The price of oil remains at $62…the American peso is still trading for peanuts ($1.39 against the euro)…and gold lost about $5 yesterday; it trades this morning near $953.
Do you have your positions in gold, dear reader? We hope so. We advised readers to buy gold when we first began our Markets and Moneys 10 years ago. Back then you could have bought an ounce of gold for less than $300 any day of the week. Today, you’ll have to pay more than 3 times as much…and you could have to wait a few days to find gold coins.
Of course, you remember our “Trade of the Decade”? It was very simple. Buy gold on dips; sell stocks on rallies. We’re almost at the end of the decade. So far, we’ve got a nice profit on the gold side. And a nice profit on the stock side too.
And we’re beginning to wonder what our trade will be for the next decade.
Why do we trade just once a decade? Mostly because it’s hard to figure out a winning trade; we’re too lazy to do it more than once every ten years. But it turns out that frequent trading is a losing proposition anyway. Major trends are the only ones you can spot reliably…and they take time.
In the present case, our Trade of the Decade may turn into the Trade of Two Decades. Because neither the bull market in gold nor the bear market in stocks has fully expressed itself. The price of gold is barely higher, in nominal terms, than it was 29 years ago. Some people will look at that bit of information and conclude that gold is always a losing bet. We conclude that it is sometimes a losing bet. Other times it is a winning bet. For the last ten years, gold has been in the money. Even so, it would have to nearly triple from here in order to beat its price record (in real terms) set a generation ago.
There are good reasons to think it might. Not the least of which is the aforementioned shortage of ready cash to fund the US government’s deficits. As the supply of Treasuries increases, the supply of willing and able Treasury buyers is likely to lag. Into the gap comes the Federal Reserve, checkbook in hand. Rather than allow Treasury yields to increase – which is what happens when there are more borrowers than lenders – the Fed will do the buying itself. It will buy, not with savings but with money of its own making.
As the Fed creates more new green money, the old-fashioned yellow money is likely to look better and better. Perhaps only because it will be harder to find.
There are about $1,600 trillion worth of derivatives in the world…$125 trillion worth of real estate and business assets…$100 trillion worth of stocks and bonds secured by assets…$65 trillion worth of government bonds (rising rapidly)…$4 trillion worth of actual currency…and only between $2 and $4 trillion worth of gold and silver.
We’ll take the gold and silver…at least until the bubble in Treasury debt blows up.
for Markets and Money