Gold Is Primed For A Strong Rally Driving The Gold Miners, High-Quality Gold Developers And Explorers With Important Discoveries Into Parabolic Moves
Since highlighting in several reports that stagflation was a looming problem that would get covered by more in the financial media and on Wall Street, it is starting to happen. It was clear to me that inflation was higher than economic growth and with mass deportations and tariffs it would get worse.
But, the reason that more weren’t paying attention until recently is because the economic numbers were overstating economic growth and understating inflation. So, it looked like a slim margin of inflation being higher than growth. Now the economic growth and employment numbers are coming in soft and inflation is persistent and expanding. Which will cause the gap between inflation and growth to catch the attention of everyone.
Even Trump is recognizing that his policies will cause “a little disturbance” to the economy. While Bessent is trying to blame the economic weakness on Biden and that there will be a “detox period” for the economy.
They are trying to spin that their policies will cause pain in the most favourable way possible. The reality is that they will cause a lot more pain than they are comfortable with and are going to try their best to blame it on Biden.
I’m firmly of the belief that during Biden’s term the economic numbers were bogus and tried to paint a rosier picture for the economy, jobs market and inflation. But, the mass deportations and tariffs are causing immediate issues for economic growth and inflation which is completely on Trump.
Stagflation, the Death Spiral of Debt and unsustainable cost of servicing the debt are all products of a broken debt and fiat currency system.
With the root cause being the end of the Gold Standard which forced discipline on the politicians and central bankers.
It emboldened central bankers to think they could manage the business cycle and politicians to believe they had an unlimited credit card and a printing press that can churn out fiat currency at their every whim.
This is not capitalism and their actions have caused the fiat currency and debt based system to be broken to the point that there are only two outcomes.
One is to default on the debt and unfunded liabilities. This is a very painful route to take as it will cause chaos in the debt market. Programs like social security are a mandated program that takes money from workers to then pay back when they retire.
But, the politicians on both sides of the fence have raided that account and turned it into a Ponzi scheme. Now demographics are working against it as the baby boomers are retiring and the generations after them had lower birth rates so there aren’t enough workers to pay for the Ponzi scheme.
Some form of default on the unfunded programs are facing the politicians straight in the face. The same can be said for the debt because it has grown so big that the cost of servicing it is unsustainable.
Medicare/medicaid, social security, cost of servicing the debt and defense consume all the money brought in from taxes and then some. We heard a lot from Elon Musk and his DOGE, and Trump that they would cut spending.
But, the GOP led House wants to increase the debt limit to $40 trillion (surprise, not surprised) and the Senate wants to make the tax cuts from Trump’s first term permanent. While Trump wants to cut taxes further.
The big four costs of medicare/medicaid, social security, cost of servicing the debt and defense are pretty much untouchable. If Trump and the Senate have their way they will reduce the income from taxes and make those big four costs be much higher than income from taxes.
Which means that all other government expenses would need to be cut to zero and there would still be a deficit.
When you add all of these issues up, the reality is that if they were serious about fixing the problems, they would increase taxes, slash spending and cut the rates back to the Free Money Era, allowing inflation and the economy to run hotter than the Fed wants.
What will end up happening is they will cut taxes, and keep increasing the spending and cut rates back to the Free Money Era. Thus causing the Death Spiral of Debt and stagflation to get worse.
To avoid the default on debt and unfunded programs scenario is to go back on the Gold Standard forcing the politicians on both sides of the fence and the Fed to deal with the ramifications of their actions. Putting discipline on them that they loath.
Of course politicians and central bankers won’t go back on the Gold Standard as they love the status quo. The Fed truly believes they can manage the economy, jobs and prices. And the politicians are addicted to spending and growing the debt.
I’ve said it many times in the past that economics has a way of fixing stupid. Going off the Gold Standard was the original stupid move. Giving the politicians an unlimited credit card and a printing press on overdrive and the Fed controls over the economic cycle were the result of that original stupid move by adding more stupid moves.
Which has led America and other countries to break everything with their debt and fiat currency system.
It should surprise nobody that gold is trading at record highs against every fiat currency. Some central bankers know that the debt and fiat currency system is broken and are loading up on gold. To the point that gold surpassed the Euro to become the second highest reserve currency they hold in 2024.
Very few Western investors recognize the importance of gold. They are happy to buy overvalued Wall Street stocks and Bitcoin at insane prices. Which has caused a similar situation as the Dot-com era right before the Dot-bomb.
When that bubble burst, gold went on a decade long bull market from 2001 to 2011. Which is when the Free Money Era got investors pumped up to create the current bubble we have now on Wall Street and in Bitcoin.
I think there is a scenario that could cause the overvalued Wall Street stocks to cool down. But, the Fed will come to their rescue because their unspoken mandate is to protect Wall Street from a major correction. If Wall Street stocks look like they will enter a severe correction, the Fed will slash interest rates to protect their friends on Wall Street.
Bitcoin and other cryptocurrencies have already started a correction, even while the Trump administration is foolishly talking about creating a Bitcoin and cryptocurrencies reserve. Bitcoin is a Ponzi scheme wrapped in a mania and a reserve that is built up by the government issuing more debt to fund it is extremely stupid. They would be buying into mania pricing.
Another reason it makes no sense is why bother buying into mania pricing when they could just create their own cryptocurrency? Loading up their friends and families on the cheap and then pumping it up.
It certainly isn’t far-fetched as Trump already tried something similar issuing his meme coin the weekend before he took the oath of office. They could actually make a USACoin worth owning if they backed it up with gold.
Bitcoin and Wall Street stocks are extremely risky, primarily because nobody buying them thinks they are.
Meanwhile, central bankers and investors in the East are making the smart money move by loading up on gold. They have recognized that the debt and fiat currency system is broken and that they need to put themselves on the Gold Standard. Going off of it has caused the politicians to go hog wild on spending and printing fiat currencies.
It took 50-some years to break the debt and fiat currency system, and make no mistakes about it, the system is broken. Prior to the foolish decision to go off the Gold Standard, the debt to GDP ratio in America was well below 100%. Now America is close to having debt at 130% of GDP and on its way much higher.
Few in the West may realize it, but the world is heading to a Gold Standard 2.0. Central bankers and investors in the East see the writing on the wall and have been putting themselves on the Gold Standard since the 2008 GFC. Ramping it up dramatically over the past four years as they buy gold in record amounts.
Their buying has taken a tremendous amount of physical gold off the market. To the point that fear of tariffs and owners of paper contracts demanding delivery of the gold behind those contracts brought the tightness of physical gold to light.
The tightness in physical gold is only going to get more bullish because the gold miners aren’t able to increase production. And there aren’t enough new mines in development or explorers with important discoveries to replace the old mines with new mines. While there are many reasons for buyers to buy more, the supply chain of physical gold is broken.
Efficient gold miners are producing gold for around half the price they sell it for and are free cash flow machines. Even high cost producers are making around $1000 per ounce on the gold they mine.
Yet, gold miners are being priced like gold is trading for around $1600 per ounce, while it is trading at close to $3000 per ounce and on its way to $4000 per ounce.
Gold mine developers with high-quality projects and explorers with important discoveries are being priced like gold is heading back to $1000 per ounce.
Gold stocks throughout the food chain are phenomenal value propositions. I don’t mean every company with gold in their name deserves to be much higher. But, the gold miners making tons of money, the gold mine developers with high-quality projects and explorers with important discoveries certainly do warrant seeing their boats rise with the bullish gold tide.
Stagflation, the Death Spiral of Debt and the cost of servicing the debt are without a doubt going to cause a return to the Gold Standard.
It is already happening in real time. Whether investors in the West recognize it or not. Investors have a choice to protect their wealth and purchasing power by owning gold and grow their wealth by owning gold stocks. If they do they will ride the greatest gold bull market ever as the Gold Standard 2.0 comes to a theatre near you.
It took 50-plus years to break the debt and fiat currency system and it likely will take decades to fix it. The cost of servicing the debt and stagflation are what will ultimately make investors worldwide come to terms with the Death Spiral of Debt.
I remember back in the 1990s, when gold was only at a few hundred per ounce, that gold bulls said they would not want to live in a world with $3000 or higher gold because they thought it would mean that the world economy had imploded. They are saying the same thing now about $10k to $20k gold.
Instead what happened was the politicians and Fed kept kicking the debt can down the road. I have absolutely no fear whatsoever about $20k or higher gold as it is the healthiest thing for the global economy. It will mean that politicians and central bankers recognized they broke the debt and fiat currency system and came to terms with fixing it.
For investors that see the current opportunities in gold and gold stocks, they are about to see remarkable things happen soon. I can see $50 to $100 up days for gold and the gold miners, gold mine developers with high-quality projects and explorers with important discoveries go parabolic.
All the best,
Allan Barry Laboucan
