[3 min read] Dear Reader, Today I want to talk about gold. It’s been a while since I have. I’ve been a gold bull since around 2000. Throughout that time, it’s been in one long secular bull market. It experienced a cyclical bear market from 2012–15, which absolutely hammered gold stocks. In the US, while gold stocks have recovered strongly from these lows, they are still well below the all-time highs achieved in 2011. I’m not sure whether this is bullish or bearish. I mean, as gold moved to new all-time highs this year (beating the previous 2011 peak), gold stocks couldn’t do the same. Is that saying there’s plenty more to come for gold stocks, or is it saying gold stocks aren’t buying the move to new all-time highs in the gold price? You know…once bitten, twice shy… As I said, I don’t know. Over all the years I’ve been following and investing in gold, the one constant is confusion about what drives the gold price. The common explanation is that gold rises on the back of inflation concerns. But that is a relic from the 1970s bull market. It’s also a relic of when inflation had just one meaning — inflation in goods and services prices. Based on my experience, the driving force for gold is monetary disorder. Whether that expresses itself in terms of goods and services price inflation or deflation it doesn’t really matter. It’s the monetary disorder that gold responds to. And we are definitely in an era of monetary disorder, which is why I remain bullish on gold as a long-term investment. Since 2008, when the monetary system irretrievably broke, central banks around the world have been pushing the QE button. Australia’s RBA just joined the stupidity. This does nothing for the real economy, as QE is just an asset swap (government debt for bank reserves) and these reserves stay in the system. Banks don’t (actually can’t) lend them out. QE also drains the system of good quality collateral. This means governments can issue fresh debt (fiscal stimulus) without being penalised. In the post-2008 world, there is a strong appetite for good collateral. This is why effectively bankrupt governments are able to lend, in some cases, at negative interest rates. So we’ve got a situation where QE doesn’t work as initially intended, but it’s one step away from direct financing of government spending and so central banks continue to use it with gusto. The result? Monetary disorder on a global scale. No wonder gold keeps rising. To show you what I mean, check out the relationship between US long-term government bond yields and the gold price. The correlation is very strong. In the chart below, the Treasury Bond ETF [NASDAQ:TLT] is in black, with the gold price in green: When bond yields decline, TLT rises and the gold price rises along with it. It’s a reflection of a few different but related things. Firstly, it’s a reflection of ‘money’ becoming cheaper. When yields fall, the capital value of the asset rises. Gold doesn’t have a yield, but it is a monetary asset. Its nearest competitor, government bonds, do have a yield. So when they decline and their capital value rises, gold moves with it. But why are bond yields declining? Well, that comes back to QE and massive government fiscal stimulus. Put simply, it doesn’t work. As I said, QE is just an asset swap. The money stays in the financial system. As far as fiscal policy goes, in highly indebted economies, it is less effective. It proves a short-term economic boost, but then leaves the economy even more structurally unsound. The bond market sees through this. It never prices in a ‘recovery’. That’s why, despite all the QE and fiscal stimulus this year, US 10-year bond yields are still well below 1%. That is, no return to strong economic growth and the inflation that comes with strong growth. Once again, monetary disorder. That’s not going to change. In the years to come, there will be even greater government involvement in financial markets. They will just keep doing the same thing. They have no skin in the game and will not learn from their mistakes. So gold, in my view at least, remains a great long-term hedge against this insanity. But shorter term, I’m not so sure where gold goes from here. Take a look at the chart above again. TLT has declined (yields rising) over the past few months as the market thinks all the stimulus will spark an economic recovery and inflation. If the gold price were to match that fall, it could go to around US$1,700 in the short term (see left-hand scale). Alternatively, bond yields could fall again, meaning TLT moves higher and catches up to gold. The thing is, we don’t know which market is the ‘leader’ here. Is it gold or bonds? Good question… In the absence of an answer, let’s have a closer look at the gold price. It’s in the process of consolidating/correcting the big move up that started in mid-2019. So far, the correction has found support around US$1,850. A break below here would see the price move pretty quickly to US$1,800. That’s where the 200-day moving average currently sits. Looking through a bunch of Aussie gold stock charts, they all look pretty weak. It suggests to me this correction may continue for a bit longer. But as I’ve told subscribers of my Crisis & Opportunity service, if you have a longer-term view, you should use this period of weakness to ‘accumulate’ gold stocks. That is, don’t buy aggressively, but chip away over a period of weeks or months to build a position. In a few years, you’re likely to be very thankful for it. Regards, Greg Canavan, Editor, The Rum Rebellion ..............................Sponsored..............................This will ‘redesign’ the global financial system for decades to come According to Jim Rickards, ‘Reset 2021’ will shape the world in the decades to come more than you can possibly imagine… It’s an event where the ‘masters of the universe’ are set on pulling off one of the most audacious monetary moves of the last 50 years, according to Jim Rickards. Bill Gates, George Soros, Chancellor Angela Merkel…and whoever wins the White House in November…are about to lay the groundwork of wealth creation (and wealth confiscation) to take the world through to 2050. You’d best understand it. And prepare for it. Click here to find out how… | ..........................................................................
Back to the Usual Grift By Bill Bonner [3 min read] ‘Permit me to issue and control the money of a nation, and I care not who makes its laws!’ Mayer Amschel Rothschild, founder of the Rothschild banking dynasty We are on our way back to the US. Our first stop is the local capital city, Salta. After nine months in the Calchaquí Valley, it seems odd to walk on pavement…to hear so much noise…and to see so many people, all with their faces covered. Masks are obligatory here. But do they make any difference? Apparently not. Here’s The New York Times: ‘A new study questions whether masks protect wearers. You need to wear them anyway. ‘Researchers in Denmark reported on Wednesday that surgical masks did not protect the wearers against infection with the coronavirus in a large randomized clinical trial. But the findings conflict with those from a number of other studies, experts said, and is not likely to alter public health recommendations in the United States.’ ‘You need to wear them anyway,’ says the NYT. But why? Because Christians wear crosses. Jews wear yarmulkes. Sikhs wear turbans. And in the feds’ new religion, the faithful must wear the holy rag. They must give the fist bump and believe in the infallibility of Dr Fauci and the other high priests. Only they can save us from the wrath of the Great Plague. Praying for deliverance And of course, we’re all on the edge of our pews — waiting for Pfizer or Moderna to come through with the talisman we need to ward off the evil spirits. In Pfizer’s test — this is ‘science’, remember — they lined up 43,538 people to prove that their latest juju works. Trouble was, they couldn’t get the damned guinea pigs to get sick. As we read the numbers, the mammalian immune system…refined over approximately 285 million years…was the real winner. It was 99.97% effective at preventing serious illness in the whole group. Only nine of the placebo group developed any serious illness, and only one of those who got the vaccine. That hardly seems very scientific to us, but it was enough for Pfizer to declare their elixir 95% effective! No matter that it is all hocus pocus. As Dr Fauci said, this is not the time to think independently, or to think at all. This is the ‘time to do what you are told’. So we bow before the new gods…and pray for deliverance. Fake everything But let us now turn from the gods to Mammon. Here at the Diary, we focus on the money. Or, more precisely, on the fake money that the US tricked up in 1971. We focus on the money, not because we especially care about money itself, but because so much of life depends on it. Money is what we use to keep track of time…effort…luck…forbearance…self-discipline…energy…raw materials…sweat…innovation…and all the other things that go into creating real wealth. Fake the money, and you also fake up the whole archipelago of rigors, relationships, and realities that rule our lives. We don’t use money simply to measure the value of a ton of grain or a new Mercedes. We use it to measure ourselves and others. We have a ‘two-bit’ (25-cent) lawyer…and we recognise the fool by how fast he and his money part ways. In England, someone is as ‘nice as nine-pence’ or as ‘queer as a nine-bob note’. As for the two political parties in the US, as former four-term governor of Alabama George Wallace once remarked, there’s ‘not a dime’s worth of difference between them’. Fake money fakes up everything…and brings the two parties even closer together. It makes it easier for them to collude — to increase their own power and wealth at the expense of the public. Rather than have to beg for money from the taxpayers…or borrow it from the future…the feds can ‘print’ it. Without this printing press money, for example, this year’s $7 trillion spending lallapaloosa would have been impossible. As would this year’s presidential contest… Cruel fate Poor Donald Trump was outspent, on TV ads alone, by two to one — about a billion dollars more was spent by the Biden team. Where did the money come from? And why did it flow to a hacky has-been? Well, the hack is promising to return things ‘back to normal’. Donald Trump actually did more for the insider elite than any president since Franklin Roosevelt. He filled the swamp with more fake money than any of them. The biggest donors to Joe Biden came from Wall Street. Donald Sussman. Jim Simons. Seth Klarman. Michael Moritz. The hedge fund managers ‘gave back’ some of the fake profits Donald Trump had given them…but to his opponent! Yes, the ingrates considered Trump unreliable, unpredictable, and embarrassingly uncouth. They laughed at him…they undermined him…and in the end, they drowned him in the swamp he had helped create. Cruel, cruel fate. And now…with the whirling dervish Trump finally becalmed…the hack packing his bags for the move into the White House…and false prophets preaching salvation… …we are all ready to get back to the usual grift. Stay tuned… Regards, Bill Bonner, For The Rum Rebellion ..............................Advertisement..............................5 lessons for investing in a virus-plagued world We’ve been analysing the Australian stock market on a daily basis since 2005. We’ve certainly seen a thing or two… The inflation and pop of the subprime bubble in the United States. The global financial crisis that followed. The rise of China and the Australian mining boom that followed. A rare earths mania. And three even bigger manias that followed: Cryptocurrencies, blockchain and marijuana stocks. Nothing, however, compares to where we find ourselves now. And how we project things could play out in 2021. Here are some lessons we’ve learned that we believe will stand you in good stead next year. | .......................................................................... |