Gold’s Best Days Ahead: Have You Missed the Gold Run?

Gold’s Best Days Ahead: Have You Missed the Gold Run?

Dear Reader,

The world we’re going into is not the world we left behind,’ Jim Rickards told the audience on day two of the Sprott Natural Resource Symposium.

Rick Rule was enjoying a virtual wine tasting with Jim and Nomi Prins, among others.

There’s been a couple of themes that have come out of this conference.

The topic on everyone’s mind is obviously the pandemic, and what comes next.

And as Nomi Prins and I discussed yesterday, the Federal Reserve Bank isn’t the only one reacting to the crisis.

And the other takeaway I’ve noticed?

What a great time it is to be in gold.

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It’s not just a US problem this time

Much of the commentary coming out of the Sprott conference is the ‘then and now’.

Comparing this crisis to the financial crisis of 13 years ago…

Partly because the last crisis is still fresh in our minds. In terms of market cycles a decade isn’t really that long ago.

Furthermore, references to the last crisis keep being brought up because the fragility of the global banking system was exposed to us mere mortals.

Back then, people outside Wall Street didn’t understand the interconnectedness of markets.

The 2007/08 financial crisis showed us how little Aussie banks relied on credit from unheard of institutions in Europe. That US housing loans were being repackaged and resold by what should have been an insignificant subsidiary of insurance giant AIG.

And how out of all of this, a Thailand developer defaulting on their corporate bonds triggered this leverage unravelling (this is something my colleague Nick Hubble has covered extensively over at Jim Rickards’ Strategic Intelligence Australia).

Of course, this time around, more of us are informed about how the global banking system is wired.

In fact, as Nomi Prins put it to me yesterday, ‘It’s worse.’ Adding that the financial links that bind together the financial economy are more deeply intertwined.

Companies in the US are being propped up with easy money. It’s important to remember the Fed has thrown trillions of dollars into the economy within three months.

Nomi is keen to emphasise that we aren’t talking years. US$3 trillion of Fed liquidity has entered the financial economy within three months. It’s unprecedented. Equally so, are future Fed actions. And that they have said there are no limits to what they will do to support the US economy. The thing is, there will be a much more difficult unwinding…

As Nomi says: ‘That’s what you get when the Fed throws US$3 trillion into the market, it goes into the financial economy. Which is different from main street.

Gold’s best days ahead

By 8am this morning, I was three coffees and two interviews down.

My interview for today was commodities expert Adrian Day from Adrian Day Asset Management.

Adrian and I first met at Sprott Natural Resource Symposium last year. His first question he asked me was, ‘Are the crooks still in charge?

He was of course referring to the Australian mining industry’s wild west mining ways back in the 1960s and 1970s.

Today’s interview began a little bit differently. Only moments before we hit the record button Adrian started to tell a story about a time he was on a yacht with our own Alan Bond. Although that’s where he cut the story loose with a soft chuckle.

Tapping into Adrian’s knowledge, we began with asking a well-worn question. Should people invest in funds like the one he runs or stocks individually? ‘At the risk of upsetting my partners,’ he starts, ‘it’s not about what’s better, it’s about maximising the use of your funds.

Adding that if you have a relativity small amount to invest, say $25,000, then your best option would be a commodities managed fund. Using a fund increases your exposure to commodities overall, because the fund has more money than you. Nonetheless, if you have $1 million to invest, you could possibly do just as well picking individual stocks, says Adrian.

What about too late? Are we too late? Have investors missed the run?

His answer is it’s not too late for gold, especially with the Fed saying there are no red lines. Even better he points out, is that major gold miners (here and in the US) are actually making money.

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Let me take you back a step first.

The Aussie gold sector went through a shakeout in the mid-2000s.

We lost our mid-tier sector at the time, had a management reshuffle, and quite frankly they were losing money. A similar sort of shake-up happened with US gold miners in 2011 and 2012.

Management resigned or were forced out. A falling gold price forced companies to reassess their projects. Essentially high-cost miners in the US got a butt-whooping and saw their share prices fall.

Things are different now, Adrian tells me. Gold stocks here and in the US are profitable.

What does that mean?

That perhaps, out of all the stocks to look at while central banks around the world print to ‘infinity’, gold stocks may outperform.

Now, that’s it for me. I better jump off as my next interview is the one and only Jim Rickards. Stay tuned for that.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia