GOLD A NEW CLOSING HIGH: CORRELATION VS CAUSATION

 

Gold has just made a new closing high in US dollar terms, and still retail investors in the US are just compltely oblivious.

Why?

Because nobody here can understand why gold is going higher.

That is because here in the US there is a lamentable confusion between correlation and causation.  Not just in the gold market, but in all levels and areas of thought.

Traditionally gold has moved opposite the US dollar.  Why?  Because traditionally the dollar strengthens when the US economy is strengthening so there is no need for gold as a hedge.

That is a correlation.  Not a causation.

Now, the dollar is strenthening because massive dollar printing/debt is causing an interest rate differential between the dollar and other currencies.  This is destabilizing.  So gold is rising along with the dollar.

A different correlation.

Traditionally gold rises as inflation goes out of control.  That is because inflation can be destabilizing.  That is also a correlation.  Not a causation.  

Now inflation is abating yet gold is rising quickly.  That is because the real cost of living is already too high for most middle class citiziens to make rent and buy food.  So a sinking rate of inflation simply means things are getting even more expensive - just at a slower rate.  That is increasingly destabilizing so gold is zooming higher.

You see, the correlations shift according to a constant which is the actual cause of gold's rise: STABILITY - or INSTABILITY.

The more unstable things become - financially, politically, and most importantly (though impossible to qnantify) EMOTIONALLY, the higher the price of gold.

On top of a raging inflation (that is 40 years in the making - but was held in check by 40 years of deflationary globalization) there is also tremendous political instability both domestically and internationally.  

And there is an emotional instability that is being exponentially magnified by Social Media which fragments society and stokes Hatred and Violence and Resentment through algorythms.  

So though you can not quantify Instability it is the prime causation of the rise in the gold price.

Therefor the old correlations that were based in an era that was fundementally more stable because Globalization produced a period of deflationary cooperation between nations that kept the massive money printing inflation in check and kept Nationalistic hatreds in check and kept the differences between liberal and conservative in check - have now all reversed.

The old correlations have broken down and new correlations of instability have arisen.

And this feeds on itself as people looking for answers are looking into the past and at past correlations.

And all of this confusion is turned into hatred, violence and scapegoating by unprincipled politicians and their accolytes on social media.

So look for the instability to increase.  And with it the price of gold.

And eventually when the US public realizes that the gold price is rising for a good understandable reason, they will participate - and drive the gold price that much higher.

BULLION VS COLLECTOR COINS: ABOUT 5000 YEARS OF HUMAN HISTORY TO COLLECT

 

The old question for those who know they want gold is simply to store your weath in gold bullion, or to veer off into the 5000 years of gold coinage that defined, described, illustrtated and chronicled the waxing and waning of human political culture.

Bullion is the safe bet.  So if what you're doing is safeguarding your wealth that's your best bet.

Collector coins are close to collecting Old Master Art; there's a lot to know, there's risk involved, and there's potential for great appreciation.

The drawbacks of bullion are 

1) storage.  It's best to store it accessibly.  If the world devolves and your gold isn't accessible it may not serve its purpose.

2) Portability.  If you have a lot of bullion it is very heavy and tough to move.  But if you can afford a lot of bullion you can probably affford and armored  courier service.

3) It's not as easy for the government to track as say electronic tranactions.  But storing a sizable amount of bullion or converting it to currency may attract the attention of the Government.  You may be fine with that.  It bothers some people.

The advantages of bullion: it is a global market: bought and sold fungibly in all the major urban centers on earth.  The price is set by weight.  Everyone knows it.

Collector coins are interesting for all their drawbacks.  In fact it is largely on account of these drawbacks that many people are attracted to them:

1) Very few people know their value.  However they do have a value within a set range but this will vary with condition, availability and demand.  If you happen to be expert on those elements, that value can be known fairly precisely to you.

2) Coin and medallions of great value can be very portable.  That doesn't mean you wouldn't prefer to send them with an armed courrier.  But, in a pinch, you can put them in your pocket and flee.

3) They are just as difficult for the government to understand and track as they are for the average collector.  Few people (in the government) are even aware of the difference between, for example, a Ptolemaic Oktodrachm and a donative of mulitple ducats of Antonio Venieri.  It might take quite a long time to explain the difference in type, place of issue,  value etc.  This opacity makes them quite attractive to people who don't mind putting in the time to learn and especially attractive to those who value privacy.

And the thing about collector coins are that there are as many types as there have been local centers of  commerce in the entire world over that last 5000 years. That's a lot of types.  And there tend to be a lot of collectors for each type.  

The trick is knowing where they are, and how they value their particular pieces of history.

DEBT AND GOLD: ALL YOU NEED TO KNOW

 

The Federal Debt in the US doubles every 8 years: that takes us to 100 trillion dollars of Federal debt in 2036.  That is 12 years from now for the mathematically challenged.  It is no different under Democrats or Republicans.  Everybody loves to spend.  Everybody also loves to talk about the deficit.  Nobody will evern touch it because it means sufferening through a recession/depression.  No politician will ever opt to do that.  Ever.  

Nominal growth of the US economy is dependent on Federal Spending.  Whether an administration attempts to offset that with tax cuts for the wealthy that are supposed to stimulate investment but just go into luxury purchases that result in much lower tax receipts that necessitate greater issuance of debt (the supply side economics farce) or whether an admnistration attempts to offset spending with debt forgiveness and social programs that are supposed to encourage investment but just go into yolo spending and results in the need to issue ever greater debt to pay for the programs (the middle class relief farce).

It doesn't matter.  It all results in more and more debt.

And the greater the debt the greater the debt service which necessitates more debt which demands more debt service (repeat ad infinitum)

What to do?

Well, at this point, nothing  Sorry.  But once debt becomes an overwhelming force in an economy it can only be wiped out by A) Default.  B) Hyperinflation.

Neither is a painless solution.

It doesn't matter if we are 97 percent of the way there or 98 percent of the way there (this is how much the dollar has been devalued since we left the gold standard in 1973.)  The last few perentage points can take 5 years or five months.

Meanwhile that's how long you have to prepare to protect your wealth.

So while the many are trying to figure out how to get the last few bucks out of AI or Fintech, the few are figurng out how to protect their wealth when the paper currencies finally inflate/deflate the last 2 to 3 percent which is where the devestation will occur.

And the best way to do that is Hard Assets that have stood the test of all previous inflation/deflation events: That is Gold, diamonds, Old Master Art and the like.

Better to be early than late.

GOLD AND THE US DOLLAR - WHAT YOU NEED TO KNOW

 

Until recently many analysts just assumed an inverse relationship between Gold and the US Dollar Index.  Until recently, this relationship was fairly well correlated.  Though on the chart above you can see that gold started its recent ascent well in advance of the dollar index drop.  Then continued its asent even as the dollar rose.

Then if this chart continued into 2024 you would see gold go violently  upward even as the dollar moved slightly upward. 

What's going on?

For one thing, the dollar responds positively to an upward thrust of interest rates - regardless of whether this is caused by a strong economy or just casued by high inflation and rising rates.  

Meanwhile, gold responds to the overall economic conditions of the global economy.  

The average US investor thinks that the higher rates in the US is a product, at least in part, of a strong economy.

The central banks of the world, which have been buying gold in vast quantities, think that the higher rates we are seeing are more a product of a stagnating economy laden with massive debt.

In this case, if the global banks are right, the dollar can keep rising even as gold goes parabolic.  (which has not yet happened - but will as stagflation solidifies.)

Yet the dollar has certain headwinds that will become tailwinds for gold

These are:

As rates go up, debt service adds geometrically to the debt.

As debt rises so does inflation.  And as inflation rises gobally, so does destabilizing violent political agitation.  As fascist authoritarion movements gain power, inflation goes parabolic.  At some point this will crush the dollar and all paper currencies and send gold spiraling upwards.

As inflation rises globally the movment towards hot war becomes an inelcutable escape route for political regimes that find themselves reviled for the inflationary environment.  This leads to a temporary relief in the form of ramped up military industry but inevitably leads to greater inflation as supply chains are destroyed.  

Finally, authoritarian government leads to a breakdown in the rule of law that governs innternational corporate cooperation.  This is also very bad for the dollar especially, as it has the current reserve status which would be undermined irreperably by a breakdown in the laws that support  it.

The only beneficiary will be gold.

GOLD PRICE IN DEVALUED DOLLARS

 

Here we see a 30 year gold chart.  It's done pretty well in the last 30 years as the dollar has steadily depreciated.

But a curious thing happened between 2012 and now: the Fed realized that it could take unlimited amounts of bad debt onto its own balance sheet - and other off balance sheet accounts and thus bail out every major bank, shadow bank, insurance company - or anyone else deemed Too Big To Fail.

And the markets figured this is an excellent thing.

In 2012 gold hit $2000.  The markets weren't so sure about this too big too fail thing,

But then they decided - why not?  It's working now - who cares about "long term lag effects?"  Only doomsaying jerks who miss out on every rally.

Now, 12 years later and gold has only just broken out to new highs.  But at 2012 value for the dollar the price would have to be about $2600 to have broken out to a new high.  So we still have a ways to go.

Just as a way of seeing what the true value of gold would be today if investors were suspicious of the Fed's ability to control the economy as they were back in 2012 - at the tail end of the Great Economic Crisis.

The thing is the Fed's balance sheet back then had ballooned to about 3 trillion dollars.  Whoa!  Nobody had heard of such a thing.  And the Federal debt had ballooned to nearly 80 percent of GDP.  

Scary!

Now, with investors just beginning to get suspicious again of the long term stability of the financial system the Fed's balance sheet if nine trillion dollars and debt is 125 percent of GDP.  AND Two trillion dollars of corporate debt borrowed at near ZERO will have to be refinanced at 6,7, 8 percent over the next 20 months!  AND we go into an election that may well lead to civil war.  While two major hot wars a being fought in Europe and the Middle East!  Neither with any solution on the horizon.

And gold has only just broken out.  It has to get to about $2600 just to equal its value at its high in 2012 dollars.

So if you're worried you missed the rally.  Think again. It's only just begun.

HOW DO YOU TRADE GOLD?

 

Question: You've "missed" the gold run up.  It took you by surprise.  You'd like to get in, or you'd like a bigger posisiton but you don't want to chase it.  What to do?

Answer: You do not trade gold.  You invest in gold.  Huge difference.

The only way to invest in gold is through real physical gold.  There are many ways to buy real physical gold. My preference is to buy US gold Eagles and an assortment of shorter print World Gold that has interesting historical themes and designs taken from the dies of master engravers - such as is done at the Paris Mint or the Royal Mint (great Britain) or the Royal Dutch Mint.  

But research it and find what you like.

But the whole point of Physical Gold is that:

A) it's real.  You possess it.  When the electricity grids are hacked it doesn't matter - you still have it.

B) You won't be tempted to TRADE it.  Trading gold is an idiot's game.  because your oponents are the Bullion Banks that own the Fed and can trade is such volume that they will run your stops, or just run you out of your positions with sudden wild moves and then when they reverse course you have nothing.

If you subscribe to a fool proof trading system that can beat the Fed and its bullion banks then you're such a dope you might as well give your money away to charity- it will do more good then winding up in the vault at Chase.

So buy real physical gold, put it away, then buy some more.   It doesn't matter what price because in serveral year it will be much higher, as long as history's greatest DEBT SPIRAL continues - which is for the forseeable future - meaning at lest the next 20 years.

If you can't understand why gold must appreciate - then don't buy it in the first place - it's not for you anyway.

Gold and Foreign Retail buying

 

In the US physical gold buying centers around the US gold eagle 1 ounce coin, and the $20 gold liberty and St Gaudens.  There are bulk sellers selling these coin about 5 percent over spot.  This is as low as the premium ever gets.  Often it gets up towards 20 percent.  This shows the US public is just not buying gold yet.

We know the Central Banks are buying gold hand over fist, and anecdotally it seems the super wealthy are buying gold and storing it in secure Swiss facilities.  But what about the buying public outside the US?

There are persuasive clues that this market it much stronger.  We can see this in France, England, Mexio, Peru, Germany, Austria to name a few places where there is more of a history of the retail public protecting themselves with gold.

Where do we see this -  in France:

Here is an 1881 MS 62 gold 100 francs, about the same weight and time period as a US St. Gaudens or Liberty in a common grade, and a common year.  it sold very recently fort $3600 - thats' about a 60 per cent premium over spot.  Much higher graded coins bring much higher premiums.

In England:  

A common mintage gold 5 pound piece from 1993 graded MS 69 sold for $2760 that's a 22 percent markup over spot (when adjusted for the 1.1 ounce weight.)  Coins of much rare mintages in MS 70 bring much higher premiums

In Peru 

A 1963 MS 65 100 soles sold for $4300 - that's a 66 percent markup adjusted for weight.  Coins in much higher grades from rarer years sell for up to 600 percent of bullion.

In Mexco: 

a 1945 (the most common yearr) 50 gold pesos in MS 65 sold for $3600 thats's a 45 percent markup.  Rarer years bring much higher premiums.

5 years ago all of these coins sold at or near bullion.

These are a few examples of things that are going on all over the world.  It's only here in the US where the retail public can not see that times are unusually perilous both economically and politically.

YOLO - you only live once - has seized the US consciousness - a product at least in part of an intense addiction to Social Media - which destroys the attention span necessary for analysis.

My only point here is that it is inevitable that even the Tik Tok addicted US public will eventually join the rest of the world.

And that is when you will see the real rise in gold in US dollar terms.

GOLD LOVES BIG GOVERNMENT

 

Once Government becomes large enough, the only cure is Bigger Government.

What is Large Enough?  Debt is greater than GDP.  In the US debt is 125 percenty of GDP

In the  US debt to GDI (gross domestic income)  is 140 percent.  That shouldn't be possible but it is.

In the US debt service is 17-20 percent of the Federal Budget (depending on off balance sheet service)

Neither candidate running for president has any plan to reduce this.  Because there is no plan.  When debt becomes this large - and this debt is echoed in the corporate and household sectors (go through the data yourself) - the only solution is to Big Government is Bigger Government.

What does this mean?  It means when spending on social programs is so great the government runs massive deficits and the inflationary spiral results in Diminishing Returns whereby the more they spend, the poorer everyone gets - except the super rich -

Then  the angered impoverished class votes in what they believe to be Right Wing Reformers.  These Right Wing Reformers take over the government and they do end the spending on social programs - and they replace it with an even Bigger Government that spends only on itself - and all the money goes to those in control of the Government.

Thus Big Government beomes Bigger Government.

And the Super Rich are those who control the Government.

Like Russia.  Like Hungary.  For example.  Like Turkey.  Like Saudi Arabia.  But the movement to emulate these countries has seized the West.  Few here see this coming even though many are openly campaigning for it.  

It's strange.  How few see the obvious.

But Gold sees it.  And that is why Gold is moving without the support of the retail public in the US - who doesn't believe this is what's coming.

We'll soon see who's right - Gold or the Retail Public.

I'm betting on Gold.

The Golden Wilderness

 

Gold keeps moving up.  The move took every trader in the US by surprise.  I monitor serveral trading sites, all of whom consider themselves to be hip and in the know, and they consider those not on their sites to be stupid outsiders, and most of them were trying to figure a good place to go short gold around $2000 dollars, figuring they'd buy back in at 1900 or 1870.

After all - the dollar (though it fell the last couple of sessions), is historically high, as are rates, and the stock market is still going gangbusters.  So there's really no reason to own gold.

Yet it keeps going to record highs sesssion after session.

The gold bullion premium over the spot price is at record lows.  

Inflows into Gold ETF's are flat, to NEGATIVE.

No retail investor is buying gold in the United States.

So how it it moving?

Central Banks.  

Who else?  I don't know.  But there have been several large repositories created in places like Switzerland which hold tonnes of gold for Super High Net Worth individuals and families.

They don't release their inflow outflow information, but some who direct these repositories give interviews and say business is excellent.  Check the site Thoughtful Money for inerviews with some of these like Mathew Pipenburg.  It's interesting.

The wealthiest invidividuals and institutions are all proecting their wealth.

From what?

Take a look into the near future and ask yourself if the Political and Economic atmosphere is healthy or deteriorating?

Clearly the average retail investor in the US is coming to a very different conclusion than the Central Banks of the world, and many of the super high net worth investors of the world.

So what else is new?

But when the retail investor finally discovers gold, a new phase of this bull market will open up.

GOLD AND VALUE

 

Gold has just closed at an all time high.  Yet all the financial headlines mention NVIDIA, Tesla and bitcoin.  Hamas, Primaries and law suits.  Wildfires, immigrants and street crime.

Okay, almost anything is better clickbait than gold.

In every top 10 investing ideas list you'll find on the interenet, not one will mention gold.

Then again, if you go back to 2000 the 5 biggest meme stocks before the AI craze, were CROX, Krispy Kreme Donoughts, Build a Bear, and Healey's (wheeled sneakers) and Barnes and Noble.  Since 2000 13,000 companies have gone bankrupt.  120 large cap stocks on the Dow and Nasdaq have been deslisted.

Right before 2002 there was the dot com bubble.  Remeber that can't miss period of investing?

Of course AI is different - it has real earnings.  After all One AI stock META, just bought about 17 billion dollars of chips from another AI company NVIDIA, so that they can build a metaverse, where you put on a helmet and pretend to do things in seconds that would take you years to learn to do in the real world.  Like play an instrument.  Or play a sport.  Or get a real job in some exciting field like the Navy Seals.  The thing is, you don't do any of those things.  You put on a helmet and pretend. I know that appeals to the chronically stupid and lazy.  And maybe there are a lot of those to sell to.  But how many have the cash to lay out thousands for the helmet and the support systems?  Just like how many people have $100,000 to buy an electric car that only goes 50 miles before you have to recharge it for hours and hours,  costs many thousands to repair if some tiny electric problem goes wrong on the dashboard, and has ZERO resale value, because it needs a new battery which costs nearly as much as a new car?

Not that you can't make money investing there.  But it's not investing.  It's a form of greater fools gambling.  Because you putting money into markets that sound as if they should develope, and over time they will, but the companies and products that are in first and get all the meme capital are not necessarily the ones  that survive.  Teslas are vastly inferior to BYD cars according to Charlie Munger who feels that BYD will survive and Tesla will not.  Maybe he's wrong.  But he's rarely been wrong.  And if he's right?  Boy that's a lot of capital that will be wiped out.  And what if those META helmets don't catch on?  Not only does META go down, so does NVIDIA - maybe not to Zero but a long long way.

Just ask some smart people who poured billions into Herbalife, Blockbuster, Nokia, Sears, or the penny stock boiler house fad in the 80's, or the dot com fad of the 2000's

Meanwhile, boring old GOLD which has survived and thrived as an investment for over 5000 years is now trading at an all time dollar high, while the dollar is still by far the strongest currency on earth and rates are rising - two conditions thought to be supremely negative for gold.  Yet nobody in the US has noticed.

Gold may never make you rich the way buying a 10 beanie babies for ten dollars and selling them for $100,000 dollars each at the top of the craze will.  

But it will continue to appreciate as all other currencies depreciate.  That is simple ineluctable math.

The thing that is so difficult is to measure a currency's depreciation.  Because they are measured against other depreciating currencies.  You can look at measure of inflation - but those only track short term rates of change - not the absolute loss of buying power that occurs over time.

But Gold notices over time and appreciates accordingly.

RIght now the levels of debt are so astronomical that the amount of currency needed to roll it over and service it is so vast that currencies are depreciating more quickly than ever - even if that's difficult to measure.  

Gold measures it.  Because the Central Bankers of the world are all hyper aware of this, and buying gold at furious rates to sure up their reserves against their depreciating currencies.

The general public is aware their purchasing power is eroding at an alarming rate.  But right now they are distracted from the obvious problem and busy blaming everything on their political enemies like socialists and immigrants - or the Chinese.

Eventually they'll realize the probelm is caused but  nothing other than  debt used to buy useles crap they don't need, (like meta helmets) and can't afford (like electric cars) or wasted by governments spending wildly on their own expansions - funded entirely by more and more debt - which is synonymous with debased currency.

But until they do, it's best to do what the central banks are doing and buy gold.

GOLD FLIRTS WITH THE ALL TIME HIGH AND NOBODY IN THE U.S. NOTICES

 

Gold is back near its all time high.  Globally this is a big story.  Yet nobody in the US has noticed.  The story here is all about AI, Big Tech and Bitcoin (which trades exactly in unison with Big Tech).   

The current applications for AI and Bitcoin are de minimus.  AI, at this point, can create deep fakes, and be used to crunch data more efficiently than humans.  That makes it good for basic clerical tasks and fraud.  Same with Bitcoin, the Fintech applications to this point are near non existent and it is good at hiding the gains from fraud.  Perhaps this is why they trade together.

To be sure, AI is a great story and makes for great print.  It is a as Meme Trade.  With real earnings it should be said.   And over time it may or may not justify its current hyperbolic multiple.

But none of this helps the 90 percent of the US and World population that is lost, angry, unable to cope with virulent sticky inflation, unable to buy a home.  unable to feed thier kids or pay for college.  And they are becoming inreasingly violent and supportive of authoritarianism.  Which is massively destabilizing, both politically and economically.

And none of this will help the 90 percent of the stock market that is currently stagnant.  Only 7 stocks account for the entire move in the market.  Just as only the top 1 percent of the economy is rich enough that the current inflation is not a perceptible issue.

Gold is back to all time highs because the Central Banks of the world understand the dire situation in the global economy.  It's a race to the bottom for global currencies suffering under the very massive debt that has created in the inflation problem.

And the inflation problem can not be solved without higher rates.  But as rates go higher delinquencies rise, and defaults rise, and companies can not afford to service their debt and go bankrupt, and banks go bankrupt.  And countries can not afford to service their debt.  And go bankrupt.

The populations of China and Russia and India are actively encrouraged to buy Gold.  And they do.  In Europe their is still a tradition of buying gold that was fostered by two world wars.

In the US everybody is chansing the latest meme.

Nobody cares about gold.  It's not sexy.

But as it claws its way higher, dollar by dollar, eventually someone will notice here.  Some 19 year old influencer will get on board,  Then all her fans will follow.  And when the US finally participates.  The gold price will accelerate.

Traditionally even the US had 3 perent of its portfolio in gold.  Now it is 1 perent.  If that even doubles. so will the gold price.

And as it becomes clear even to the US citizen that the only real protection against a deflating currency is the only globally stable currency which is gold - they will catch on.

As Churchill once said, "Americans, after having exhausted every other possibility, always do the right thing."