Gold: Paradigm Shift Now, Then a Mania

Written by Gerardo Del Real
Posted August 5, 2019

Recently, I referenced billionaire hedge fund titan Ray Dalio and the paradigm shift underway in the gold space.

You can read Mr. Dalio’s piece here.

Here are some key points from the piece.

Mr. Dalio explained — as I’ve said for years — that central banks have been lowering interest rates and doing quantitative easing (i.e., printing money and buying financial assets) in ways that are unsustainable.

He goes on to explain that central banks doing more of this printing and buying of assets will produce more negative real and nominal returns that will lead investors to increasingly prefer alternative forms of money (e.g. gold) or other storeholds of wealth.

I look for trends. I usually get ahead of them early. Early usually means I end up adding to positions — many times at lower prices — until the thesis plays out. If I’m right, I make money. If I’m wrong, I move on.

Look at the charts below showing the interest rates and the monetary base in the dollar, the euro, and the yen.

interest rates vs monetary base charts

See a pattern?

Dalio goes on to explain that he suspects that the new paradigm will be characterized by large debt monetizations that will be most similar to those that occurred in the 1940s war years.

The piece is brilliant because of its simplicity.

He goes on to say:

“It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system.”

A good time, indeed.

He ends by saying:

“Most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return- enhancing to consider adding gold to one’s portfolio.”

Bottom line is this.

Central banks around the world are back to a coordinated reflation that will force capital to seek refuge somewhere other than in negative-yielding assets.

I’ve written at length about European, Japanese, and U.S. debt, so I won’t rehash those points here. Just understand this: Rates are headed down because governments need rates to go down in order to service the debt.

Negative rates are going to get lower and the 10-year here in the U.S. is headed to 0% and likely negative before the whole thing implodes.

Gold and Bitcoin are on the verge of historic runs for the same reasons. They each provide an alternative, a safe haven against the outright theft of capital by central bankers and governments that are out of control.

Simply put, people are losing faith in their governments.

The run higher won’t happen in a straight line.

The next key daily resistance before a push towards $1,500 gold is $1,475 on a closing, not intraday, basis.

We need to see a monthly closing above $1,443 to continue this push higher or we’re likely to see a pullback in the short term.

Silver, which I’ve been skeptical of, just touched a new 52-week high and appears ready to join gold in the new bull market. The next month will be important, technically, for silver.

For now, I’m content with exposure through some core positions and some quick-moving trades that rapidly profit from price swings.

Historically, silver is gold’s more volatile cousin, overshooting to the upside in bull markets and to the downside in bear markets.

It will be another year or so before the mania starts in gold. The mainstream won’t catch on for months, which makes it an opportune time to add your favorite names.

Define your timeline, define your risk tolerance, and speculate accordingly, but get that done now. There will not be a better time to buy and these gold prices are an absolute gift.

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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