The Fundamental Argument for Gold is Good in Here
The fundamental argument for Gold is strong now as are the technicals. The alternative is government bonds that yield nothing or less.
Or stocks, which are currently expensive at about 20X EPS.
The Gold Bugs like to talk about the “endgame”, so below are some facts leading to the endgame, as follows;
- The US has a 103% debt-to-GDP ratio. It will go up a lot under whoever is the US President.
- Italy’s debt to GDP is about 170%.
- Japan is at 240%.
There really isn’t any chance that Japan is going to pay you back, or Italy, or even the US, once you take out-of-control entitlements into account this is called living with perpetual debt.
The Big Q: What are the options?
The Big A: Default, Extend, Pretend, Inflate
Nobody is going to default, that would be financial Armageddon.
Greece has not had a lot of luck with Extending & Pretending. The Greeks are in and endless depression. No nation would copy Greece.
So, what is left? Inflate aka the stealth default. There has already been open discussion about helicopter money in Japan meaning the BOJ retiring or canceling outstanding debt.
Here is how Jared Dillon puts it, “This is where people just absolutely lose their minds. If I told a 6-year-old that we were going to triple the amount of dollars/yen/euros in the system, they would tell you that prices would rise. More money chasing the same amount of goods.
Somehow, when you get PhD economists thinking about this concept, they tell you that everything will be okay. I guess it is fine for Warren Buffett to eat like a 6-year-old, but not for me to do economics like a six-year-old.
Right now, we are in this fantasy-land where governments (including the US) with hopeless fiscal situations are able to basically get paid to issue debt that has Zero chance of being repaid in undepreciated currency. Somehow these bonds are considered a “safe haven.”
The Republican Congress has been a pretty effective opposition to US President Barack Hussein Obama’s attempts to pile on more debt, and spending as a percentage of GDP has declined significantly since Y 2010, progress. But all of this will come to an end in November.
But nobody really cares, everyone cared about the deficit in Y 1992, when it was not a big deal. But, now that we have the highest debt levels since WWII, nobody cares.
Gold cares about debt.
Because once the debt gets up to unsustainable levels, it increases the likelihood that it will be directly monetized. That is all Gold cares about.
I have been saying since the 1st QE that the US will get inflation eventually, but that is not what Gold cares about. Gold cares about paper currency being treated like scrap paper.
Gold is a very technical trade. There were lots of reasons to be Bullish Gold from Y’s 2011–2016, and it went down anyway. Nothing has really changed except the proliferation of negative interest rates. Japan, Italy, and the US are as insolvent as they ever have been. Broke!
Pay attention to the charts: Now the chart is making higher highs and higher lows. I do not care what you think about Gold, if you do not respect the pattern in here you are not being responsible with your portfolio money.
|HeffX-LTN Analysis for GLD:||Overall||Short||Intermediate||Long|
|Bullish (0.35)||Bullish (0.41)||Bullish (0.35)||Bullish (0.29)|