Gold joins rest of financial markets in negative initial reaction to last night’s debate, billionaire investor Kaplan calls gold ‘the generational trade’

(USAGOLD –10/2/2020) – Gold and silver joined the rest of the financial markets in posting a negative reaction to last night’s rather bizarre presidential debate. The much-anticipated event came off to this observer as a singular reflection of the times – a metaphor for the chaos and confusion that inhabits everyday life for the bulk of Americans. The yellow metal is down $15 at $1886 as we start the day. Silver is down 50¢ at $23.76. It could turn out to be an interesting day as investors globally digest the ramifications of last night’s gloves-off, political brawl.

Stansbury Research recently posted a powerful Daniella Carbone interview of investor Thomas Kaplan. Though Kaplan made his fortune in the mining business, he is also an Oxford-trained historian who puts gold’s bull market in the context of a longer-term cycle that has yet to reach maturity. He reiterates his prediction made some time ago that gold will reach $3000 to $5000 in the years ahead. “The difference is this,” says Kaplan. “The market is now ready for the next leg of the gold bull market. The first leg was the one that took us up 12 consecutive years in a row regardless of whether there were inflation fears, deflation fears, whether there was a glut of oil or a shortage of oil, political stability or political instability, dollar weakness, dollar strength.  It didn’t matter. Every year for 12 years gold went up … The next move is going to be a third wave, a long wave that lasts for a decade or fifteen years, maybe more … I think that you really are looking at a complete paradigm shift that will make gold the generational trade.”

Chart of the Day

overlay chart showing the relationship over the long term between growth in the national debt and the rising gold priceSources: ICE Benchmark Administration,  U.S. Treasury, St. Louis Federal Reserve [FRED]
[Please note  that the chart reflects the price of gold and the aggregate national debt through Q2-2020]

Chart note:  As we have mentioned in previous post notes, the problem with monetary stimulus – the kind of help the Fed is capable of delivering – is that it requires takers, i.e., people and businesses willing to borrow and spend. Private borrowers, though, are not as prolific and/or aggressive as the Fed or federal government would like. The federal government, on the other hand, is a ready borrower and a big one. The Manhattan Institute’s Brien Riedl recently pointed out in a National Review article, the Fed has already financed roughly half of government spending to combat the economic hit from COVID-19. How does all of this translate to a tailwind for gold?  The chart above tells the story at a glance.

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