Confidence: Government Down, Gold Up

Written by Gerardo Del Real
Posted March 18, 2019

I’ve repeated this many times. Confidence in government is dying.

The House of Commons voted 413-202 last week to delay Britain’s exit from the EU.

Despite resounding defeats, Prime Minister Theresa May refuses to heed the advice — and vote — of the people in hopes of a cancellation of the Brexit vote.

The next few days will decide whether or not Britain leaves the EU, paving the way for more consequential exits in the future. Think Italy.

The drama playing out is the start of what I believe will be one of the most tumultuous periods in the global political scene in quite some time.

The political cards Prime Minister May has chosen to play and her refusal to concede to the people’s vote is why people around the world are calling for a restructuring of our major institutions and why political discourse is so polarized.

Why should we care?

Because the volatility that’s coming will be a direct result of people around the world no longer trusting government.

That lack of trust will see a transfer of wealth from public — think bonds — to private assets — think gold.

S&P Global Ratings recently reported that companies, governments, and households increased their combined debt load by 50% in the 10 years following the financial crisis.

As of June 2018, corporate, government, and household debt surged to $178 trillion.

Of that $178 trillion, $62.4 trillion was borrowed by governments.

During the past 10 years, U.S. government debt has soared from $9 trillion to $19.5 trillion.

The debt — as I’ve told you many times before — is not sustainable. Eventually, the debt will catch up with Europe, institutions will fall, and a new generation will be forced to pick up the pieces.

Before that happens, however, we will see volatility as government never relinquishes power willingly.

So what to do? Do as the Australians are doing. Buy a little gold and make sure you own the better names in the gold space.

Am I talking my book? Of course. Do I eat my own cooking? Absolutely.

Back in September 2018, I told you the Australians were coming.

I explained that Australian gold producers had some of the best balance sheets in the world and that I expected them to continue consolidating attractive assets.

Just last week, Newcrest bought a 70% stake in Imperial Metals’ Red Chris mine in British Columbia.

The transaction — an $806 million deal — sent shares soaring 57% on heavy volume.

Newcrest CEO Sandeep Biswas justified the premium, saying Newcrest’s unique technical expertise in block caving, operations optimization, and selective processing would allow the company to unlock value for shareholders.

Newcrest was also clear that its balance sheet allowed it to continue to pursue quality assets.

The Red Chris deal comes on the heels of the recently announced Barrick and Newmont JV that will consolidate operations in Nevada, with Barrick controlling 61.5% of the JV.

With the Fed blinking, Europe imploding, and volatility rising, the macro backdrop couldn’t be better for gold.

The argument that gold doesn’t yield a return in the traditional sense goes out the window when you consider negative interest rates, a trend I see accelerating as governments rush to borrow while they can.

You can count on accommodative central banks, you can count on bigger deficits, you can count on volatility, and you can count on a higher gold price for 2019.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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