Monthly Archives: January 2021
Short and Sweet
‘The next decade will belong to gold.’
“Few people acknowledge that gold remains the superior asset of the 21st century,” writes London-based analyst Charlie Morris in a recently published Atlas Trust Gold Report, “nearly twice as profitable as the S&P 500. But it was a game of two halves with gold obliterating equities in the first and the S&P smashing gold in the second. Still, gold wins overall. I can’t help but think the next decade will belong to gold. After all, the S&P 500 trades at a lofty valuation by historical standards, while gold doesn’t. The main reason I have confidence that gold will win the 2020s is that this almighty asset bubble all around us will implode, and the crowded trades will disappoint the most. Gold is far from being crowded.”
In support of Morris’ contention that “the next decade will belong to gold,” we offer four instructive charts from Merk Investments. The first two show the close correlation between real rates of return and the price of gold. In the past, the declining real rate of return was driven by the rate side of the equation. Now, rising inflation expectations have become the primary influence – a development likely to focus increased attention on the yellow metal. The third chart shows the relationship between long-term growth in the global money supply and rising gold prices. Central bank stimulus is now feeding into the global money supply – something it did not do during the Great Financial Crisis (2008). As a result, we might see an acceleration in both trend lines – money supply and gold. The fourth and final chart is by far the most intriguing. It matches up the cyclical lows posted in 1999 and 2015 and shows gold now closely tracking the trajectory of its twenty-year secular bull market begun in the early 2000s.
Charts courtesy of Merk Investments • • • Click to enlarge
Short and Sweet
‘I expect a true crash to take a decade of stock market gains.’
“‘If the pandemic doesn’t pop this bubble then, of course, it will be something else that eventually accomplishes this,’ says [Universa Investments’ Mark Spitznagel in a MarketWatch report], “reiterating his long-held belief that easy-money central banks and the bubble they continue to pump will eventually lead to a major global reversal. How bad could it get when it really goes sideways? ‘I expect a true crash to take back a decade [worth of stock-market gains],’ he told The Wall Street Journal last month.'” Spitznagel is a protege of Nicholas Taleb of The Black Swan fame. Some would consider his prediction going overboard. We should keep in mind, though, that from 1929 to 1933 the stock market lost almost 90% of its value. It did not return to its 1929 highs until 1955 – 26 years later. In short, what he is suggesting is not without historical precedent.
Chart courtesy of MacroTrends.net
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Short and Sweet
Beware the new mantra that stocks are a good inflation hedge
“So, to be clear, this April really was cruel,” writes John Authers in his regular Bloomberg column, “In terms of the basic economic numbers that affect us most, it was the cruelest month for the U.S. in many decades. It was only one month. It is way too soon to proclaim the beginning or end of a major economic trend, on the base of the data we have so far. But April’s data were not only very, very bad, but also very, very surprising. They need to be confronted and understood.” Authers is surprised at the markets’ muted reaction to “a bad unemployment number followed by a bad inflation number.” He warns that if inflation does take root, stocks have plenty of room to fall further.
The chart below shows what happened in the 1970s once investors realized that inflation was not “transitory” but entrenched instead. Stocks drifted sideways for most of the decade, managing only a 4.78% gain. Gold, on the other hand, gained 1592%. We sometimes overlook the fact that stocks peaked in the late 1960s, just before the inflation began. Nearly twenty years of sideways to down action followed. Stocks started and ended the 1970s at 1000 while runaway inflation raged.
Gold and Stocks
(In percent, 1970-1979)
Chart courtesy of TradingView.com • • • Click to enlarge
Egyptologists uncover literal ‘tongues of gold’ – with a peculiar biblical link?
WatchJerusalem/Christopher Eames12-30-2021
“In their announcement of the discovery, Egypt’s Ministry of Tourism and Antiquities stated that the gold foil tongues were likely intended to help the dead speak with the gods in the afterlife.”
USAGOLD note: Some fascinating history at the link ……The Greeks placed “a coin on or in the mouth of the deceased as payment for the ferryman, Caron, who transported the deceased across the River Styx to the Underworld.”
Image: The judgement of the dead in the presence of Osiris, Book of the Dead of Hunefer
BlackRock says ‘out of favour’ gold may see fortune turn in 2022
TheEdgeMarkets/Ranjeetha Pakiam – Bloomberg/12-16-2021
USAGOLD note: Evy Hambro, who heads up sector-based investing at Blackrock, sees “more upside risk than downside risk” for gold in 2022 despite the metal being “relatively out of favor at the moment.” That negative sentiment, he says, typically presents buying opportunities. “It’s real interest rates which are the most important driver for gold,” he adds, “and they’re driven by interest rate and inflation expectations. We see a strong argument for adding to gold for diversification today, given equity markets are around all-time highs and there is still significant pandemic-related risk.”