3-Year Gold Price
People confuse inflation with real interest rate expectations.
It is no coincidence that the most reputable investors of all times have historically bet on gold in their portfolios. Despite being a precious metal with zero utility, it has properties that make it unique.
The main property is its scarcity. If today all the gold miners in the world were to put their machines to work at an unprecedented rate, the gold extraction rate would not exceed 5%. Without going any further, we remind you that inflation is around 8%. So, that's an additional 3% that we would already get.
Moreover, no gold miner in the world will put its machines to work with the fixed costs that this entails.
On the other hand, Leigh Goehring believes this could shoot the price per ounce to $10k. But now let's be realistic and do a serious study of where we think the price of an ounce could go in the next three years.
Is the stock market better than gold?
Even if this statement were true, which it is not, it would be stupid to have a portfolio of 100% in the stock market.
Imagine the case of a person with a minimum salary, little savings, and all of them allocated to the S&P 500. The index falls -50%, and at the same time, this person gets fired from his job. He will have to get his money back at a -50% discount. It is stupid to have all your capital in one asset for things like this.
With an asymmetric portfolio like ours, you could beat the market in situations like let'sibed.
But first, let's see why gold is even better than the stock market.
Since the gold standard was cut off, comparisons seem odious... Also, remember that the '70s was a very similar period to today. Indices in the negative and silver and gold taking off.
Therefore, it is false that stocks are better than gold. The correct answer would be that the two complement each other perfectly.
Gold price over the next three years
In September 2021, we already warned that gold was a good asset for the market situation we were experiencing. At that time, the crisis was not as pronounced as it is today. However, we also said that it was for the medium to long term, and we still maintain this view.
Gold is driven, as we said, by real interest rate expectations. That is, the coupon of the bond when discounting inflation.
That is why the 10-year U.S. Treasury bond investment expectation correlates so well with the price of gold.
For my mother to understand, this means that the price of gold moves according to whether the market expects more or less financial repression.
In an inflationary bear market, the FED raises rates aggressively, and with it, accurate rates rise because the rate expectation part increases more strongly than the inflation expectation part. Right now, the situation is as follows:
This indicator works in advance of the gold price. From 2010-2012 it sharply increased real rate expectations. This caused the gold price to fall by 40%.
With the latest CPI and PPI data, we believe inflation will slow rapidly, and we will return to much lower inflation levels. I play what goes up quickly and comes down fast.
And if we look at China, which is ahead, it is even clearer. This will mean stopping raising rates in 2023.
Gold tends to rally strongly as the Fed rate cycle (in the red) ends and then continues to rise strongly as rates begin to fall. Just the whiff of "end of rate hikes" is enough.
This could push the gold price to $3-4k per ounce (almost certainly). We will continue to buy gold through the strategy we told you about a few weeks ago that brings us additional profitability.
It is also very interesting to know how the mining companies behave in these periods, as they are often like a leveraged gold ETF, but we will tell subscribers about this another week.
Gold and Bitcoin
The properties of gold and bitcoin, believe it or not, are very similar. Most gold collectors I know own Bitcoin because the principles that led them to buy one have been the same that have shown them to buy the other.
This would mean that the price of Bitcoin could go very much hand in hand. However, there is no history of what happens with the expectations of rates and Bitcoin.
Now we leave you with our portfolio. We are already starting to see it this month, and the price of gold is up 9%.