The Russian insurrection came and went over the weekend, and so didn’t significantly affect the gold market.

However, it serves as a reminder of the ongoing instability on the geopolitical front...and the dangers of using that as a rationale for investing in gold.

June 26, 2023

Dear Fellow Investor,

My friend Doug Casey launched his career with his famous No. 1 best seller Crisis Investing in 1979.

There was lots of grist for the mill back then, with crisis and confusion enveloping the globe. From armed conflict to economic turmoil to ridiculously uncomfortable clothes, suffering was endemic.

And gold was soaring.

Although Doug chronicled the dangers of interventionist foreign policy and the geopolitical firestorms it produced, he’s always noted that it is monetary mischief that truly drives gold higher.

And that’s why gold catapulted to record heights while Crisis Investing was on the best-seller list.

When Nixon severed the last remaining bond between the dollar and gold, it gave Washington and the Fed the carte blanche to spend and create money at will, seemingly without repercussions.

But those repercussions came, and came hard, as inflation skyrocketed quickly thereafter and through the rest of the 1970s.

Our founder, Jim Blanchard, saw that coming, and it was why he launched Gold Newsletter to advocate for the right of gold ownership for American citizens. Unlike FDR, who took away that right just before he devalued the dollar by 69%, Congress’ return of legal gold ownership in 1974 allowed savers to protect themselves against the ravages of inflation that followed.

And it has continued to protect them through every economic cycle since.

After Volcker quelched the inflationary fires by raising rates to 20%, the Fed governors and chairmen were a bit more circumspect in their machinations.

But they all had the same recipe for any hiccup in the economy: easier money.

For almost three decades, this simply meant lowering the fed funds rate whenever a recession or slowdown came around. And then, once the economy got back on its feet, the Fed would begin to raise and “normalize” rates.

You know the rest: They were never able to raise interest rates to previous levels. In fact, they weren’t even able to raise them to the mid-point of the previous cycle before being forced to begin lowering them again to address another slowdown or crisis.

Eventually, they got to zero, and were forced to come up with new, desperate measures like quantitative easing to provide liquidity to the voracious markets, in addition to fiscal largess from Congress.

Those initial programs developed after the Great Financial Crisis in 2008 were multiplied after the Covid pandemic hit. What took four to five years to accomplish post-2008 was done in four to five days.

And it was these monetary events — not geopolitical crises — that took gold to new record heights.

The near-revolution in Russia came and went before it had a chance to launch the gold price higher.

But if it had, the price would have quickly fallen to where it was before, and possibly lower, once the crisis had passed. The vast majority of investors would have been left holding the bag.

It’s important to understand this dynamic, because there will be more such events in the future. In fact, more remains to be written in this latest chapter in Russia’s violent history.

The lesson is this: There’s no actual rationale for the world buying gold in the teeth of such geopolitical uncertainty. Gold protects against the long-term depreciation of currencies, and these flash points come and go without having any lasting effects on these factors.

That said, there are valid monetary reasons to accumulate gold in the current environment.

Consider that, while gold has lost over $100 over the past two months, it remains within about 6.5% of an all-time nominal record high.

In short, the gold price has actually done fairly well, and has remained at highly elevated levels for some reason.

What could that reason be?

Simply put, the gold market is recognizing that whether the Fed raises rates another once or twice, this rate-hike cycle is peaking. And the next move will be lower, either due to a recession or the next crisis spawned by the central bank’s latest policy overreaction.

With that next, inevitable event, gold will rise well past the old records to much higher levels. The timing remains in question, but it’s relatively soon.

So don’t buy gold because of a geopolitical crisis in Russia or anywhere else. And don’t listen to anyone trying to sell you bullion based on this type of turmoil.

My advice: Accumulate gold because of the relentless, multi-decade trend of currency devaluation that is now nearing its endgame.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference