After the release of the “In Gold we Trust” report, Incrementum Liechtenstein surpises gold bulls with a compendium of some of the most compelling charts in the form of a Chartbook. Some of the key takeaways of the Chartbook:

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  • The FED is NOT out of bullets, it is just very reluctant to use them before we are at least close to a full fledged crisis; currency swaps, QE and negative interest rates are all on the table.[su_spacer size=”10″]
  • We therefore expect increasing market turmoil before the FED reverses course![su_spacer size=”10″]
  • Traditional protection for equities (puts) by now are somewhat expensive, especially in comparison to some short term interest rates (eurodollar). In our opinion it is quite a safe assumption, that the FED would reverse course if US equities sold off further 10-15%.[su_spacer size=”10″]
  • Shorting equities is a tricky business in an increasing volatility environment but could prove to be an interesting macro play until the FED gives in.[su_spacer size=”10″]
  • A major deflationary event and (potentially internationally coordinated) reaction of central banks could finally be the trigger for the transition from deflation to stagflation!

Must Read Chart #1: Total Debt Has To Grow Exponentially To Create Sufficient GDP Growth

Debt vs Gold 1952 - 2015

Must Read Chart #2: there is not enough nominal growth, which is why all central banks are aboard

The days of restrained monetary policy appear to be over. Several major central banks haveexpanded their balance sheets many times over since 2007. The ECB has pursued a comparativelyrestrictive monetary policy since 2008 –  however, with the implementation of “Euro QE”, things are changing radically. The FED moving back to “normality”* before the next crisis? No chance!

Central Banks 2007 - 2015

Must read chart #3: The USD is becoming cheaper in gold terms

Given its high stock-to-flow ratio, gold is far more stable than paper currencies. Hence, let’s look at the dollar from a stable point of view: one US dollar costs 27 milligrams of gold!

Gram Gold Per Dollar 1968 - 2015

Must read chart #4:  Gold Equities? The Most Contrarian Investment

A glance at the market capitalization of gold mining companies shows a similar valuation discrepancy. Currently, the Gold Bugs Index, which includes the 16 largest unhedged gold producers, is valued at a mere USD 55 billion. Compared to the S&P 500, this market capitalization is tiny, amounting to 0.3% of the index. The market capitalization of Microsoft alone is more than 6 times higher than that of all components of the Gold Bugs Index combined.

Gold Miners Cap

Must Read Chart #5: Gold Miners Are Dirt Cheap Not Only Compared To Other Sectors; Relative To Gold They Are At The Lowest Level Since 1942!

The Barron’s Gold Mining Index (BGMI) is the oldest available gold index. It recently reached its lowest level relative to gold in more than 70 years. The current ratio of 0.4 is significantly below the long-term mean of 1.56. This is a clear indication of just how undervalued gold stocks have become!

Miners to Gold Ratio 1939 - 2015

Read the Full Chartbook Here >>