What I know about Gold that You Don’t

What I know about Gold that You Don’t

Dear Reader,

Type in ‘gold news Australia’ into Google.

Go on, I’ll wait.

What came up?

I’ll bet the first thing you notice isn’t gold news, but mining-related news.

Ah, yes. I guess that’s what happens when you’re nothing but a quarry for the rest of the world.

The press is more than happy to talk about what Newcrest Mining shares did or didn’t do for the day. Evolution Mining might even get a look in their commentary.

Northern Star is a go-to for gold mine coverage. As is Saracen Resources now. Both having a 50% stake in the Kalgoorlie Super Pit makes them easy fodder.

Of course, if you pick up a newspaper, you’ll notice in the market section there’s a lot of talk about all the capital raising the gold juniors are doing.

There is money flowing in thick and fast into these gold tiddlers right now.

As the coronavirus reached our shores and rattled our markets down 36%, there was a worry that the smaller companies wouldn’t see the end of the year.

A change made by the Australian Securities Exchange (ASX) to capital raising requirements back in April allowed greater tin rattling by both percentage of shares issued, and the documents required to apply for a rights issue.

Of course, despite the global pandemic ripping through the world, the tiniest, riskiest sector of the Aussie market is, for lack of a better word, flying.

And all of these are hot topics for the papers.

Yet when it comes to talking about the underlying commodity they’re digging up; it gets little mention.

And that’s exactly where I come in…

Decaying confidence in greenbacks

After years of ignoring the metal, talk on the price of gold is starting to get some traction in the mainstream.

Over 2017–18 you’d be lucky to see one article every three months on physical gold.

However, by the start of this year, I noticed that at least the yellow metal makes an appearance almost every three weeks now. Bullion dealers couldn’t buy this sort of coverage a couple of years ago.

Not only that, but the commentary gets a little bogged on focusing on how the metal is set to keep rising. Citing inflation as the major driver behind it.

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Take this from the Australian Financial Review last week:

The price of gold is expected to keep rallying, with the growing threat posed by the COVID-19 outbreak in the US adding to interest in the commodity driven by record low interest rates.

[…]

And with the diminishing outlook for the earning potential of cash and low-risk assets such as bonds after inflation is taken into account, the price of gold is expected to continue to rise, experts agree.

“It’s going beyond [$US2,000] and it’s not going to stop,” said Credit Suisse market strategist Damien Boey.

A key factor that supports the outlook for the precious metal, according to the former Reserve Bank economist, is the risk of rising inflation, which is one of two inputs into real yields, the leading indicator of gold prices.

The threat of inflation driving the gold price higher often appears to be a common crutch of analysis.

And while that does support part of the story, what drives the yellow metal is so much more than that.

When you sit down and speak firsthand to the experts on gold across the world, like Jim Rickards, Grant Williams, Rick Rule, Adrian Ash, and Egon Von Greyerz to name just a few, the story isn’t just about ‘inflation driving prices higher’.

You’ve got to look beyond short-term thinking. Understand what replaced gold as money, and how that replacement is failing us now.

It’s about the loss of faith in paper money.

Or put better, it’s about the demise of fiat currency at the heart of the monetary system.

Gold is money. And has been for several millennia.

The fiat currency experiment we are in is almost 50 years old and we are reaching its limits.

Endless credit creation has destroyed the value of the paper dollars in your wallet, making them damn near meaningless.

While central bank-driven inflation erodes your purchasing power, the rising US dollar gold price shows decaying confidence in greenbacks.

As gold is approaching its all-time highs of 2011, the interest in the yellow metal will increase.

What’s important for an investor, is not what’s driving it. This is more than just a flight to perceived safe assets. It’s not just a way of combating inflation for investors.

It’s about opting out of a monetary experiment that benefited a few and hurt the masses.

Furthermore, it’s not a flash in the pan tale.

This gold bull market has years left to run.

And that’s kind of what I do around here. Talk to people who know how the gold markets work. You can check out my work over here…

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia