All That’s Gold Doesn’t Glitter
Happy Monday! I hope you had a great weekend.
I collapsed on my couch in a fit of exhaustion. The big, consecutive graduate programs are over for me so that I can relax a bit. Probably, I’ll be researching more, as I want to be sure about a few things, one of which I’ll talk about today.
But first, let me wish a big “Happy Birthday!” to Philosopher-Truck Driver and my father, John Ring, who turns a curmudgeonly 79 years young today!
Keep on truckin’, old boy!
Make Up Your Mind, Gold
Since reaching its all-time intraday high of $2,089.20 one year ago, gold has meandered down to its current $1,778.20.
It’s been a yawnfest.
We’ve just had two of the highest CPI prints in the 21st century, and gold has barely moved. I’m a bit bored by it all, to be fair.
Have a look at the commodity space, where nearly every other commodity has outperformed gold.
Credit: Christian Gerlach on LinkedIn
Natural gas. Soybean oil. Corn.
Nearly every other commodity has outperformed gold… and silver in a highly inflationary period.
But then again, nearly $2.5 trillion that would’ve been in gold is now in crypto.
Credit: @iamstackmaster on Twitter
Like the Old Floor Traders
I moved to London back when there was a seachange in the way trading was conducted.
It was 1999, and most floor traders were convinced that the trading of futures contracts would never move to an electronic exchange. They were sure open outcry would survive the technological onslaught.
For a while, they looked correct.
The German Bund (long bond) contract was holding up on the LIFFE (London International Financial Futures and Options Exchange), where the open outcry pits were located.
The newfangled electronic EUREX contracts, with their Frankfurt-based servers, were struggling initially.
But little by little, volume and open interest started to increase on EUREX.
(Open interest is the number of either long positions or short positions in the market. It’s a sign of liquidity and risk. Volume is the number of contracts traded every day.)
Suddenly 50% of the open interest was on EUREX. And then, swiftly, 100% of the open interest was on EUREX.
All of those LIFFE pit traders were either assigned to a desk up in the bank to take client orders or were fired.
Could it be the same situation here but with market capitalization? If (when) crypto reaches $7 trillion, might most gold traders liquidate their positions and flood into Bitcoin?
As Mark Twain once said, “History doesn’t repeat, but it often rhymes.”
Maybe It’s Not All Bad News
The good news is that physical gold, physical silver, and gold equities all outperform during inflation regimes.
Credit: Christian Gerlach on LinkedIn
Of course, energy commodities such as oil and natural gas perform better. By the way, have you heard about the Carbon Cartel our friend Marin Katusa is talking about?
Also, base metals like copper, zinc, and aluminum outperform the precious stuff.
But no matter. If you’re convinced the Fed will rebase the dollar and make gold something like $3,500/oz., then this is the best news I can give you.
What Are You Really Waiting For?
Let’s face it: the gold bugs are waiting for the Terminator-like ending of civilization, where they can still acquire basic necessities with their American Eagles.
Newsflash: no one is going to give a shit about gold if civilization collapses. They’re going to care about food, water, and shelter. And, no, people will not buy those things from you with gold because they won’t have any gold to buy your stuff with.
And no, I don’t think we’re going to wake up one day to a $5,000/oz gold price.
(Remember, Bretton Woods happened in 1944, nearly at the end of World War II. Though Biden has embarrassed the US in Afghanistan, we’re a long way from a new Bretton Woods-like agreement.)
The more sensible of us are long gold for one reason: we think it’ll go up if inflation keeps increasing. It’s a form of insurance.
James Grant once said, “The price of gold is one divided by T. T is trust in the government.”
Except it hasn’t acted like that since 2011.
I didn’t fancy Bitcoin at all when my highly intelligent, though poor libertarian friends were screaming hysterically about it. It was too abstract and ideological for me.
What caught my attention, and made me think I had it wrong, was when the banks started using blockchain technology. Then people like Raoul Pal and Michael Saylor got on board.
These brilliant people put skin in the game, in an entirely foreign concept to them but suddenly made sense.
This is Saylor’s review of The Bitcoin Standard on Amazon.com:
This book blew my mind; it is a work of genius. It put together the technical, economic, motivational, and related issues around Bitcoin better than anything I’ve seen. The best compliment I can give this book is that I read it and I decided to buy $425m of bitcoin. It was the most impactful on our way of thinking in Microstrategy and it made us want to invert our balance sheet to base it on a bitcoin standard.
Michael Saylor, Cofounder, chairman, and CEO of Microstrategy
And what about universally renowned Wall Street investment strategist Kiril Sokoloff:
The Bitcoin Standard is a great book. A really good book. It helps you understand why bitcoin is so special and so real.
Kiril Sokoloff, Chairman and founder, 13D Global Strategy & Research
These men aren’t shills. They’re old-school finance and business guys who’ve been incredibly successful in the traditional investment arena.
There was no reason for them to come out as Bitcoin guys, but they did. They staked their reputations on a new technology that can change the entire finance world.
In essence, they’re heretics.
Perhaps it’s time for all of us to question the monetary gods and have a reformation of our own.
Until then, have a great week ahead!
All the best,