The gold boom — sooner or later?

Friday, 25 November 2022 — Albert Park

[7 min read]

Dear Reader,

The writing’s on the wall for the petrodollar fiat system.

Months of aggressive rate rises by the US Fed and central banks have nailed the coffin that is the global economy and financial markets.

Now we’re living in a system comprising decades of accumulated debt and waste that piles up like the Augean stables. To make it worse, governments around the world slapped on even more debt and implemented excessive control measures during the pandemic. As a result, businesses and households faced an insurmountable challenge ahead trying to revive trading activities and rebuild wealth in a crippled economy.

On one hand, we’ve so much debt that would only reduce if there’s production and wealth creation. On the other, the supply chain is crippled, stifling business activity.

There’s nothing worse than having a seething mess and realising your means of cleaning up is damaged!

Who’s to blame for getting us into this?

The ‘Great Reset’ and a new financial dystopia

The leading culprits are those who engineered this quagmire in the first place. They need no introduction nowadays as they’ve been proudly broadcasting their agenda, which they call the ‘Great Reset’. All these crises we’re facing are meant to usher in the ‘Fourth Industrial Revolution’ with a new societal order governed by unelected technocrats using a new central bank digital currency.

The other culprit is us. We allowed this to happen. Through ignorance or greed, we handed our finances to those who never had our interest in mind.

Can’t afford a home? Want to build an investment property portfolio to get rich without lifting a finger? Easy, take-out mortgage loans that enrich the banks via decades of interest payments.

Want to live a lifestyle to emulate the (non-)reality TV stars? Max out your credit card, take out more loans, and impress people who really don’t give a hoot about you.

Wow, this political party offers to subsidise your healthcare, childcare, etc., if you vote for them in the next election! Why not? Vote them in and enjoy ‘free’ benefits, generously paid for through your taxes and public borrowing!

Now that governments, institutions, and households are stretched to the limit on debt, there has to be a way out of this situation.

And what better way than to destroy this financial system and start all over again?

A system backed by sound money to help us spend responsibly with cheques and balances?

Sounds good, but in your dreams!

It’s about to get worse…they want to track your spending and silently tax you by linking you to a centralised digital system.

And if you don’t comply or express dissent, they could easily shut you down and cut you out of their system. Ask the Canadian truckers, the Dutch farmers, and the Brazilian citizens who are protesting over their contested election.

Hope on the horizon

While there’s much fear over this dystopic system, I believe there’s enough resistance in the global population leading to this agenda to change form or risk rejection.

Several countries are now seeing citizens mobilise to demand governments and businesses change their allegiance or face their wrath. They’re hitting the ballot boxes and corporate bottom lines with varying levels of success.

There’s also a migration out of the fiat currency system into precious metals and cryptocurrencies. While the prolonged gold bear market and the crypto winter, exacerbated by the collapse of FTX, have slowed the growth of this resistance movement, the momentum is powerful and unrelenting.

I’ll cover how the momentum is growing in future. What I’d rather focus on now are signs that gold is building up for its imminent boom.

Gold waits at the wings for its dramatic recovery

There’s mixed opinions, even among those at Fat Tail Investment Research, as to whether the recent gold price recovery and the ASX Gold Index [ASX:XGD] point to gold having bottomed two months ago.

My colleagues, Greg Canavan and Callum Newman, are leaning on the recent rally in gold stocks being a recovery in this space.

As for me, I’m leaning on this being a temporary bounce.

This may come as a shock to many of you, as I’ve been quick to cheer any signs of a recovery in gold over the last year and a half.

I’m by no means bearish on gold, however, I don’t think that the stars haven’t fully lined up for gold to take off, and that the fireworks will more likely come after one more pullback.

So I think gold’s waiting in the wings.

Allow me to briefly lay out what I’m seeing from the various market indicators so you can judge for yourself.

Firstly, the price of gold in US dollar terms has been rising only because of recent weakness in the US Dollar Index [DXY], which you can see below:

Gold hasn’t become more valuable in intrinsic terms over the past six months, and you can see it in the Australian dollar price of gold too:

How about gold stocks?

The ASX Gold Index has recovered more than 30% from its most recent lows in September. Some of the leading gold producers have gained more than 40% over this period. These are bullish signs.

Normally this should be enough for me to say it’s time. Honestly, I was calling a gold stock recovery in the past two years on weaker signals than what’s happening now.

But what’s making me hesitant now, besides being several times bitten?

The looming oil crisis — climbing over the hill

My view is that the macroeconomic outlook, especially regarding the US economy, the supply and price of oil, and diesel casts a shadow on current markets.

Many of you are aware that I use the gold-oil ratio as my key metric to gauge whether gold producers are operating profitably. It helps me measure if gold producers are fairly valued in the market.

This is what gives me an edge against other gold investors out there.

Right now, it’s moving in the right direction as the price of oil is falling, leading to a rising trend in the gold-oil ratio:

However, the world is gripped by a global shortage of oil and diesel due to the green agenda and sanctions against Russia.

With the Northern Hemisphere winter coming up, things could change quickly such as the price of crude oil rising, possibly exceeding the price back in June.

Should that happen, inflation could rear its ugly head once more. And as long as the Federal Reserve holds its ground on raising rates, gold will likely retreat, pushing down the gold-oil ratio.

Positioning yourself for the gold rally sooner or later?

So that’s my take on why I’m cautious about this recent rally in gold stocks. I believe there’s still one more hill to overcome before things turn rosy for gold and gold stocks.

At what point will I change my mind?

If oil fails to rally in the coming months and inflation continues to head down, causing the Federal Reserve to pare back on raising rates, then it’s time to come out guns blazing.

And how do I know if I made the right call?

Should the Federal Reserve raise rates and cause the asset markets to buckle and crash 10% or more, that should be enough to freak out central bankers and cause them to change course.

So, the case of the gold boom is sooner or later…

Be patient for just a little longer, it’ll be worth it!

If you want some trading action with gold (as well as other sectors), consider signing up with Callum on his Small-Cap Systems.

For steady hands investing, I’d recommend giving Greg’s Fat Tail Investment Advisory a go.

And finally, you can sign up with me on Gold Stock Pro, where I’ve got many speculative gold explorers and developers that could deliver sizable returns in the next gold rally!

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

We saw yesterday that — like it or not — leaves fall in the cool autumn air. Like it or not, the stocks that rise the most in the bubble…tumble furthest in the bust.

And, boohoo, the greatest geniuses of the low-interest era turn out to be the biggest dumbos when rates revert to normal.

We watched the meteoric rise of Sam Bankman-Fried (SBF), for example. Readers wondering who, exactly, is in the ‘elite’ that we keep talking about, have to look no further than SBF. James Kunstler explains:

‘The Bankman-Fried extended family is the quintessence of Woke aristocracy. Dad Joe Bankman and mom Barbara Fried are both law professors at Stanford. She also acted as a money-bundler for the Democratic Party and ran two non-profit “voter registration” orgs (against the IRS laws which only permit non-partisan organized voter registration).

‘Brother Gabe Bankman-Fried headed a non-profit named Guarding Against Pandemics (funded by Sam), which lobbies Congress to construct new platforms for medical tyranny. Aunt Linda Fried is Dean of Columbia U’s Public Health school, and is associated with Johns Hopkins, which ran the October 2019 Event 201 pandemic drill (sponsored by the Gates Foundation) months before the Covid-19 outbreak.

‘Sam’s girlfriend, Caroline Ellison, ran the Alameda Investments arm of the FTX empire (that is, FTX’s own money laundromat). Her dad, Glenn Ellison, is chair of MIT’s Econ School. His former colleague on the MIT Econ faculty, Gary Gensler, who specialized in blockchains there, is now head of the Securities and Exchange Commission, an agency that Sam Bankman-Fried was attempting to rope into a regulation scheme to eliminate FTX’s crypto-currency competitors.’

But all those illustrious, Deep State connections didn’t stop Mr Market from kicking SBF in the pants. And lo! Mr Market now has his butt-kicking boots on.

Beyond hope

Yesterday, the major indexes rose; the bounce continues. But it won’t save the disruptors. They’re getting disrupted anyway. Bankman is bankrupt. Carvana crashed when used car prices went back to normal. Zillow, the real estate database, was wrecked when its algorithm failed to notice mortgage rates heading back to normal. Meme stocks — like GameStop — are being un-memed. And Beyond Meat — the turkey’s great hope — is almost beyond hope.

During its heyday…which was only about a year ago…GameStop lovers would buy the stock just to show themselves how cool they were. All it took was a suspicion on Reddit that a big, savvy investor — preferably a hedge fund — was selling the stock short and they were on the case like flies in an outhouse. The little, un-savvy guys bought the stock. The price soared. And the ‘short’ lost money. (Or the ‘short’ had merely given out the word that he was short, while actually having a big, long position, and made a lot of money as the stock went up.)

Now, we’re still far from ‘normal’, but we can see it from here. GameStop has lost 70% from its peak. And in ‘normal’ times, investors don’t buy stocks just to spite the pros. They buy them because they think they offer good value.

Which brings us to Beyond Meat.

Anytime a company advertises itself as doing good…rather than merely trying to make a buck (such as FTX, which claimed to be only making money so it could contribute to charities)…watch your wallet. Beyond Meat makes plant-based food that looks like meat. For people who like meat but don’t want to eat dead animals…it offered a solution. And for investors who worried about the flatulence of bovines…the energy required to raise animals…or the cruelty of slaughtering them, Beyond Meat offered an opportunity. They could put their money where their mouths were.

Beyond reason

The trouble was…they didn’t seem to want to put their mouths where the Beyond products were. But we’ll come to that in a minute.

The Wall Street Journal (WSJ) reports:

‘In May 2019, Beyond launched one of the most successful initial public offerings by a major company in more than two decades…’

Then:

‘While Beyond’s sales grew 56% to $465 million between 2019 and 20121, its costs and debt grew far faster.’

In May 2019, the stock was trading at US$66. By July it was more than US$200. Another Bubble Epoch success story. Beyond was disrupting the whole animal protein business. Why go to all the trouble — not to mention incurring the environmental costs — of raising, feeding, and slaughtering animals if you could get the same taste and nutrition from something produced in a factory?

But while the Bubble Epoch sows success stories, the Bust Era reaps failures. WSJ continues:

‘US grocery sales of plant-based meat substitutes are declining, and rival imitation-meat makers are capturing market share. Beyond’s stock is down 83% in the last 12 months.

‘Beyond’s losses deepened from $12 million to $182 million while its debt climbed to $1.1 billion between 2019 and 2021. The company’s losses in the nine months that ended Oct.1 were $299 million…’

Let’s see…

Falling sales. A profit margin of about NEGATIVE 80% (for every US$1 in sales, the company loses 80 US cents). More than a billion in debt. The sales and margin figures make Beyond’s debt very high risk. And the carrying cost of high-yield business debt is rising fast.

Too bad for the turkeys, but Beyond Meat may soon be dead meat.

Regards,

Bill Bonner,
For The Daily Reckoning Australia