gold news

 thank you I'm Charlotte McLeod with the investing News Network and here today with me is Adam Rosen swag managing partner at caring and Rosen swag thank you so much for joining me online today great to see you nice to see you again Charlotte as well yeah nice to be catching up with you and you know we've talked in the past about a number of different topics we've gone over oil and gas uranium and copper but we've never really had a chance to look at gold I was thinking with the metal

trading yet still historically high levels now is the time to look at what's got us here and what's coming next so you actually recently just put out a q1 research report and in it you mentioned how it looks like gold is entering the next leg of the bull market so if you could maybe start by situating us in terms of where we're at in the the gold cycle right now yeah sure absolutely so you know we have been gold bulls for quite some time but we've actually been mostly out of the

gold market and that might sound like a strange combination but the reason that we were is going all the way back to 2020 we started to see a lot of indications that the gold to oil ratio had really switched into favor of energy so obviously oil went negative in the middle of covet uh gold prices were hanging in fairly well and we had this unbelievable opportunity that we saw merging in the energy side of the complex but something else happened back then that made us think that perhaps gold might might take a breather in an

otherwise strong bull move which we think will basically last most of this decade and weirdly enough what that was is that was silver and the reason why silver gave us a little bit of a sell signal on gold was the idea idea that silver outperforms gold in a strong precious metals bull market and that's always been the common wisdom but that kind of is not 100 accurate now now it might be true that you can look at sort of total percent changes and what have you but what that misses is the idea

that for a long time in historical precious metal bull markets silver will actually lag gold that was true in the early 1970s when gold dramatically outperformed silver for the first two two and a half years of the bull market and then Silver Stage is this massive ketchup rally and it closes that Gap entirely and what you actually get is silver pools ahead of gold in terms of total performance now that ironically that's your cue in the past anyway that perhaps the precious metal bull market is about to take a little bit of

a breather and that's what happened this time uh as well so we got those two signals at the same time we had this idea that silver staged this ketchup rally uh which in the past has been the sign that maybe you're going to get a bit of a breather and you have the fact that on a relative valuation basis that the goal to oil ratio was so favorably skewed towards energy and we'd never had a reading like that in which oil did not massively outperform gold and that was the case this time as well so we use

that as our cue to get out of the gold market in 2020 and that was the right call you know people that follow us might know that we are early on things and we're not really the best timers of markets we're pretty good at analyzing them but we're not great at timing them and this is one of the rare timing calls that we got right so we've been waiting for our opportunity to get back involved in the global market and for a lot of reasons which I'm sure we'll spend most of today talking about

I think we're basically at that point today so now we think that gold has entered into a new phase of Municipal Market probably started in the third and fourth quarter of last year it really revolves around central banks Behavior as much as anything else and I think it's going to propel gold much much higher in this new leg of the bull market yeah so we had those two signals for you that said okay maybe now it's time to take a step back and let's talk about the signal that is telling you all right

now it's time to be picking up you mentioned the central banks and I know based on the report that that's a factor that you're really kind of seeing great significance from so let's hear a little bit about that if you could sure absolutely so you know all the way in the early part of last year we started to you know sharpen our pencils and say okay when is this turn in Gold really going to take place and we put out a road map like we like to do with a few different factors we would like to

see in it and one had to do with um Western Speculator buying and selling and speculators that had liquidated a lot of gold during covet the second had to do with central banks which had actually stopped buying gold during most of covet and actually turned to sell gold in some cases to try to free up some money um in order to you know pay for their different different social programs related to the covet shutdowns stimuluses and stuff like that and then of course like I said the gold to oil ratio so all of those started to look

better in the beginning part of 2021 and what you of course had working against you was the idea that you were raising interest rates so significantly in the United States and we had the sharpest interest rate hike cycle really in modern history and of course in that environment you know that that's going to be a headwind for gold and so those were kind of the different forces buffeting the gold market last year and then everything changed in the fourth quarter the Central Bank stepped in as a

massive massive buyer of gold in the fourth quarter and then it continued into the first quarter of 2023 which is the most recent data we have available and in many cases uh and in an aggregate group the central banks bought more gold in the fourth quarter than they had at any time since the world went off the gold standard in late 1960s early in the 1970s and in many cases for individual countries they bought more gold than they've ever bought in their history so something seems to be changing and I

think that something is going to drive the gold price substantially higher and remember you know gold Central or Central Bank gold purchases are largely priced insensitive so I think it's so important when you look at gold and you look at the buyers and the sellers and you say who is the most price sensitive in this and when you have price inelastic buying that's the recipe for much higher prices just like when you have price inelastic selling that's what drives prices much much lower you know

when the central banks sold all their gold in the late 1990s worst call they ever could have made they made the bottom in the gold market because we went out to the market and they sold without much regard for price and I think now they've re-entered I mean they've re-entered to a small degree over the last decade but now they've re-entered in a very material fashion and they're price insensitive and that's going to drive prices much much higher all right and what are your thoughts on

why the central banks are doing this large amount of buying what are your thoughts well there's a lot of uh ideas being thrown around and to a large extent which I think is so interesting is that a lot of these ideas have been thrown around for some time you know there's been a feeling that the United States is going to lose its Reserve currency status and as some of your listeners and Watchers likely know um you know for the last 40 years the United States has really been the reserve currency since we've stopped at

Bretton Woods exchange standard which pegged a lot of currencies together uh through through um through the Bretton Woods exchange agreement uh following that period really which really ended abruptly in 1971. the U.S has been the default Reserve currency of the world now what does that mean that means that when China and Australia trade you know when Australia sells coal to China they settle it in dollars they don't settle it in Australian dollars they don't settle at remember they settle it in U.S

dollars and in fact the majority of the global commodity trade is all settled in U.S dollars and what that means is that around the world everyone has to hold a huge amount of US dollars in order to facilitate trade settlement and they recycle that into treasury Securities and things of that nature and it allows the United States to run consistent and sustained budget deficits however we think that that could now be changing and for a long time people have said that that was an unsustainable model and

we point out a few people but there's a number of different newsletter writers and research analysts some of my favorite uh or Louis gav or gavicol and zolten Posner formerly of Credit Suisse um wrote very very very well uh and and Mr Grumman from forest for the trees is written for a base basically a decade that Russia and China were desperate to start settling commodity trades outside of the dollar and if that were to happen then that would be a really really important shift in the global monetary

system there's only one problem there was never any evidence that that was actually happening you could make the case over and over again that it was unsustainable and you could say that the U.S was running important fiscal policies and that the U.S had political Discord that made it not a good candidate for Global hegemody power and that their you know Empire was fading like Britain's was after World War one and certainly after World War II but the problem was while all those arguments might have been

valid you weren't seeing anyone move away from the US dollar you still settled all of your Global Currency all your global trade in dollars and even when the U.S so-called weaponized the dollar through the Swift system which occurred for the first time you could make the debate but there's been several creeping instances of it over the last really 20 years since 9 11 where the U.S has used its position as Global clearing agent in order to push a political agenda although that was a you know aggressive

action it never caused anyone to look elsewhere everyone basically um bent and and continued to use the dollar as the reserve currency standard even the Swiss you know basically agreed to get rid of their U.S clients to avoid um you know the position that they were put under uh to try to violate their Bank secrecy Acts that's now starting to change and I think that's what's super important you know these arguments have been ones that we've followed for a long time and we're not sensationalists in any regard and

and frankly we don't have not believed up until now that there's been any chance of the U.S losing its reserved currency status basically because there was no evidence that it was happening now that's beginning to change France has announced that they're going to sell LNG to China and renmin beat uh Brazil is going to sell soy uh and and iron ore to China to nominate it in Redmond Beach and Saudi Arabia is negotiating now uh with China in order to sell its crude oil to China again settled outside of the dollar

what does that have to do with gold well two things really first of all anytime you're going to get a major monetary shock like that like the end of a reserve currency system and bringing in a new system I think that's going to be really good for gold and I'll explain why in a second but secondly and what I think is maybe a little bit easier and less abstract is that if you have all these countries and they start trading with China there's going to be an accumulation there's going to be an

imbalance if you look at how Saudi trades in China they sell more oil to China than they import Chinese Goods back to Saudi so what you're going to end up with is remember that accumulate in Saudi Arabia or in whoever the commodity exporting country is and what do you do with those the nice things about the US dollar is that they are the reserve credits you can use them anywhere you can go and use them as collateral you can take them to London and by a townhouse in Belgravia you can go to the south of France wherever you

want the Chinese Renminbi is a much more closed Capital system and there's really nothing to do with it other than by Chinese goods and so what the indications are looking like is that you will at least use some gold to try and balance any big trade surpluses for deficits meaning that you know in the case of china and Brazil you would sell all your soybeans to China collect them and beat by as many Chinese Goods as your economy could handle and then with whatever left over and maybe you'd be able to exchange at least a

portion of that back on the Shanghai Gold Exchange uh for gold and use that to repatriate your Capital um that's not a gold standard uh explicitly by any means uh that is still very much a Fiat paper system however it would use gold at least on the margins to help balance trade imbalances and deficits and surpluses and to me that would be very consistent with the activity that we're now seeing amongst these central banks accumulating huge positions in gold in their reserves both China Russia Brazil India Singapore a

lot of these countries that I think would potentially be um you know in in this new position so I think the big thing is not you know like it was the famous saying about going broke how does it happen slowly at first and then suddenly I think it's sort of like the writing's been on the wall here for a long time I still don't think that this is a hundred percent likelihood of happening but it's gone from a very low likelihood to at least something that needs to be taken seriously and in that type of a world

gold would do very very well right yeah I was going to ask you you know what is the timeline for this but it's something that we need to keep watching and see if it actually does happen and then the other thing that was coming to mind is okay in this new type of monetary system where does the balance of power start to fall does it start to shift toward countries with more gold or how does that look to you well that's a really interesting question and I think you know certainly there there's a lot of shifts that would

begin to take place I think the you know notable loser would probably be the United States in the sense that if you you know the the most the easiest analog would be Britain after World War one but really World War II um where they lost their Global Reserve currency status and all of a sudden had to live within their fiscal means and it became a very difficult time for Britain with several Sterling crisis uh and you know pound crisis um that occurred throughout the 50s and 60s and 70s so I think that that is something to

worry about I I think that you know I guess naively you might look at some of the uh gold producing countries and say well they should do well there although with such a shock the unintended consequences are always difficult to firmly Peg down I think the Emerging Markets would end up doing quite well and again Louis gav is some really interesting articles about what uh you know a new sort of Asia Centric or Southeast Asian Centric trading block might look like we're basically instead of recycling excess US

Dollars into treasuries and then having the U.S lend domestically or to Emerging Markets the Chinese through their Chinese government Bond recycling mechanisms might actually push liquidity into the uh into its sphere of influence directly which would really liquefy a lot of those Emerging Markets so I think the answer is to remain um open-minded and probably expand one's uh limits in terms of what the the possible outcomes could be I think we're at a little bit of a shifting or the time is potential uh for for a bit of a

shift here but here's something that's really interesting to consider and something that I think will do very very very well you know we've shown many times this chart that compares the price of Commodities to the price of financial assets and we've dragged it back 140 years and when you go all the way back um over several Cycles you see that every time Commodities get really really cheap relative to financial assets a lot of the same things happen you have easy credit you have investment manias you

have Mal investment um and you have commodity prices that are fall and then they become a wonderful time to get involved in the commodity business so we're at one of those times right now we've been arguing that really for for a few years we've been early uh with covid we've got a double bottom it worked it didn't work but I think when we look back on this decade we're very clearly in a bull run here that'll take commodity prices higher through the balance of this decade until investment is restored

but the interesting question is what was the Catalyst at all of those bottoms to start a new bull market in Earnest and in every case it was a change in the global monetary system the first was the end of the classical Gold Exchange standard in 19 really 29 the second was the end of the Bretton Woods exchange standard or Gold's convertibility um or gold US Dollars gold backing which everyone thinks happened in 71 but it's really Johnson that took the US dollar off gold in 68. by removing the law that said the dollar

had to be backed by gold now of course when you say the dollar doesn't have to be backed by gold the day you do that it still is backed by gold and so it took a two years uh to run out of gold and have Nixon shut the gold window but that started in 68 and then in 99 when the uh ltcm blew up and you had the Asian currency crisis you know half of the developed Market or developing markets rather changed their monetary system and decided to competitively devalue their currency it resulted in you know six

trillion dollars basically eventually winding up in foreign Central Bank Reserves so these were massive shifts in the global monetary system and each one of them corresponded to the low points in the commodity price relative to financial asset chart so here we have another bottom cheapest price Commodities have ever been relative to financial assets and we've been saying since 2018 that you know I bet it's going to be a change in the global monetary system and so I think that that you know we're starting to see that now

again these are these are trends that you could have seen coming for a long time but I think they're actually starting to play out as we speak all right that's really interesting and so for you Central bank's monetary shift these are really important factors for gold what else is on your list when it comes to watching gold because when I have these conversations we're talking about other things like the FED inflation banking crisis all these different things how do you rank those

kinds of things well right now I do think that the central banks are earn the driver's seat um you know I I think that to the extent that we have further rate hikes in the United States uh that will be a headwind for gold however I think at this point given that we're through I would say you know even if you're a real Hawk I think people agree that we're probably more than halfway through the great hike cycle at this point after 500 and change basis points inside of a year I think

that you're likely um past the worst of that as far as a headwind if you get another series of rate hikes will that have short-term impacts negative impacts on gold it's very possible but it seems as though the headlines now are more dominated by the Central Bank buying and particularly since that fourth quarter buying was followed through with continued first quarter by uh this year as well so it was not sort of an isolated incident or blip um you know if you had a Global Financial contagion or banking crisis

for Paddock what we have seen in the past is that that will in fact lead to gold selling off as it sold to provide money and liquidity along with every other asset so it gets caught up in this Vortex we saw that in 2008 but then it bounced right back and eventually made it cycle high so I think that if that happens again these are probably short-term uh in nature um as far as you know Western speculators I think that's something you can watch as well although the liquidation there seems to have slowed uh and although you're not

in the new accumulation phase they no longer seem to be shedding gold quite as aggressively the other thing is that the positioning of the speculators on The Comebacks are are pretty bearish still which is usually a good sign you know in the speculators actually um uh go go net net log and the uh and the commercials go or sorry when the commercials go that long in fact there's go net short that tends to be a really good Buy Signal in the precious metals Market we had uh that signal in silver

we haven't had it in Gold but nevertheless I think that that's uh their positioning is still on the more bearish side which is which is ironically if you think they're the dumb money is positive so I think that the stars are fairly aligned for gold uh right now um and I think that that we've firmly entered now into the second Lake of this gold bull market which by the way in the 1970s gold had a massive pullback in 73.74 the FED raised rates aggressively to try to tame inflation just like

they're doing now go pull back like 50 from Peak to trough silver well gold stocks are down like 70 or 80 percent um and then it was Off to the Races through the back half of the 1970s and I think we're probably going to fill this similar type of a pattern this time except the drawdown in gold and silver prices has not been as bad this time and I think the reason it hasn't been as bad is that the central banks are now buying okay so I've heard that in order to have the gold price really take off not that

we're not quite higher right now you have to have all your sources of demand v kind of lining up is that does that make sense to you is that kind of what you're thinking yeah I guess that's interesting you know look I I think I suppose that makes sense although you know when when you when you do think about it um for every buyer there has to be a seller so when I think about the gold market I usually try to think about the price sensitivity of who's doing the buying and who's doing the selling

um the you know Indian and Chinese buyers physical buyers uh retail physical tend to be very price sensitive uh and speculators tend to be very they chase price so price is almost um they're the opposite of price sensitive when price goes up they want more when price Falls they want less central banks are agnostic they tend to make their policy decision and then whatever the cost is the cost is so I think if you have central banks buying that's bullish uh I think that if you have the physical Retail Group uh

bleeding gold out into that uh Central Bank buy that's that's quite positive and then eventually I think you're right that you probably will get the Western Speculator who chases that Trend and comes back and that's probably where you push things into unsustainable territory later this decade okay very interesting and you know of course when we talk about gold people always want to know what do all these factors add up to in terms of the price trajectory and I know you've made a

comparison for precious Meadows to the 1970s so if you could maybe talk about how the price situation plays out for now sure so look I think that I think that you know our price target for gold has five figures in it and and um you know it's it's probably I would guess it's like you know in the twelve to fifteen thousand dollar announce range and we're gonna write an upcoming um essay about gold valuation in the next in the next quarterly letter and so that might sound you know shocking maybe it doesn't

depends who your listeners are uh but um that number's not made up it comes from a few different factors one would be looking at the historical relationship between how much gold the government holds versus how many dollars are out there so even though we went off a bold you know the pre the amount of ounces that we held uh became thick starting in the late 1960s early 1970s but the price of course moved and so you can still compute the implied gold backing even though it's it's not a an actual gold backing and

and it's moved in in patterns that are kind of interesting at times the dollar gets backed by a lot of gold and that usually means that the dollar is or that gold is overvalued relative to the dollar and vice versa so if you use that as a metric you get to you know fifteen thousand dollars per ounce that takes you back to a a fairly High backing uh similar to what you had at other Market tops right so I'm not say it's the fair price but that's where things got in 1980 and that's where things got again

uh in in in the late 1920s um now the other way you could do it is by looking at the relationship of gold total Financial assets and that makes sense in the sense that gold is an asset it should have some type of a waiting and a global basket of of wealth and of productive assets and it does you know you can look again over time and it's not that it's a fixed asset allocation but you can see that it moves in bands and when it gets really cheap it tends to be a good investment and it gets

really expensive it tends to top out and the price begins to roll over and so if you do that again you know total Global Financial assets relative to Total above ground Gold stock you're talking about fifteen thousand dollars per ounce you know easily so that's always kind of been our long-term Price Forecast on or gold has never been you know how we model gold companies uh but in the long term that is where we think you know a fair cycle will take Precious Metals this time but the near-term headwinds

notably central banks that we're no longer buying speculators that were shedding and oil that was Dirt Cheap relative to Gold meant that we felt that the more attractive investment for people was on the energy Side Of The Ledger book and now uh I think that that it's pretty compelling to have both quite frankly so I think that that the corrective phase that we've been talking about and we said would it lasts two to three years and started in 2020 is now coming to an end and I think uh the next

leg of this this strong bull market that that ultimately will take gold above ten thousand dollars an ounce uh is very much in play okay really good to know the thought process and gold and I know we said we'd be talking about gold but I'm going to throw in a quick question on Silver because you know it has similar drivers to Gold but not all the same because it's got its industrial side what happens to this silver price in this scenario and do you have any thoughts there well look I think that silver will

probably do the same thing as gold um earlier this cycle meaning it'll lag and lag and lag and lag and then catch this massive ketchup bid um and that's probably your side to get out of the precious metals markets again people love to to you know talk about the differences between gold and silver and how things might have changed to be different this time I I yeah obviously there's an industrial demand element to it for a long time in my career that was a real headwind for silver because we

weren't using film anymore you know a lot of silver went into the film market now it's a it's a big benefit because of all the electronics and things like that it used to also silver used to be the poor man's gold because it was much cheaper per ounce and now that you have all these Financial ways to buy gold I don't know that that's quite the same anymore right because you could put a hundred bucks to work in Gold financially uh whereas before you know it was you had to buy an ounce of each

and then you could get gold for much much less but I do think what we saw take place in 2021 or 2022 I can't remember 2021 um is very very telling because silver you know the Reddit crowd tried to Corner the silver market at that time and they they spun up a yarn often told in Precious Metals markets about how JP Morgan was sitting on this massive short position of silver and they were going to squeeze the shorts out and um all of a sudden you know they were going to force capitulation and the

price was going to go much higher uh now of course that didn't work silver was bit up I don't know probably 20 in a week or so and then it faded shortly thereafter and the reason that it faded in my estimation is because JPMorgan is not sitting on this massive conspiracy theory short position although I'm sure people in the comments will disagree with me um and ultimately they were able to bleed material into the market and that satisfied you know if there really were short squeeze uh that that would have

potentially been enough to to break the back so I think that that's proof that there wasn't but the point is that people are gravitate towards silver from a speculative perspective they just love it and it's such a small market and it is so volatile and it moves in in sympathy at times with gold that I think this time will be no different and you will see a massive speculative Mania emerge where somebody tries to quarter the silver market again it's just too tempting it's sitting out there ready to go and and so

I think that that will probably be the huge catch-up rally later in this cycle that that closes that Gap but it's not going to be up and orderly uh I think it's going to lag and lag and lag and lag and then stage this massive Hunt Brothers I guess 3.0 now that'll be the third time someone tries to Corner okay that definitely sounds very possible when it comes to Silver so we'll we'll look to see if we have that happening as we are getting to the end here I want to ask about how investors

should approach gold and silver mostly gold right now is that as you mentioned there's a lot of choices in terms of how you get exposure to the market so what are your thoughts there well I think that everyone's investment uh background and makeup is going to be a little bit different and luckily in the gold market there's something for everybody uh we at the fund you know we're predominantly uh or entirely an equities fund so we invest um in Gold shares I think there's some really

really attractive opportunities in the gold mining sector right now um this has been left for dead for an awfully long time valuation is about as low as I ever recall seeing it the companies are better shape than I've ever recalled seeing them also you know there's times where they uh um sort of blow their brains out on spending and have levered balance sheets and you know five billion shares you know a decade of a bear Market will cut still a little bit of discipline and so the other companies

are in pretty good shape they have some really good development assets some challenges to be sure but we see some really good opportunities there I think as it forms a broader portion of someone's um you know wealth planning uh the the idea of owning some physical gold uh makes sense uh as well you know it it's it's an asset that's no one else's liability it's outside of the financial system and um and and it should do well over the next decade now I would caution that what however people do it

you do it with the um understanding and the humility that the range of outcomes in the precious metals markets is always wider than one would expect it to be and there will be frustrations and setbacks for sure uh and so you should try to remain strong hands um and continue to kind of Buy and Hold because I think when we look back on the decade it's no question in my mind that gold will have done its job and done a very very good one at that uh but that's not to say that that the path is always smooth and so I think that

people need to do whatever however they can manage the volatility uh to ensure that they enjoy all of those returns that probably means sizing it appropriately and certainly not using leverage and things like that yeah well and just one small follow-up I think we do have people who position themselves they are ready to go and they're seeing the same things that you're mentioning the companies are looking good right now and they're thinking but when are they going to move right oh I don't know if they could figure

that out they tell them to tell them to reach out to me look we're terrible Market timers um now that you know that's not a cop-out we obviously try to do our best what I can tell you is that I think the risk return is soundly in your favor right here and right now so whether they continue to move sideways whether they move down a little bit uh I think all of those are buying opportunities and I think uh the risk here is is to the upside because of uh they're very low valuation and the positive Tailwinds

that they'll get from gold my suspicion is that gold shares will do quite well they've actually done pretty good um at the beginning part of this year they provided some nice ballasts at a time when other parts of the Commodities markets weren't working and in fact you know they've provided some nice balance when other parts of the market have shown some signs of of kind of moving sideways which has not been often in this kind of melt up 2023 uh so I think that the gold Shares are are behaving

differently it seems as though the selling pressure is behind them so hopefully that'll be a good sign that that will see some strong performance going forward but I'll be the first to admit that my my timing is not the best okay well I think that's useful advice in any case so as we're finishing up are there any other points on gold or silver or any of the topics that we've been speaking about that you would leave investors with just just that just that you know if you start thinking all the way back to when

this commodity and real asset Market got really distorted and really out of favor a couple years ago um we really rolled up our sleeves and we tried to look at what could potentially be the Catalyst to re-rate real assets and again this idea that a central bank shift and a monetary policy shift more than a central bank shift I mean a central bank shift is when they go from loosening to tightening this is sort of a dismantling um of the central bank system it's it's a Black Swan event but it's not without

precedent it's happened you know four times in the last hundred years uh we've been sort of overdue for a shift it doesn't mean that the world ends or that the United States you know implodes but it probably does mean that all of this excess pressure in the financial system that's built up and built up and built up of paper assets versus real assets kind of gives way a little bit and starts to revert back to normal and and I think in that environment you know realize that in general will do really

really well commodity stocks which have been just you know hugely underrepresented in all the indexes in recent years will do quite well um and and gold underpinning all of that uh is set to probably do historically well and and so I think it's a it's a uh Dangerous Time ahead I think that investors um need to leave themselves open to a bigger range of possibilities across all asset classes because to me when you look at the amount of capital that is uh imbalance today you are you are out on

that tail risk where things usually happen and something has to happen can normalize um some of those imbalances and I think suspect we're seeing the beginning of that now okay I think that is a great note to end on thank you so much for coming on today to finally talk about gold this is really good I found it easy to follow I think there's so much good information in there for investors to hear well thank you so much and I hope to talk to you again soon we will do it again soon thank you again

and once again I'm Charlotte McLeod with the investing East Network and this is Adam rosensweig with caring and rosensweig [Music] foreign