The global economy may be facing its ‘Minsky moment’ of excessive debt — and that is great for gold prices

MarketWatch/Mark DeCambre

“For Trey Reik, senior portfolio manager at Sprott Asset Management USA, current economic conditions bear the hallmarks of a so-called Minsky moment, in which over-leveraged investors are compelled to sell their investments, catalyzing a major market downturn — an ideal environment for gold. . .[He] makes the case that the Federal Reserve’s recent interest-rate reduction in July and expectations that it will continue to cut rates, are a tacit acknowledgment that the central bank must keep interest rates low or risk a debt meltdown.”

USAGOLD note:  Reik believes that interest rates must continue to decline “to keep the ever-burgeoning debt pyramid from toppling.”

“[Exter’s Inverted] Pyramid stands upon its apex of gold, which has no counter-party risk nor credit risk and is very liquid.  As you work higher into the pyramid, the assets get progressively less creditworthy and less liquid. . .[In a financial crisis] this bloated structure pancakes back down upon itself in a flight to safety.  The riskier, upper parts of the inverted pyramid become less liquid (harder to sell), and – if they can be sold at all – change hands at markedly lower prices as the once continuous flow of credit that had levitated those prices dries up.” – Lewis Johnson, Capital Wealth Advisor’s Lewis Johnson

In short, what Lewis Johnson outlines is the bottom-line rationale for diversifying one’s portfolio with gold. For a more detailed analysis of Exter’s Inverted Pyramid, we invite you to visit the May 2019 edition of News & Views, our monthly newsletter.

Repost from 8/22/2019

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