Gold’s New Standard
Weekly Investment Update | By Brian Schreiner
Last week we sent our Q4 Investment Outlook, Gold’s New Standard, to clients. It’s now available here on our website.
Our Outlook goes in depth to explain our thesis around everything held in our clients’ portfolios. The exerpt below is from the section on gold, the largest holding in the Alpha Rock Growth strategy:
Gold’s New Standard
Amid historic economic and geopolitical anxiety, gold has surged over 45% year-to-date, driven by a strategic shift away from the U.S. dollar by central banks. This move is a response to America's unsustainable government debt and a perception that the Federal Reserve is quietly pursuing currency devaluation as a solution, abandoning its 2% inflation target. As a result, gold has become a vital safeguard against currency depreciation and a critical tool for managing portfolio risk in an uncertain environment.
Gold is our largest holding and has been the strongest performer. The yellow metal continues to march toward $4,000 per ounce, reflecting a degree of economic and geopolitical anxiety not seen since the 1970s.
Gold’s climb feels both historic and unnerving, surpassing its inflation-adjusted peak from 1980, it has zoomed past a number of technical resistance levels and keeps pushing further into uncharted territory.
Its momentum isn’t just about inflation. If it were, conditions in the long-term government bond market would be much worse. There are several other factors driving gold higher: continued central bank accumulation, capital flight from fiat currencies and investors’ hedging geopolitical risks.
These trends are calculated. Gold has surpassed the Euro and is now the world’s second-largest reserve asset. Foreign central banks now hold more gold than U.S. Treasuries. Sovereign nations, central banks and institutions are deliberately diversifying away from the dollar, not in a panic, but in strategic shifts.
Earlier this year, interest payments on U.S. Government debt surpassed defense spending as the third largest budget item. The math is horrific, especially when you account for future unfunded liabilities. In addition to the current $38 trillion debt, taxpayers are on the hook for an additional $73 trillion over the next 25 years.
After the September 17 Federal Open Market Committee Meeting, Jerome Powell took questions from the media. Bloomberg’s Mike McKee asked Powell what we’ve all been thinking (see 15:00 mark). Powell’s answer didn’t help the Fed’s credibility.
MCKEE: “Every year since 2015, the SEP (the Fed’s Summary of Economic Projections) has forecast that you would hit your [inflation] target two years later. And this year, this SEP says you're going to hit your target two years later. Two percent does not seem to be in sight. Does that suggest that the 2% target is not really achievable? And does this present any credibility problems for you in telling people that that's what you're going to do, if you can never reach it?”
JEROME POWELL: “Well, I mean, you're right. It does say we're going to get to 2% inflation at the end of 1928. But that's… you know… that's literally how you put the projections together. You're writing down a rate path which is designed to create, over the course of the SEP, you know, time frame, 2% inflation, and maximum employment too. So that's… that's all that is. You know, we don't… no one really knows where the economy will be in three years, but the nature of the exercise is to write down a policy that you believe would return to the 2% goal over the-at least by the end of the exercise.”
Those are the words of someone who won’t tell the truth. If someone slipped a truth pill into Powell’s drink, his answer might be something more like this:
JP AFTER TRUTH PILL: “It should be obvious to all of you that we abandoned the 2% inflation target years ago when we finally came to the realization that the government’s fiscal condition is unsustainable and basically irreversible. We need to devalue the currency so the real value of the debt is eroded over time. The alternative (drastic austerity and massive tax hikes) is politically impossible. At this point, the 2% target has become a useful fiction to maintain public confidence while we pursue our real, unspoken mandate: managing the government's solvency. We're engaging in financial repression, keeping interest rates low to prevent a fiscal crisis and to stimulate credit issuance which, of course, is inflationary. We know the devaluation of the dollar acts as a stealth tax on every saver, but we don’t care about average Americans. The Fed was created by Wall Street and Washington and that’s who we work for. Washington is stuck in a massive debt trap and sustained inflation is the only viable escape, so get used to it.”
The U.S. officially abandoned the gold standard in 1971. “Gold's New Standard" is its new role as a global benchmark for trust and value. We believe that holding significant allocation to gold now functions as a standard for value preservation and the ultimate benchmark to protect wealth against the inflation and devaluation of fiat currencies.
Furthermore, holding gold has become a geopolitical standard, signaling a nation's monetary independence and its participation in the global trend of de-dollarization. In essence, "Gold's New Standard" describes an era where gold is no longer the literal anchor for individual dollars, but the informal one by which the stability and prudence of the entire global financial system is judged. α
Interesting things I came across this week…
AI Boom’s Reliance on Circular Deals Raise Bubble Fears (NBC News)
The Millionaire Mirage (Yahoo! Finance)
The 1987 Stock Market Crash: Original News Report (PIX11 News)
How Did The World Get So Ugly? (The Cultural Tutor)
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