In Gold We Trust 2015 is out. It is a globally read, outstanding report, full of unique insights for investors. The report analyzes montary policies, the financial system, the economy, and the role of precious metals in all those areas.
The report is written by Ronald Stoeferle, managing partner at Incrementum AG in Liechtenstein, a global macro fund influenced by the Austrian School of Economics.
The most fundamental issue in the report is the current inflationary uncovered debt money system. A consistent expansion of monetary aggregates in the traditional manner is no longer possible in the current phase. Consequently, the financial system finds itself in an increasingly unstable situation.
Because of those monetary policies, inflation should be expected. Given this interventionist spiral, ever more dubious measures are adopted to force a reflation of the economy. These steps include interventions like quantitative easing, negative interest rates, financial repression and possibly even a cash ban. Such aggressive money supply expansion ends with “too high” price inflation, as history has proven time and time again. Inflationary policy is always a desperate attempt to create artificial prosperity by means of the printing press, which, as any objective assessment shows, will never be sustainable.
The perpetuation of zero interest rate policy suspends the market’s self-healing corrective forces and fosters the nurturing of new asset bubbles. Following the technology and housing bubbles, we are once again right in the middle of another asset bubble. While the previous bubbles were focused on individual sectors or specific market segments, we are currently in the midst of an entirely different bubble dimension. Government bonds are at the center of the debt money system and represent the majority of the assets held by central banks and institutional investors. All available means will be exploited to prevent this bubble from bursting.
Gold has always been the best hedge against inflationary policies. Also, paper currencies suffer a general loss of confidence during those periods. Rising price inflation and negative real interest rates are the main catalyst for such a loss of confidence.
Below we list the most important arguments in favor of investing in gold:
* Global debt levels are currently 40% higher than in 2007
* Opacity of the financial system – volume of outstanding derivatives by now at USD 700 trillion, the bulk of which consists of interest rate derivatives
* The systemic desire for rising price inflation is increasing
* Concentration risk – “too big to fail” risks are significantly higher than in 2008
* Gold is a financial asset that has no counterparty risk
* Gold benefits from periods of deflation, rising rates of price inflation and systemic instability
* Relative to the monetary base, the gold price is currently at an all time low. In our opinion, this is a temporary anomaly, which we believe provides an extraordinarily favorable buying opportunity.
Technically, the picture is somehow mixed. On the one hand, the downtrend hasn’t been broken yet. On the other hand, negative sentiment indicates widespread resignation and capitulation by gold investors. Seasonality gives some confidence, just like the fact that gold stocks are extremely oversold.
Skepticism by Investors
Given that silver often provides reliable signals for gold price trends, we consider a final selloff – possibly in connection with a rate hike in the US – to be possible. In the course of this, the support at USD 1,140 could be tested or even breached in the short term. A reversal following such a retest would be a reliable technical signal of a primary turning point in the gold market.
Gold stocks represent an interesting, if highly volatile, investment opportunity. Creative destruction in the sector is ongoing, and it is healthy long term. Because of the “catharsis” in the sector, mining company managements have set new priorities, with profitability, capital spending discipline and shareholder value having replaced the maximization of gold production. The authors note that there is currently no other sector that is viewed with more skepticism by investors.
In Gold We Trust 2015 concludes that gold remains in a secular bull market, which is close to making a comeback. Should our assumption be correct, we expect to see a final trend acceleration at the end of the cycle. “We believe the time has come for us to provide a concrete time horizon in addition to our long-term price target. In light of the outlook discussed above, we have have set a time horizon of three years (June 2018), to reach our long-term price target of USD 2,300.”
Read the full report here >>>