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.

GOLD STARTS TO TREND UPWARD: THE INSTABILITY INDEX

 

Gold is an instability hedge.  This is something few people understand.  Some people call it an inflation hedge.  This is only true when inflation is causing instability.  Some people call it the fear trade.  This is only true if the fear is causing widespread instability.  Some people call it a safety trade.  Safety from Instability.

What are the major causes of Instability in the Global Economy right now?

1) The central Banks are losing the confidence of the global investing class.  Inflation is out of control - no matter what the official figures may say.  Everyone can feel it.  Housing is historically unaffordable.  Education is historically unaffordable.  Medical Care is historically unaffordable.  Food is historically unaffordable.  Energy is volatile but heading there.  Everyone knows this.  Yet the relative high rate regiem of the Fed is proving ineffective because the unaffordability has reached a level that  slowing its increase does nothing to help the average citizen.  A two percent target increase (which nobody believes will ever be acheived) is still two percent over an unbearable burden of inflation.

Finally the massive debt level will crack under the new 5 percent long bond regiem.  Everyone knows it.  WHen and how is up for debate.  But that it will happen is certain.  When it does the Fed will print money and lower rates.  This will send inflation spiralling out of  control.

Very Destabilizing.

2) Governments are losing the confidence of the global investing class.  The US government has one party that is invested in shutting the government down while discrediting law enforcement and the court system.  Nothing to build confidence there.  The other party is invested in coddling a faction that sympathizes with terrorists that also want to destroy our government, while also discrediting law enforcement.  Nothing to build confidence there.  And both parties spend money they don't have like drunken sailors (just on different priorities)  This is all very destabilizing.  Especially since the financial system can only work if we have a stable government and enforcement system backing it up.

With a new Governmnent Shutdown looming and an election with two historically unpopular candidates on the near horizon it is difficult to see where stability will come from.

3) Hot wars are breaking out across the globe.  This is very destabilizing.  The areas where they are occuring are areas that determine the flow of oil - which is still the main ingedient for running the global economic system.  While other major commodities are involved - like grain.  These hot wars are also proxy wars that lineup the West led by the US against the East led by China and its client states like Russia and Iran.   This can only lead to greayter instability - and a  destruction of global supply lines that will cause ever greater inflation.  Worst of all, many of the governments involved have little incentive to de-escalate the hostilities.

4) A Global Credit Crisis is brewing.  Debt levels throughout the world are at records vz GDP, GDI, and most any other metric your prefer,  Most of this debt was financed near zero percent over the last decade.  Much of this debt will come due to be rolled over in the next year.  This will have to be refinanced at 5, 6, 7, 8 percent rather than 0 percent.  This will cause a credit crisis of unprecedented proportions.  This is very destabilizing.

5) The massive global disparity of wealth is so pronounced that the wealthy class that controls much of the global economy really doesn't understand - or just doesn't care about - the extant and depth of the anger and rage of the 80 percent that can not pay its bills.  This is massively destabilizing.

None of the these problems has a short term or even intermediate term solution.  I would say nobody is currently working on a solution to any of these problems.

Expect Instability to grow.

Expect the price of gold to continue upward.

RARE GOLD COINS AND AND MEDALS AND THE GLOBAL ECONOMY: INFLEXIBLE SUPPLY

 

We live in a world of inflexible supply.  This is the central fact of the current global economy.  What  does that mean?

Broken Supply Chains make getting goods from point A to point B difficult at best; and often times impossible.

Many people blame that on covid.  That is a misunderstaning.  The problem is Global Mistrust.  Hatred of the other.  Incendiary rhetoric combined with unthinkably stupid policy.  Trade Wars.  Tarrifs.  Sanctions.  Immigration Wars.  Hot Wars.  It all contributes to the destruction of supply lines what were imagined to be Global in Nature for the period starting about 1980 and ending with a Bang in 2017.

The destruction of supply lines means Inflation Forever.  Because the central banks can only affect the demand side.  When you get supply side inflation there is nothing they can do.  Even a global depression won't keep prices from rising if the commodities become increasingly scarce.  You may get a period of Disinflation - that only means inflation is rising a bit less quickly.

Now, Rare Gold Numismatics exist in a Global Market.  These are becoming increasinly valuable as trust in global currencies weakens. But as trust weakens Mistrust gains strength.  And getting valuable goods from point A to point B becomes increasingly dffiicult.

Customs is becoming a huge problem even between countries that are apparantly allies.  Everything gets hung up in customs now.  Hopefully for short periods of time.  Sometimes for ever.

Memorandums of Understanding Between countries on goods that fall under  Cultural Heritage laws - such as rare gold collector coins - are becoming increasingly contentious.  Countries with animosities towards other countries will try to snatch anything they can get their hands on.   Even traditionally friendly countries that are miffed by tarrifs or other trade policies may become difficult to deal with.

All this mean that as supply becomes disrupted - like anywhere else - the rare coin market is bound to become more and more expensive.

Get used to it.

For now it's a one way bet.