Editor's Note: The following article was originally printed in Bill Bonner's Diary on July 29th. Bill Bonner’s Diary is the only daily newsletter that features the unique ideas of bestselling financial author Bill Bonner. From Wall Street to Washington, Bill leaves no idol un-busted and no stone unturned. You can click here to subscribe.
Is This "Peak Gold"?
By Bill Bonner
Here’s a Bloomberg headline from yesterday:
As Gold Smashes Records, Forecasters Ask Whether Peak Is Near
You have to wonder: Who are these forecasters? Where have they been? Do they have any idea what is going on?
Gold has its nose in the air. Like a deer in a dry forest, it smells the smoke. It knows it’s time to get out of town.
On Monday, the Republicans threw another $1 trillion worth of tinder on the fire. The so-called HEALS Act would bring the deficit for the calendar year (the feds operate on a different “fiscal” year) to $5 trillion – or about 25% of GDP.
To spell it out: More spending = More deficits = More fake-money printing.
And more fake money pushes up the price of real money – gold. As long as the money-printing continues, in other words, gold will continue to rise.
But wait… maybe the trend is over. Maybe the Federal Reserve has turned off the printing presses. And now, with the last of the dry wood ablaze, gold can peak out as the fire settles into warm coals.
Here’s another Bloomberg headline to give you a clue:
U.S. Is About to Unveil the Ugliest GDP Report Ever Recorded.
Thursday’s report forecast to show annualized 35% contraction.
Less GDP growth = Lower tax receipts = More stimulus measures = Bigger deficits = More money printing…
You can see where this leads as well as we can.
Back in May, our colleague Tom Dyson revealed his “Portfolio.” It is designed to take advantage of what he sees as an inevitable trend: gold up, stocks down. The portfolio is simple enough:
- 65% physical gold
- 20% physical silver
- 10% gold royalties
- 5% gold optionality plays (highly leveraged mining stocks)
It’s only been just over two months, but so far, so good.
Gold is up 11.5%… silver is up 34.8%… gold royalties are up 12.5%… and gold optionality plays are up 57%.[Readers who signed up for Tom’s Portfolio can view the portfolio details here. To sign up for Tom’s Portfolio, click here.]
As for us, we recommended a shift to gold twenty years ago. At the time, the price was about $280 an ounce.
Our view of the money world back then was amateurish; we hadn’t yet figured out how the fake money system works. All we knew was that gold was way down. And stocks were way up. We guessed that both would regress to the mean in time.
The stock market represents hope for the future. Stock investors are said to “look ahead” to the flush stream of earnings that companies are likely to produce. That was especially true of the Nasdaq – the benchmark tech industry stock market index – at the turn of the century.
Gold, on the other hand, is more of a reminder of the past… a souvenir of all the plans and projects that never paid out as expected.
Stocks are an indicator of giddy greed. Gold is a measure of sober fear. One is hope. The other is reality.
And with the Dow selling for more than 40 ounces of gold in 1999, the two were farther apart than ever before.
Looking back, it is now obvious that hope had had too many martinis. The U.S. was at the peak of its power and prestige – practically unchallenged. No war against terror. No mortgage finance crisis. No war against a virus. No shutdowns. No bailouts. The federal government was running surpluses. And the national debt was going down.
All we saw was upside.
And to make the future seem even more fetching, a new technology – the internet – was offering dizzy dreams of avarice. “Dot-coms” were revolutionizing our economy and the way we lived… or so it appeared. And the Nasdaq was exploding to new highs almost every day.
Still, without knowing anything about the future, it seemed likely that hope and reality would come closer together.
And by dumb luck, our timing was good. After hitting a high just shy of 42 ounces of gold for the Dow in mid-1999, stocks began to slide… and gold started going up.
All you had to do was buy gold and sit tight. Today, you’d have multiplied your money seven times (a 600% increase) in dollar terms.
By comparison, the Dow averaged around 10,800 in the year 2000. Now, it’s at 26,500… an increase of just under 150%.
Over the last two decades, in other words, gold outperformed stocks by about 450%.
The U.S. has been slipping for the last 20 years.
A foolish “war” against terror cost $7 trillion.
And after the dot-com bubble blew up in 2000, ultra-low interest rates caused another bubble in 2007, this time in real estate.
Then, the Wall Street bailout fouled the economy even more… with $25 trillion in new debt piled onto households, businesses, and the government.
But the foulest and most foolish moves came just a few months ago. In a coronavirus-induced panic, the feds shut down the whole U.S. economy… and then began printing money on a scale never before seen in U.S. history.
Now, they are committed not only to bailing out their campaign donors and cronies on Wall Street… but Main Street, too. They broke it; now they own it!
So, what do you think?
Is this the end of the trend that began 20 years ago? Is this the “bottom” for the U.S. economy… and the peak in the yellow metal?
Will the U.S. reclaim its Numero Uno status… while gold crawls back into its mines and storage vaults, like it did after 1980, and rests for another 20 or 40 years?
Or is this just the beginning… the first act in a show that will last for years more? Are there whole forests yet to light up… followed by houses, factories, furniture, books… and ballot boxes?
Yes, Dear Reader, we don’t know any more about the future than you do. But we’ve learned something over the last 20 years: The fake money system is corrupt, counterproductive, and self-destructive.
And while we are “always in doubt”… there seems to be more than an even-odds chance that the trends now in motion will stay in motion…
…until the whole shebang – the economy, politics, and the social system, too – goes up in flames.
As for the peak in gold… it is probably still far ahead.