come out in favor of gold and you get maligned as some kind of
doomsday-prepping, knuckle-dragging wingnut. Then you never get to go on
TV. They don’t invite the crazy gold guys on TV.
I’ve been long gold since 2005. Rode it all the way down from 2011 to
2016. If you ride something down 45%, you are a moron. I’ll own it.
I am a moron. I actually had a pretty good idea that there would be a
correction in 2011, but I vastly underestimated how severe it would be.
Although that raises an interesting question. If something goes
down 45%, is it a correction or a bear market?
people would say that it was a bear market. Nobody should ride positions
down 45%. That’s just bad discipline. And a lot of people who had
discipline with gold believed in the mass monetization thesis, believed in
the hyperinflationary endgame — which still might happen. But nobody
should ride anything down 45%.
Anyway, check out this chart of
gold in the ‘70s:
Looking at this chart, you’d say that
gold was in a bull market, right? But look closely — during that
time period, there was a 50% retracement, from about $200/ounce to
What am I saying?
You know what I am
Based on technicals alone, if gold follows a
similar pattern today (whereas we just had our 50% retracement), it could
reach a high of $5,000 to $10,000 an ounce in a few years.
Like I Said: I Will Never Go on TV Again
fundamental argument for gold is pretty strong these days. The alternative
is a bunch of government bonds that yield nothing (or less than nothing)
and that will probably never be repaid.
Or stocks, which are
Plus, there are indications that
inflation is bottoming/has bottomed. All the stuff we have talked about
Gold guys like to talk about the endgame. So
let’s talk about the endgame.
The US has a 103%
debt-to-GDP ratio. It’ll go up a lot under either Trump or
Italy’s debt to GDP is about 170% or so.
Japan is at 240%.
There really isn’t any chance
that Japan is going to pay you back, or Italy, or even the US, once you
take out-of-control entitlements into account.
So what are
the options here?
Extend and pretend
Nobody is going to default here. You want to talk about Financial
Armageddon… that would be it.
Greece hasn’t had a
lot of luck with extending and pretending. They’re in this sort of
endless depression. I doubt anyone would want to copy them.
Nope, everyone is going to inflate, which is the stealth way to default.
There has already been open discussion about helicopter money in Japan
(essentially the BOJ retiring or canceling outstanding debt).
This is where people just absolutely lose their minds. If I told a
six-year-old that we were going to triple the amount of dollars/yen/euros
in the system, they would tell you that prices would rise. More money
chasing the same amount of goods.
Somehow, when you get PhD
economists thinking about this concept, they tell you that everything will
be okay. I guess it is fine for Warren Buffett to eat like a six-year-old,
but not for me to do economics like a six-year-old.
now, we are in this fantasyland where governments (including ours) with
hopeless fiscal situations are able to basically get paid to issue debt
that has zero chance of being repaid in undepreciated currency. Somehow
these bonds are considered a “safe haven.”
Gold Cares About Debt
We have sort of had this détente with the deficit under Obama
— the Republican Congress has actually been a pretty effective
opposition, and spending as a percentage of GDP has declined significantly
since 2010. This is progress. But all of this will come to an end in
The only candidate campaigning on a platform of
deficit reduction is Gary Johnson. But nobody cares. Everyone cared about
the deficit in 1992, when it wasn’t a big deal. Now that we have the
highest debt levels since WWII, nobody cares.
Gold cares very
deeply about debt. Because once you get the debt up to unsustainable
levels, it increases the likelihood that it will be directly monetized.
That is all gold cares about.
I deal with a lot of dumb
questions about gold: “There is no inflation, why should I care
about gold?” We will get inflation eventually — but that is
not what gold cares about. Gold cares about you treating your currency
like toilet paper.
But you say these sorts of things in public
and you’re a crank.
The reality is that gold is a very
technical trade. There were lots of reasons to be bullish on gold from
2011–2016, and it went down anyway. Nothing has really changed
(except maybe the proliferation of negative interest rates). Japan, Italy,
and the US are as insolvent as they ever were.
Except now the
chart is making higher highs and higher lows. I don’t care what you
think about gold — if you don’t respect the chart now, you are
as big of a moron as I was for riding it all the way down.
I’m long in a variety of forms, and I’m staying long until
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