Why gold is inevitable...

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Why Gold Is Inevitable

As gold takes a breather today, here’s a powerful summation of the gold story from a guest contributor.

Gold’s down today, despite a weaker dollar and lower Treasury yields. It seems that the market is simply taking a breather after the first couple of rounds of investors pricing in the Fed’s September rate cut.

After a benign CPI number today and as we await Fed Chairman Powell’s comments at the Jackson Hole central banker confab, I thought you should read a great commentary that my friend Allan Barry Laboucan posted this morning on X.
 

Allan publishes Rocks and Stocks News on Substack and hosts a great podcast on which I’ve appeared. I thought his commentary this morning, which we’ve reprinted below, was a beautiful summary of the macroeconomic factors that have combined to make much higher gold prices inevitable.
 

I agree with every word, and hope you enjoy it.

— BL

We Are At An Inflection Point For Gold That Will Take It To $3,000 And Bring High-Quality Gold Stocks Into The Gold Bull Market In A Big Way

The market often gives signals that are a self-fulfilling prophecy of what is immediately ahead. On Monday, when Gold Fields made a takeover offer for Osisko, I saw a golden prophecy.
 

Gold and a select group of gold stocks I follow closely traded very strongly. It carried through on Tuesday with gold having its first daily close above $2500 in the futures market.
 

The gold stocks also confirmed that we are going through a bullish inflection point for both gold and gold stocks.
 

Earlier this year, I wrote reports about an important breakout that would move it over $2100, which happened. I also mentioned in those reports that I expected we would see a series of new record highs throughout the rest of the year. Which has also happened.

I often mention that one can learn a lot about the health of a bull market by watching the pullback days. Since that important breakout over $2,100, we have not only seen a series of higher highs, we have also seen a series of higher lows.

It isn’t a coincidence that these are happening prior to the Fed changing to a rate cutting cycle. They are always behind the curve, which is why they raise too late and then need to do a cycle of hikes. Then they sit pat for too long and have to go into a cycle of rate cuts.

Case in point comes from the rate hiking cycle. When the Fed saw that inflation was kicking in after the prolonged Free Money Era, they mistook it for being transient. When it turned out to be persistent, they had to do a series of rate hikes in an unprecedented way.

Had they not allowed the Free Money Era to go on for way too long, they wouldn’t have caused the inflation. If they were any kind of serious economists, they would have known the inflation was coming from the growth in debt from the politician’s extreme spending habits.

They were behind the curve when they kept the Free Money Era going for so long, then again when they thought the inflation was transient. Which made them have to jack up rates so aggressively once again overdoing it.

Now they are ignoring the reality of the problems in the jobs market. They like to talk about the headline numbers and pretend that the economy is at near full employment. As always, the devil is in the details and the jobs market is much worse than the Fed and politicians are suggesting.

It is readily apparent when you look at the decline in full-time jobs and increase in part-time jobs. Not to mention the workers that have been out of work for so long that they are no longer counted. It is all smoke and mirrors.

When someone loses a full-time job, then has to take on two part-time jobs, to make less money than they did in the full-time job, it is horrible for that worker. This is happening en masse, and some just leave the workforce.

Numbers may not lie, but they don’t always tell the truth. Which makes me think of the famous quote that there are “Lies, damned lies, and statistics” made popular by Mark Twain. The lying statistic is that it is okay if a worker loses one full-time job to take on two-full time jobs because the economy gained a job.

Another thing putting the Fed behind the eight ball is that the insane spending by the politicians has created the Death Spiral of Debt. It is getting more severe now that servicing the debt is over $1 trillion and on its way to $2 trillion.

The worst two-term president for spending was President Obama, then President Trump tried to beat him in one term and President Biden is trying his hardest to beat President Trump in his one term.

President Obama tacked on $7.6 trillion in two terms, President Trump added $6.7 trillion in one term, President Biden is on a path to out-spend President Trump in his one term. The last three presidents seem to take the spending records as challenges, not something to be avoided. The next one will sadly continue the trend.

The US Debt Clock is showing $35.1 trillion in debt, the debt is growing at over a trillion every 100 days. There are 139 days left in the year, and still a lot of spending from the effort to buy votes in an election year. It looks like we will end the year at pretty close to $37 trillion and could exceed that amount.

Then in 2025, we get either a second term of President Trump or a first term of President Harris. As Vice President, Kamala Harris has assisted President Biden in his spending like a drunken sailor and President Trump already showed his spending ways. It is clear the Death Spiral of Debt will get much worth and increase the debt servicing costs to new records.

Politicians are junkies when it comes to spending and the Fed is their drug dealer. They never want to be outdone by the previous person in office. During the next president's term an additional $8 trillion in debt is a slam dunk that takes the debt up to $45 trillion. I hate to say it, $50 trillion is also in play.

This my friends is why I call it the Death Spiral of Debt. Once in it, things get very difficult to change, especially with the debt servicing costs growing like they are due to the interest rates. Cutting the interest rates by a percent will slow the debt servicing costs slightly, but the debt crisis horse has left the barn.

Past Fed chairmen have said with their outside voices that the US can never default on the debt because they have the printing press of the world reserve currency. Which is shocking for them to say, thinking and acting on it are bad enough, saying it in public is hubris run amok.

Some believe that default is in the future, and it certainly can’t be ruled out. Especially with the prolific spending by politicians. It will likely get harder and harder to find buyers for all the debt.

Not only is the Fed going to try to get interest rates back down to the Free Money Era, they will also have to load up their balance sheet. When they started raising rates, they also said they would normalize their balance sheet. It went from nearly $9 trillion down to just above $7 trillion, which certainly doesn’t sound normal to me.

If they get a “soft landing” the Fed balance sheet could easily get back up to $9 trillion. If there is a hard landing due to their interest rate policy and the politician’s spending, then they could double it.

The Death Spiral of Debt is going to test the theory that the US can never default on the debt because they have the printing press of the world reserve currency. The chances of politicians drastically cutting spending and the Fed stop spending so much time behind the curve is very remote.

Sadly, the global central bankers and politicians are much like their counterparties in America. The global government debt is now $315 trillion, backed by nothing but promises to pay by spending junkies and their drug dealers.

The only solution is to return to the Gold Standard. It truly is the only answer. It forces restraint on government spending and takes away some of the drugs to deal from the central bankers.

The central bankers in the BRICS nations see the writing on the wall. The only way to avoid government debt defaults is by backing up their debt in a significant way with gold. Currently, the global government debt is only backed by around a percent with gold.

The physical gold buying by the BRICS nations have driven gold to new record highs. Part of the reason I think gold is going to $20k in the next 10 years, is because if they backed the debt by 10%-20%, which would still only be a reasonable level, then $20k is easily in the cards.

The only reason I give gold 10 years to reach $20k is because central bankers aren’t exactly fast learners. If they get out their calculators and do simple math while looking at the writing on the wall it will happen faster.

Demand for physical gold is very powerful while gold production has peaked. The gold miners as a group are struggling to increase production because there have been decades of underspending to find new mines and then develop them. Many gold miners can’t replace what they produce each year. A weak physical gold supply chain is here to stay for decades due to long-term neglect.

They really only have two choices; back up the global debt with gold in a serious way or default on the debt. Either way, there will be a return to the Gold Standard.

It makes me happy that the people of China and India own a lot of gold. In addition, the buying of physical gold by folks in America from Walmart and Costco is encouraging. We are also seeing funds starting to flow into the gold ETFs. I hope that these trends continue and pick up momentum.

In a return to the Gold Standard, it is already clear for anybody looking that gold mining is a good business on its way to being a great business as gold goes higher. Some of the gold miners are seeing record free cash flow during the second quarter of 2024 with gold putting in its best quarter ever for the average price of gold over a quarter.

The third quarter of 2024 is shaping up to have an even higher average price of gold than the second quarter of 2024.

Big gold miners are seeing a lot of profits making their way to their bottom lines. The higher gold goes, the higher their profits will go. Generalist investors are already starting to pay attention, they will continue to see the bright light of gold mining.

The action I have seen of late, with the stellar second quarter of 2024 for gold miners, plus the action in gold and gold stocks when Gold Fields took a run at Osisko are why I think we are at a bullish inflection point for gold and gold stocks.

Investors have an opportunity to get on the right side of economic history by putting themselves on their own personal Gold Standard. To add to their economic health, they should do their best to pay down their debt.

If they want to grow their wealth, high-quality gold stocks focused on mining, developing mines and those with exciting exploration projects and important discoveries are a fantastic opportunity to get added torque to bullish action in gold.

In many cases, gold ounces in the ground are a lot closer to historical lows than highs. Plus, they haven’t even priced in the potential for gold to go much higher. Investors worldwide have a very simple choice: They can be victims of the Death Spiral of Debt or prosper by getting involved in the return to the Gold Standard.

All the best,

Allan Barry Laboucan

Disclosure: Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.

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