that new highs for gold are in the near future.  

And those highs are likely to confirm the Fed's inability to control the economy which will lead to a virtuous cycle for gold and a frightening cycle for most everything else.