- Gold vs. commodities (i.e. gold's "real" price) is in a major secular bull market.
- Gold has been kicked to the curb amid major confidence in policy making and resultant asset market increases.
- Only when confidence in policy and the targeted asset bubbles deflate will the best case for gold come to the fore.
- The US dollar would initially benefit if asset markets were to liquidate.
This article at Hard Assets Investor talks about Jeff Gundlach's bullish gold call for 2014 and uses Dylan Grice's 2012 call as an example of how the end of the world (i.e. gold's safe haven value) can be put on hold indefinitely.
So is Gundlach wrong today? Grice wasn't necessarily wrong in 2012. What he called "the largest credit inflation in financial history, a credit hyperinflation" has instead rolled on…taking asset prices higher and crushing interest rates. But it hasn't, as yet, hit the value of money itself.
Nor will it hit the value of money, especially the US dollar, until all confidence is lost in the system. We are about a million miles away from that condition right now (see second chart below). Confidence will be lost first in the assets that are benefiting from the inflation - like stocks, so strategically at the heart of the wealth effect that policy makers are trying to stimulate - and then in policy makers themselves. Then we'd have a big bull market in gold for all to see.
But if confidence comes out of inflated assets, like over-priced momentum stocks and hideously over-priced junk debt (benefiting from a full frontal and manic chase for yield) money is going to rush to safe havens sure, and ironically Uncle Buck would be a prime beneficiary. Again, as long as the majority continue to think in linear terms like "oh, asset markets are dropping, I better go to cash." Only when the system begins its death rattle will the currency put on its death mask.
Gundlach's more mainstream take is a good start, however to re-awakening gold-friendly psychology, encouraging investors to take another look at gold investment while the idea that currency debasement might ever lead to currency collapse is dismissed as just so much "history."
People have been wrong in fetishizing currency collapse since the beginning of the gold bull market. The "Dollar Collapse" cult is a cartoon that presents its case for easy understanding by the marks masses. Ultimately, the case for gold is the case for a lack of confidence in the economy and in those trying to blow asset bubbles in support of the economy.
Gold vs. the CCI commodity index (counter cyclical asset vs. cyclical assets) is but one big picture view that - as long as point 4 remains a viable "higher low" to point 2 - tunes out all of the hysterical "currency collapse" noise and simply awaits a turn on the global macro backdrop.
Meanwhile, gold exists in a lowly state for a reason and that reason is confidence in the system. In very simple and even cartoonish terms, gold is not going anywhere while people are feasting upon the wonderful benefits of what has thus far been wildly successful (and ever so cynically maniacal) policy making.
The above is a picture of confidence and a job well done over at Central Planning. Gold is boxed in at the depths of a bull market breakdown as measured in S&P 500 units. Fact.
When confidence starts to wane then safe havens like Uncle Buck and gold should get bids to varying degrees and at varying times. Don't over complicate it by waiting for the "Dollar Collapse" cult to be right. Minimize words like "fiat," "debasement" and "hyperinflation" and value words like well… value… and patience… and perspective.
The dollar has no intrinsic value whatsoever? Well yes it does, it has a whopping negative value due to the debt-for-growth (official credit bubble vs. Greenspan's commercial credit bubble) Ponzi Scheme that simply has to keep on rolling. But in an environment of confidence by the majority, it has functional value and people would probably flock to USD like Lemmings (wait, do Lemmings flock?) in the next market liquidation. At least initially.
As for gold, it simply has monetary value and it is going to get where it is going. Watch point 4 on the first chart above and have patience and perspective. People are falling all over themselves lately jumping from the gold bear to gold bull camp (and in some cases right back again) and they are increasing your noise level.
"Shhh. Be vewy vewy quiet, I'm hunting wabbits."
Additional disclosure: No positions mentioned.