When Will Gold Finally Get Going?

As many of you know, gold has been in the dog house overall for quite a few years. It is above its December 2015 high, but not a great return since then. The question for many is do you buy now or wait for lower?

For physical purchases I recommend buying the dips for your stated allocation into metals and/or doing 50% now and saving 50% for when the final dip comes.Many of you have been doing that. I do think one could still do that right now, with this most recent fall in metals again. However, I am firm in my belief of the eventual unwinding of the excesses since Reagan that are to the tune of hundreds of trillions. This will still hit gold, but there is more to the story.

The national debt will eventually matter. I can paint a pretty ugly picture if I wanted to. Doesn’t mean one can’t profit from other trading strategies. But I am one of the few who write about Exter’s Pyramid and having interviewed Barry Downs, who inherited all of John’s work, and is an expert on the unwinding, I am convinced as ever it is coming and gold at first can get hit, similar to 2008.

But there is a reason gold sits outside the pyramid as no one else’s liability, and is the only asset in the world that has been known as money and fits the description of real wealth. It’s not an illusion as some complain about as it has been going nowhere. Richard Russell who wrote the Dow Theory Letters for over 45 years was a big fan of gold. He accumulated his whole life and was buying whether it was $250 or $1900. He said he has/had 50% of his wealth in physical metals. His average is pretty darn good (he passed away last year and I don’t think his children complained about what he left them).I have some banker clients and other clients who understand asset allocation and put a lot of their wealth in gold the past few years. The price has stabilized and the bigger move up is coming. Doesn’t matter too much the downside at this point to me.

Question:

“Don’t you think its, at least possible, that they will keep issuing more and more debt, and purchase that debt themselves, if necessary, (and if they are not doing that now, which i am not sure) until they are safely out of harms way?”

Absolutely. That’s all they know to do. And what some who sell gold for a business don’t get, is they have been good at it. What Ron Paul and some Austrians didn’t get is that the Fed still matters and will do anything to save themselves with the guise of saving us all.

Question;

“My thinking is the two parties in power, both start wars and print money and that is IT. Period. That is what the Dem’s and GOP do. There is little, if any growth in the economy.”

There is no better way to inflate it all away as Richard Russel used to constantly say; “inflate or die.” But there has to be a deflationary contraction first IMHO. That’s where Austrian  economist Lew Rockwell and company I think miss the boat by always looking at inflation as an only option. They do not include “credit” in their definitions of deflation as they only look at the M2 money printing. One can’t ignore the credit built up for over 40 years. Even economist Ludwig von Mises with his crack up boom analysis couldn’t have imagined the amount of credit that has been built up since the 1971 Nixon departure from gold.

Warren Buffet’s father, a Congressman, wrote about what would happen next in the 1940’s if we left the gold standard, and while it hasn’t occurred yet, we have had some wonderful years for many that I have written about in my articles. But there is an end game. How the Fed reacts to that end game will be the subject of my next article. What I have already written about is how gold will get hit in that “one more decline” pretty hard, but one can’t just look at the U.S. as an isolated economy or monetary system.

The worldwide debt is impossible to pay off. It will be the survival of the fittest asset, that at first at least, will be the “perceived safety” which is the U.S. dollar as the U.S. is the fittest of a bad bunch. Why? Because they have been for so long. And because they are the world’s largest military power (yes, to me that means something). And still, today, 70% of the world’s economy trades in dollars although alternatives are used. I am not in the camp as some that SDR’s are a future currency like Jim Rickards and others have written about that.

Only one asset can be considered “honest money” and in times of war is hoarded by those who understand it and in times of peace sold to enjoy the prosperity peace provides, with some government help. But even Keynes said one has to stop the spending and that is something no government is doing or plans to do. There is no fiscal bone in either party and the lust for war to resolve issues is on the table no doubt. But a lot of what is missing is the “when?” When do we finally get going in gold?

I’ll try and dive into that more in my next article. And no, I am not a return to the gold standard guy. Nowhere have I ever recommended that. But it doesn’t mean that individuals from troubled countries can’t make their own gold standard if they see troubles ahead. I write about awareness. I imagine those in Argentina in the past (maybe now?) and Venezuela when things were doing well and started to go south, there was plenty of time to transfer wealth. But if one doesn’t do their own homework and ask some tough questions about what makes sense and what are the probabilities of occurrence, contraction, war, etc., then they are letting others mange their wealth and most likely won’t be able to exchange that wealth into something of value very easily.

That’s why I view gold as insurance first. At times it’s been great insurance and other times not so great. It’s not too far fetched to say this is one of those times to consider 50% into that physical insurance, no matter how low it might go in the near future. And to break down those years of gold and not so good, since Nixon separated us from gold;

1971-1980 good – 9 years
1980 – 2000 not good – 20 years
2000 – 2011 good – 11 years
2011 – 2018 not good (although you could have bought the low of 1050’s in 2015 and be ok today) = 7 years

That’s 20 good years and 27 bad years (give or take).

What do the next 7-10 years look like if you add the National Debt to each of those time-frames and the lack of Congressional responsibility to future generations? Now add credit for each time-frame. It’s not a pretty picture.

The Federal Reserve Note has 47 short years of history without a relationship to gold. Not too many people get that. 20 of those years the dollar sucked. But to make a long story short, if the dollar sucks, does that by default mean that the Euro, which makes up 57% of the dollar is going to shine? The Pound? Hardly. That’s 70% of the dollar. That’s a lot of Europeans clamoring for gold if the South American and African’s countries haven’t already scooped it up.

Eventually, it will take more of all currencies to buy gold, just as it did from 2000 to 2011, but on steroids possibly. Richard Russell was the first to say that gold will go to “undreamed of heights.” And today we’re talking about a maybe 20% or so drop. Some see the big picture. Some worry about the micro picture and the 27 years of dollar supremacy over 20 years of gold supremacy since the 71 separation. Which one can an astute monetarist/economist make to possess moving forward dollars or gold? Does that monetarist/economist include credit in the equation? What are the probabilities that the Fed will have/keep everything under control? What is their track record? How has their balance sheet changed? Stay tuned.