25.08.2020 – Special Report. One of the most exciting stories on the financial market recently took place with gold: the yellow metal first set new records and then corrected strongly. We suspect that the eternal battle between bulls and bears is far from over. In fact, the arguments for a new bull run are overwhelming. Perhaps the verdict is right: There Is No Alternative.
We had seen the reset coming
As sorry as we are, we must once again pat ourselves on the back: it was clear that gold would not rush upwards unchecked without resistance from the shorts. That is why we had recently chosen the cautious title “New Sun or Supernova” for our Special Report before the new all-time high. It is not yet clear whether the eternal star in the investment sky will not burn out after all.
There Is No Alternative
But the pendulum is currently swinging strongly in the long territory. Presumably, in view of the gigantic changes in our world, gold will probably become a product that nobody can get past. Gold goes TINA – There Is No Alternative. At least that is the verdict of the financial blog ZeroHedge, citing an article from the blog Peak Prosperity. In fact, too many fundamental data speak against a bearish double top. Only when there is a sudden surge of optimism everywhere about the global economy could gold make a massive setback, as it did in 2011. But do you believe this?
A break in the gold rush
Last week, the blog ValueWalk, which is always worth reading, gave some arguments for why the gold rush is not yet over – currently there is only a pause. It quoted Will Cai of Wilshire Phoenix Funds: Gold is becoming increasingly important in terms of diversification and offers a hedge against inflation and volatility. After Warren Buffet had joined Barrick Gold, the price had stabilized.
1929 revisited
Ed Yardeni, Chief Investment Strategist at Yardeni Research, recently noted similarities between the 1920s and today. He compared the Spanish flu of 1918 with Covid-19, and indeed the stock market rose sharply in the Roaring Twenties. The Americans threw all their savings into stocks and consumed on credit. With the stock market crash of 1929, a small gold rush set in – the price rose to $35 an ounce between 1929 and 1934, before reaching about $21. Until Franklin D. Roosevelt banned private gold ownership in 1934, which was only revised in 1974. According to Yardeni, the big crash is yet to come; without explaining why, he cited 2029 as the crash date (we suspect that this date fits so nicely with 1929). So until then, gold would have time for a bull run.
More currency devaluation
Jeffrey Currie, Head of Commodities at Goldman Sachs, takes a similar view. Even if there is a vaccine against Covid-19 this November, it is unlikely to be widely available until the first quarter of 2021. Which means that the economy needs more stimulus and the Federal Reserve will print more money – which means a downward risk for real interest rates. And this will fuel the gold rush again.
Helicopter money destroys real interest
Mark Cudmore, former forex trader at Lehman Brothers and current macro strategist at Bloomberg Markets Live, recently joined the same horn. His verdict: “Real Yields Will Be Negative Until The Financial System Collapses. And further: “The Gold and Bitcoin Bull Run Is Just Beginning”. Because something changed this year: The Modern Monetary Theory was installed secretly, quietly and silently. We explain: Helicopter Money from the State for All to Boost the Economy and Inflation.
The debts are being inflated away
In the coming decades, the USA would have three options for getting rid of its national debt: 1. declare default 2. inflate the debt away. 3. austerity policy to slowly reduce the debt.
Option 1 is politically unthinkable. Option 3 is possible, but this cannot be maintained for several years. In our opinion: A continuing austerity policy will sweep every politician out of office. The consequence: real interest rates remain negative until the market is completely restructured or collapses. The devaluation of paper money will take place imperceptibly over a long period of time, and there will also be disinflationary setbacks and crises. But the central banks would always react to them by printing new money.
Our conclusion: These arguments all sound quite convincing. But as I said, be careful – a faster-than-expected recovery of the global economy could make the coffers of the tax authorities bubble everywhere. And perhaps, the money will then be used massively to pay off debts and interest rates will rise again. Which would be bearish for gold. The Bernstein Bank keeps this topic in mind for you and wishes you successful trades and investments.
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