Kitco Interview
We discussed the price of gold, factors affecting the US dollar, negative interest rates, the housing bubble, and how the election temporarily affected the price of gold.
Key Discussion Points
- The price of gold is not a function of movements in the US dollar except in the extreme short term, and even then, not always.
- Stop being so US-centric about the dollar itself.
- Gold does poorly in disinflation and when faith in central banks is high. Recall the Greenspan era.
- Why the election had a short-term negative impact on the price of gold.
Mish
Lyn Alden just posted thoughts on gold: link to gold-eagle.com
You said that the Democrats did not win the Senate. That is yet to be determined due to the Georgia Senator runoff elections in January. Looking at the polls, Democrats Osoff and Warnock seem to be outpacing the Republicans. The Georgia Republicans are not as United and cohesive due to Trump blaming the Georgia Republican legislature for his loss. As of now, my working assumption is that there will be a Democratic sweep in January along with a rapidly rising gold price. This conforms to your view that the gold price reflects confidence in the US government and FED. Looking at the technical picture of silver, the 30 moving day average is about to surpass the 200mda. Timing wise, everything looks priced for perfection for gold in the near short term.
Mish, I enjoyed your interview. I agree with Zardoz. My ears are getting so bad I don’t even listen to some people where the room echo is that high, but I did lesten to every word of yours,
Thanks Realist. I was fishing and missed it. Glad to hear Paxton was sent packing.
Nice video Mish. Thanks for that too.
You always make great points and make me look at things from a slightly different perspective. I appreciate your honesty too, in not making some some specific call for gold when they try to put you on the spot.
My question for you……if you can’t count on gold to be an inflation hedge, and it does poorly in disinflationary periods….and it’s price is largely driven by sentiment…..why would one hold it rather than some other tangible asset like real estate…or some other tangible asset.
My take has always been that the primary function of gold was for protection from an actual currency collapse. Or innsurance against the collapse of the entire credit system.
If that isn’t imminent, it seems like you’d want to be light on gold, compared to other assets.
“My take has always been that the primary function of gold was for protection from an actual currency collapse. Or innsurance against the collapse of the entire credit system.”
In those circumstances it would be because they’d be no confidence in the Central Bank, they would have lost control.
Regarding other tangible assets, they might match or outperform Gold, depending on circumstances, but they’re not so liquid. Gold can be sold for other currencies at a moments notice anywhere in the World. High values can be transported relatively easily in the form of coins or bars.
Also, as part of a diversified portfolio, Gold tends to be a good diversifier because it’s price does not necessarily follow everything else, so can act as a part hedge.
Your reply is appreciated as are the others who weighed in.
I don’t see how a 5% portfolio weighting can be much of a hedge. Maybe for those who have an extremely high net worth and already hold lots of bonds and cash to balance your equities. I can see it, given that scenario.
Since I don’t own any equities, I can’t see how it would help me except in a real currency collapse.
My main hedge on my real estate is cash and cash equivalents in my life insurance. I got out of gold and bonds and stocks, all of which I once owned. I think gold and equities will probably do okay, but at my age I don’t like the risk in equities and I think real estate here ( at this particular time) is better than gold as a tangible asset.
Good points Eddie, I wasn’t suggesting it might be right for you, it was more of a general reply. My holdings are mostly in my Pension, in which I’ve been overweight in Gold, currently at 15%, which is the most I’d go to. I’d consider 4/5% fairly neutral.
I think the biggest boost to real estate has been the declining interest rates the last 40 years as people could borrow more, I guess a lot of assets have had that tailwind. My only fear is that as public pensions become more and more insolvent, governments might try to bridge that gap with higher property taxes.
Property taxes are going up across the board here…more-so in Austin proper, where voters just approved bonds for a much bigger light rail project. I like money being spent for public transportation….but it hasn’t traditionally garnered much support in our car culture Texas society.
Fwiw, the new light rail plan looks pretty good. The first leg, built several years back, just lacked connectivity to important hubs, like the airport, the university area, and neighborhoods that weren’t in the NW growth corridor.
Historically voters have voted against such issues, but it looks like 2020 was a tipping point. This time it passed easily.
But even in outlying suburbs, the municipalities have been building massive street and utility infrastructure, and taxes are high and getting higher inside the city limits of the bedroom communities.
Austin annexed the frontage along outbound highways years ago to prevent new towns…I live in such an area (known as the 3 mile ETJ)…..so my taxes are significantly lower….the city doesn’t seem to be in any hurry to actually annex these neighborhoods..but one has to assume it will happen someday.
It’s a mixed bag….we don’t get to vote for city council or in city bond issues and referendums, although the results affect us.
We have our own water districts…which can be problematic…..but we get city electric service.
Nice Job Mish, I agree that the gold price is indicative of the faith, or lack there of in government. Looks to me like gold and the mining shares have a good future.
Never mind that, what about Daniela Carbone, where did she go?
What, you don’t recognize her? Put on your glasses.
https://t w i t t e r.com/DanielaCambone
Stansberry?