The general population’s view of gold right now will come with a slow yawn. Indicators in the mainstream mimic these feelings toward the metal which is at 3-year lows despite its highs last August.
Should you be concerned?
Not at all.
Quite the opposite, actually.
The majority of investors are wrong about, well… most everything. They buy when the market goes up and sell when it goes down. They take losses instead of profits and base their positions on emotions.
We will show you below why investors are dead wrong about gold and why they are missing the glaring signs of the Golden Era of Gold ahead.
Now, the mathematically conscious investor and the sophisticated metals professionals, are not just calm right now, they are laying low while the golden backdrop arranges itself perfectly.
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Why is Gold Below $2k?
The most straightforward answer, beyond the common price-manipulation and short-covering, is the raising interest rates; where gold underperforms during times when interest rates outpace inflation rates.
Inflation Ahead
Take the US 10-Year Treasury which climbed from .4% to above 1.5% in just under a year. Not exactly a gold accelerator.
The good news for gold holders and tragically overlooked reality: rates can’t increase much more and inflation is just around the corner. We cover the many warning signs of impending inflation in this article.
It’s no surprise that we hold gold (always will), however wishful thinkers we are not. Take the unemotional mathematical cycles of history and historically bad monetary policy (MMT), and you’ll see our views on money are for the wealth preservationists.
Interest Rates Can’t Increase Forever
First, interest rates can’t get much higher because of our mounting debt. The Biden administration adds another $1.9T of “stimulus” debt to a historic debt pile which will now bring the US total debt to $30Trillion before Q1 of this year.
Many factors including the above, lockdowns, decreasing tax revenues and an economy that’s already on its knees, will only cause more debt by the year’s end.
What about the pre-pandemic “artificially” stimulated economy of 2019 that seemed to be soaring?
Easy Does It
In 2019 the US was at $4Trillion pre year in spending and collecting $3Trillion in taxpayer revenue. The results were an annual deficit of roughly $1Trillion.
Want to see the math for 2021? You likely won’t want to hear this but it’s necessary. Bring your calculator for this one.
At $30 Trillion of total debt and counting, if rates raise any more, close to the 5% historically normal range, this would equate to $1.5 Trillion annual interest expenses for Uncle Sam, equalling 50% of national revenues instead of 10%.
In this scenario of raising rates, the US becomes insolvent. Uh, oh…
This is why rates can’t and won’t go much higher. The US, and other countries for that matter, simply can’t afford it.
To Be Expected: Inflation
It’s no shock inflation warnings are soaring from intelligent, forward-thinking investors worldwide. This includes Michael Burry as we discussed earlier this week, who shorted the housing market crash of 2008 profiting $100 Million himself and roughly $750 Million for his investors in Scion Capital.
Inflation will be here whether we like it or not.
Rates are now raising because we anticipate inflation to raise, however, rates can’t go much higher. Again, the Fed can’t afford this. The US would become insolvent if this occurred.
The Fed too must pay its bills, by keeping interest rates low moving forward (especially the 10Y Treasury) while simultaneously attempting to “inflate away” Uncle Sam’s debt obligations. A Catch-22 if we’ve ever seen one.
What Do This Mean for Gold?
All this is good news for gold for 2 reasons: 1.) inflation is running hot 2.) the Fed is artificially depressing yields and rates.
So why aren’t investors screaming this from the rooftops? Well… the most bullish backdrop for gold is a world of negative real rates, and they are completely ignoring this.
And raising rates and a strong dollar are temporary situations not long-term realities.
The stock market bubble would also come crashing down should the Fed raise rates. Companies would tank in valuation and take their stock prices along.
Debt’s ticking time bomb will go off, as it always does. This euphoria in the market today will crash down and the days of inflating our way out of debt (via the Fed) will be no more.
True Wealth
Gold is undervalued today, which is a good thing for you and me. As Jim Rickards predicts, gold will go well above $10,000, likely to $15,000 in the coming years. Far more importantly, gold will preserve capital and wealth in a debt-ridden world marked by dying currencies. For more information, download your gold guide here.
