Why Gold Is Just Getting Started

| August 27, 2019

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Despite the best efforts of price manipulators and even new forms of money, gold just won’t go away. In between articles about the ongoing trade war between the US and China, Trump’s latest twits, and central bankers trying to make everyone happy about the economy, there is still a good old-fashioned sense that something is truly wrong with the world economy right now.  Bottom line – that’s why gold is just getting started.

Back in 2008-9, Ben Bernanke committed the US to a bold experiment – massive quantitative easing.  Rather than let the free market recycle the fallout of failed banking hubris itself, the US would start printing a bunch of money to give to – you guessed it – the banking system.  Yes, the same banking system that couldn’t control itself well enough to prevent a meltdown of truly epic proportions, despite enough rules and regs to bury a small city. You see, rules and regs aren’t really any good if someone doesn’t follow them, or decides to compute numbers in new and different ways, that don’t agree with the laws of nature or basic economics.

So rafts of essentially free money started flowing out into the banking system.  The idea was that banks would use this money partly to prop themselves up, and recently to increase loans to businesses both big and small.  This would boost Average Joe incomes and help Americans spend their way out of the recession.

Well, the first part worked.  In reality, it was hard to tell where all the money was going. A popular opinion by ground-level observers was that bankers used it to bail themselves out, give themselves raises, and buy that third home on the French Riviera. Oh, and finance huge projects by huge corporations, though that wasn’t always obvious.  This was in stark contrast to the experience of the average man-in-the-street, who was either loaded with more work (at the same wage) or even downsized because “the economy is bad”. This resulted in increased rants by political types against the wealthy, though many ranting Hollywood types are very well off indeed. Your friendly Gold Enthusiast would even wager the perception that bankers were given a get-out-of-jail-free card resulted in the rise of some political puppets and ideas, but that’s outside the range of this column.

So now here we are on the downhill side of 2019, about 10 years after the biggest bailout in the history of the world.  How did it turn out?

Well, apparently it wasn’t a permanent fix.  The Fed is back into cutting interest rates, saying that while the US itself looks good the Fed is concerned about the “global economy”. Interesting, in that the stated metrics the Fed follows are both doing just fine and the Fed wasn’t charged with worrying about the world economy.  Yes, in one sense it makes sense – buffer the US economy against the ravages of the world.  But really, shouldn’t businesses be doing that on their own, without the Fed enticing people to buy things they can’t afford with lower interest rates?

So the US has spent its way into a credit rabbit hole. We’re likely in it so deep that we can’t get out without a major currency refactoring, at the very least.

Well, that’s enough ranting, let’s get down to it.  It is Friday after all. You’ll recall our pointing out gold hit new all-time highs in major currencies back on Aug 5th. This was following all-time highs in 75 currencies back in January (2019). Logic says it’s pushed those higher as many countries are devaluing their currency, trying to get more money flowing into their economy. But chasing current balance parity is a zero-sum game worldwide because what flows into one country flowed out of another country. Coupled with currency devaluing it turns into an everyone-loses game.  That’s why no country can seem to win anymore.

Now US leaders have signaled quite strongly that they are joining in the currency debasing game. And China hinted it is willing to jump in the deep end too.  That removed the last two solid things in the world economy. Europe has already thrown in the towel, giving up on restraint and announcing more rounds of QE starting in October.

And those are the reasons why gold’s run is just getting started. It may take a while, but we’ll probably see 3000 USD/oz gold in the next several years.


The Gold Enthusiast

DISCLAIMER: No specific securities were mentioned in this article.  The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT position. He may be making small, non-market moving trades over the next 72 hours.

Note: This article originally appeared at The Gold Enthusiast on August 23, 2019.


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About the Author ()

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals. Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach. Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"