Gold The Soundest Money Is On Its Way To Becoming The Best Reserve Currency For Central Bankers And Investors
Gold stocks are ready to head into a very bullish trend.
The last gold bull market was from 2001 to 2011, the current one is likely to last a generation. Back then, it was all about the buying coming from China and India as they emerged into much larger economies and were buying up a lot of physical gold.
This one is about much more as the Death Spiral of Debt is causing a return to the Gold Standard.
The global fiat money system is broken due to excessive debt growth and money printing that has destroyed purchasing power. It took around 50 years to get to the debt crisis which started when the US and others abandoned the Gold Standard. This allowed politicians in the US and pretty much all countries to float their currencies and spend with no controls.
In 1971, Nixon canceled the last vestiges of the Gold Standard in what he called a temporary action. By doing this, he opened the floodgate to destroy the purchasing power of the US dollar (USD) which today buys around 10 cents of what a dollar bought back then. It also took away the shackles on politicians so they could spend with what they thought of as an unlimited credit card ever since.
Reagan was the first president to really take advantage of the nation's credit card by growing the debt from $1 trillion to $3 trillion during his spending spree. When he got into the office, the US was the largest lender and when he left it was the largest borrower.
Most of the presidents since him have taken on the challenge to outspend and now the national debt is over $35 trillion. The worst offenders were George W. Bush at $4.2 trillion, Barack Obama at $7.6 trillion, Donald Trump at $6.7 trillion and Joe Biden on a path to be over $6 trillion. Collectively, they are responsible for two-thirds of all the debt, which is truly shameful.
Both Trump and Biden took a run at spending as much as Obama did in two terms during their one terms, they are the worst offenders for one term presidents. Now the candidates for the next president is Trump and Biden’s VP Kamala Harris. The chance that either will slow down the extreme spending is absolutely zero.
Neither Trump nor Harris will slow down the spending, in fact they will both try their hardest to become the new spending leader for a 4-year term. Having this happen, when servicing the debt is consuming a big percentage of the income from taxes will insure that the Death Spiral of Debt is going to get much worse. The only good thing that can come out of that is if the US is forced back to the Gold Standard.
Politicians refuse to show fiscal restraint, so they must have controls and the Gold Standard is the only way to institute discipline. Will they return to the Gold Standard, probably not which brings in the possibility of default on the debt.
There really are only two alternatives to fix the debt crisis, the easier of the two ways is returning to the Gold Standard, the hardest way is defaulting on the debt. Whether they do it the easy way or the hard way, gold wins.
Currently, the USD is in first place as the world reserve currency with gold in second spot. There is very little chance that the USD can maintain its number one status over gold due to destruction of the purchasing power of the USD and Death Spiral of Debt.
When gold is the world reserve currency, this is an when not if situation, investors will look in the rearview mirror and see four key reasons they should have taken the gold side of the trade.
The Death Spiral of Debt.
Russian sanctions that brought the BRICS nations together en masse.
End of the petrodollar agreement.
The USD is the cleanest dirty shirt in the pile argument.
Many look at USD losing its status as the world reserve currency with fear. They have been conditioned to think for several decades that America will always be the largest and most powerful economy in the world.
If America loses some of its economic lustre, they won’t be the first economic super power to suffer this fate. Don’t get me wrong, I don’t think the American economy is going to slip into a bitplayer on the global economic stage. It will continue to be a major player, it will just not enjoy its much vaunted status.
The signs of hubris have been around for a long time.
In 1971 when Treasury Secretary John Connally said to finance ministers, “the dollar is our currency, but it’s your problem.”
The fanatical belief the ‘King Dollar’ would always enjoy that position.
Alan Greenspan and Ben Bernanke publicly made the case that many believed, that America could never default on its debts because it owned the printing press of the world reserve currency.
Politicians that believed they had an unlimited credit card.
The Federal Reserve thinking it could control the business cycle forever with interest rate policy.
The central bankers in the BRICS nations are seeing the writing on the wall, they are selling USD and US debt, while buying gold. Investors in the East are seeing the same thing and doing the same, investors in the West are starting to join the gold bull market.
The long-term bullish argument is very strong as the world returns to the Gold Standard, it will take gold multiples of its current price. The short-term bullish argument is also powerful with the USD making lower lows and lower highs prior to the Fed starting a rate cutting cycle.
Meanwhile, gold is making higher highs and higher lows, with each new high being a new record high. The biggest winners will be the gold stocks that until February were reluctant to join the gold bull market.
Big cap gold miners that are making record free cash flow, increasing their production and bringing down costs are ideal picks for investors that want exposure to gold with less risk. These are the companies that are well positioned to significantly outperform gold offering torque to the bullish moves in gold.
Going down the food chain, for those that want more risk and reward potential, the developers are a great opportunity. For the most part, they haven’t joined the gold bull market, and there is a small menu of top-quality stocks to choose from. Yet, the gold miners need more in this category as they are the ones that can help replace old mines with new mines. Catalysts for this group are higher prices for gold and strategic investments by bigger companies and M&A activity.
My favourite category are the gold explorers with high-quality discoveries, they haven’t joined the gold bull market but some are showing relative strength. I don’t really see a lot of M&A activity making it down to these companies yet, but I do see them as great candidates for strategic investments from bigger companies that want to become the partner of choice for gold explorers.
In Closing
Readers of the reports know that I don’t believe in hunting picks with a shotgun and focus on selecting picks with a rifle. Due to the gold stocks just starting to join the gold bull market, investors can find high-quality picks that are still trading at reasonable to bargain valuations.
That is the case from the major gold miners all the way down to gold explorers.
Another reason to be focused on a small group of picks is because as contrarians and generalist investors come into the gold stocks, they have been showing great allocation. They aren’t buying anything with gold in their name, they are discerning.
There is a very impressive bull market developing for the gold stocks.
All the best,
Allan Barry Laboucan
Disclosure
Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.
