WHY GOLD? WHY NOW?

 

To casual observers Gold had done very little for a long time while the stock market has gone straight up.

However, everything depends on your investing horizon.  

Over the last 20 years stocks have returned about 4 percent and gold has returned 9 percent.

Why start in the year 2001?  That seems arbitrary but that's the yeart of the Terror Attack 911.

The National Debt that year was about 5 trillion.  Not great.  But not terrible in relation to GDP which was about 4.5 percent.

Suddenly the world began to seem less stable.  Physical secutiry became more important than monetary security.  We launched a 3 trillion dollar war in Iraq and a war in Afghanistan followed. The debt soared GDP started to plunge and the Fed dropped rates from 6 percent to 2 percent over the next seven years.

Then in 2007 the Fed raised rates back to 5 percent and the entire economy collapsed in 2008..  The fed dropped rates back to functional Zero and began QE.  Since then the ecomony ran another 12 years on a massive debt fueled binge.  Covid hit and the entire ecomy collapsed again in  2020.  The Fed bailed it out by buying 10 trillion dollars worth of bad debt and zombie company stock..

In the period between the 2 collapses gold really did very little.  As the Fed bailed out the first collapse with Zero rates,  QE and a 3 trillion dollar bank bailout, investors began to think there is no risk in stock.  Whatever happens the Fed will bail us out, so who needs gold.

During that period gold dropped from 1900 to 1200 and has reallied back again to 1800.  Nothing, right?

Then covid hit, the government mismanaged it and the economy collapsed again.  And the Fed baile it out again,  This time with a 10 trillion dollar bailout and QE on steroids - add in at 3 trillion dollar giveaway by Trump to the biggest corporations and 3 trillion from congress to citizens.  And well, who needs gold?  Everything's okay again, right?  

Well except for a bit of temporary seven percent inflation, things are still great, right?

But a funny thing happened when the Fed announced all is well and QE will stop and rates will normalize: The dollar has fallen and gold has steadily risen back up to where it sits now at 1830.

WHat's up?  Don't people believe the ecomomy can grow without the support of the Fed?  

Well, stocks are still sky high so they must.  

But what's up with the dollar and Gold?  They're acting suddenly like they don' t believe it.  They're acting as if they think if the Fed actually dares follow through and raises rates the economy - which has had trend growth at about 2 percent for the last 10 years  and debt growing about 10 percent per year, - the economy will crash again.

it seems nobody really buys the Fed's tough talk.

Yet there is still great faith in the Fed.  People feel they won't really raise and the debt fueled binge will resume and the economy will grow indefinitely.

But what about inflation then?  If the Fed lowers and go back into QE - what happens to inflation even in a trend 1 percent growth economy?  

And what happens when there finally is a recession,  That in itself in a debt soaked zero rate ecomomy will be a crisis,  And what happens during the next crisis? Will the Fed bail out the economy with 30 trillion dollars?  What happens then to the dollar and to commodities.  And to Gold?

The market is starting to act like they expect to see the answer to these questions sooner rather than later.

The market is starting to act as if there Fed is not really omnipotent and the economy is not really independent of Fed support.  The marekt is starting to act as if its beginning  to question its perennial Blind Faith in the Fed.

And really it is Blind Faith that is stabalizing to the economy and the market.  Withotut Blind Faith we get the inital cracks of instability.

And Gold is nothing but a measure of Financial Stability.  That is the secret of Gold.  

Gold measures stability.

As stability is questioned gold rises.

When stability cracks, gold soars.

Got gold?