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.