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March
02
2023

This Relic is Ready for its Close-Up
Sean Ring

One of the highlights of my week is the Paradigm Editorial Call.

All the big boys are there; Byron King, Ray Blanco and Dan Amoss… to name a few.

Jonathan Rodriguez always arrives armed with reams of statistics.

Ace options trader, Alan Knuckman, keeps us from straying too far into pessimism. I’ve learned truckloads about options and attitude since Alan started joining our call. To paraphrase Don Rickles, “Alan is the best; just ask him!”

Of course, I write that with a wink and smile because I have learned to look at things differently. At my age, you’re a grateful old dog when you can learn some new tricks.

We have great chats and arguments, all in the name of sharing what we know with each other.

Jonathan and Alan are the IrresistaBulls. Dan, Byron and I, the ImmovaBears.

This week was no different.

Well, until we got to the one subject we all – somehow – agreed on.

And that subject is gold.

I think we were more surprised than anything else. And what a pleasant surprise it was! So shocking that I decided to write about it for you.

But before I dig into the yellow metal, some housekeeping.

On January 26th, I wrote a column for the Morning Reckoning titled, “Give Up on the Idea of a Free Society.”

My good friend and Libertarianism.uk podcast host, Andy Duncan, liked it so much, he interviewed me about it. If you’ve got a spare thirty minutes, feel free to watch it here. According to Andy, my t-shirt stole the show.

Next bit of housekeeping: I will be hosting this Friday’s Rickards Uncensored session. The star of the show will be none other than Byron King, our ace geologist, lawyer, ex-Naval aviator, and Rickards precious metals and energy expert.

Byron and I will talk about his favorite gold picks for 2023. I encourage you to attend so you can hear Byron’s best.

Ok, with the housekeeping out of the way, let’s get to today’s piece on the yellow metal… and why it’s back in favor.

James Bond and Goldfinger

Although I think From Russia with Love is a better movie, Goldfinger is undoubtedly the archetypal Bond film.

From Bond’s Aston Martin DB5 to “No, Mister Bond, I expect you to die!” Goldfingerstarted many of the traditions and tropes we’ve come to expect from Bond films.

After Auric Goldfinger murders Bond’s girlfriend by suffocating her skin with gold paint, M is concerned whether Bond can go on with the mission.

M asks, “What do you know about gold, (not paint, bullion)?”

Bond coolly and inimitably replies, “I know it when I see it.”

Don’t we all, Commander Bond?

And that’s the thing. Most people intuitively understand that gold, the yellow metal that never rusts, is something special.

But no one really explores gold beyond that point.

So let’s quickly review why it’s a good idea to own at least some gold.

Why Own Gold at All?

Gold shines like the sun – is malleable and divisible and never rusts. It was the perfect metal from which to make coins.

It also has a natural supply constraint. No more than 2% of the global gold supply has ever been mined in a single year.

Gold is also no one’s liability, unlike dollars. That is, if you own gold, you don’t owe anyone anything.

But the USD is often referred to as a liability because it is a debt-based currency, meaning that it is backed by the full faith and credit of the US government.

When the US government issues dollars, it is essentially creating a liability for itself, as it is obligated to honor the value of those dollars by providing goods and services in exchange.

Of course, the difference between what it costs to produce one hundred dollars (about 17 cents) and the value of goods producers need to provide to acquire one hundred dollars is called seigniorage ($100 – $0.17 = $99.83). It’s a huge profit for the USG, which is why the French coined it “the exorbitant privilege.”

There are five big reasons to own gold, especially in times like these:

1. Store of value: Gold is often seen as a hedge against inflation and currency fluctuations. It’s been used as a store of value for thousands of years and has maintained its purchasing power over time.

2. Diversification: Gold is a tangible asset that isn’t directly tied to the performance of other investments, such as stocks and bonds. This makes it an attractive option for investors looking to diversify their portfolios.

3. Safe haven: During times of economic and political uncertainty, gold is often seen as a safe haven asset that can help protect wealth from market volatility and systemic risk.

4. Potential for appreciation: While gold doesn’t generate income like stocks or bonds, it has the potential to appreciate in value over time. This makes it an attractive option for investors looking to take advantage of price fluctuations in the gold market.

5. Cultural significance: Gold has a long history of cultural significance and has been used for ornamental, ceremonial, and religious purposes for thousands of years. Owning gold can therefore hold sentimental value for some individuals.

So owning even a bit of gold always makes sense.

But right now, it makes even more sense because of recent price movements.

In March 2022, an ounce of gold traded up to $2,043.30. Then the price fell to November’s low of $1,626.65.

It started to rally hard from there to reach about $1,970 at the beginning of February. For some reason – probably the realization that the Fed will continue to hike – gold fell to its present price of roughly $1,836.

But far from thinking there’s more downside, nearly all my colleagues are looking at the upside.

What’s the Upside?

Well, if you use the unadjusted high from 1980, that price is $850. But adjusting that $850 to 2023 dollars gives you $3,074.

That’s 67% upside. And that’s if you just buy physical gold. If you trade gold futures, ETFs, or gold mining companies, your upside can be much higher.

Why Would Gold Head to $3,074?

My friend and colleague Dan Amoss put together a great chart for Strategic Intelligencereaders.

It shows a deeply inverted yield curve right now. That is, short-term rates are higher than long-term rates.

That happens in deep hiking cycles.

The thing is, when the hiking stops, and the yield curve snaps back to normal (long > short) from an inversion, gold tends to rally hard and fast.

We think that will happen sometime near the end of the year.

So now is the perfect time to buy gold if you haven’t already. Really, you haven’t missed the big move yet!

And there are two other geopolitical events worth mentioning.

Who Owns Most of the Gold?

These are the top countries who own gold:

1. United States of America
2. Germany
3. Italy
4. France
5. Russian Federation
6. China
7. Switzerland
8. Japan
9. India
10. Netherlands

More and more central banks are scoffing up gold to hedge against a USD collapse.

And if central banks are buying, the price will certainly get driven up. Sooner or later, USD hegemony will be a thing of the past. The only way you can protect yourself against that is to own gold.

Wrap Up

There are some compelling reasons to own gold right now.

It’s underpriced, has huge upside, and is about to get back to the adult’s table in currency products.

History may look back on the Bretton Woods era and say, “Paper, schmaper…”

I hope you enjoyed this insight. Let me know what you think by emailing me here. Be sure to tell me if there are any topics you’d like me to cover in future articles.

 
My story starts in Hasbrouck Heights, New Jersey, where I grew up. My childhood was idyllic. I never thought I'd leave the Heights. Well, maybe just for college. When I was searching for colleges, I only looked within a hundred miles or so. I wound up going to Villanova. I stayed there for four years and earned — their word, not mine — a finance degree with a minor in political science. After that, I went to work on Wall Street. I had a menial job at Paine Webber to start, but then I got my first real Wall Street job at Lehman Bros. (before its collapse, of course). I worked there in Global Corporate Equity Derivatives as an accountant, believe it or not. Honestly, I hated the job back then. I didn't know how spreadsheets worked — yes, even with a finance degree. (Now I'm a Microsoft Excel nut. I think it’s one of the most extraordinary things ever invented.) After that, I moved to Credit Suisse, who sent me to London — the center of global operations for banking. I was young. Not only did I love the city for being a Candyland for alcoholics, but I also needed the international experience to cancel out my mediocre grade point average to get into a top 25 U.S. business school. Somehow, though, I stayed for a decade, until I discovered London Business School. There I earned a master’s (HA!) degree in finance. My next job was as a futures broker, which I utterly loathed. When I had enough, I took a year off — pub crawling around London and pissing away my bonus money. Then I figured out that I needed a new job. So I went to work for a company called 7city Learning, where all of the best finance trainers were working. I had no idea about any of that, but imagine walking into the 1927 Yankees locker room and being taught how to hit. I spent my time teaching all the traders exams, the graduate programs of the various big banks and then the CFA Level 1 review courses. Yes, that's the only level I've passed. I hate that exam. I never really wanted to run money anyway. In 2009, my boss asked me to move to Singapore to help build the business in Asia. Then I went to work for another financial training company where all of my friends had migrated. Around the time I was getting bored of Singapore, my old bank asked me to work at talent development for them in Hong Kong. Nearly three years later, I moved to the Philippines, where I started an EdTech startup called Finlingo. Along the way, I’ve racked up a ton of qualifications — I am a CAIA, FRM and CMT, amongst a few other things — but they don't mean anything. All that matters are my experience, my connections and my takes on things. So every day I'm going to do my snarky best to inform and entertain you.

 

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