Swiss Firm Says The Golden Era Is About To Commence

With bullish sentiment in the gold market at one of the lowest levels in history, today a contrarian Swiss firm said the golden era is about to commence.

Worried About Gold Sentiment? Don’t Be.
(King World News) – Matthew Piepenburg at Matterhorn Asset Management (based of Switzerland):  The mainstream view of gold right now is an open yawn, and sentiment indicators for this precious metal are now at 3-year lows despite the gold highs of last August. 

Is this cause for genuine concern?

Not at all. 

In fact, quite the opposite. 

Most investors are totally wrong about gold, and below I show rather than argue why they are missing the forest for the trees.

Unlike trend chasers, speculating gamblers and gold bears, sophisticated precious metal professionals and historically (as well as mathematically) conscious investors are not only calm right now, they are biding their time for what is about to become gold’s perfect backdrop and, pardon the pun, golden era…

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Understanding the Current Gold Price
As for the current doldrums in the gold scene, explaining the same is neither difficult nor a surprise for those who understand history, debt, rates, inflation and Fed-speak, all highly correlated themes we have addressed separately and carefully in prior reports.

“Rising Rates”
For now, the simplest explanation (beyond just the common price manipulation and short-covering) for the current gold yawn comes down to this: Rates are rising and gold typically underperforms in environments where interest rates outpace inflation rates.

Looking, for example, at rates measured by the yield on the U.S. 10-Year Treasury, they have climbed dramatically from the .4% range to well above the 1.4% range in just under a year. 

Again, hardly a tailwind for gold.

But here’s the good (yet painfully ignored) news: Rates won’t be rising much higher and inflation is on its way—big time.

Of course, many will say this is just the wishful (and biased) thinking of a Swiss-based precious metal executive.

That’s fair.

But I’ve never been one to use hope or wishful thinking to guide my views (or advice) on money or my convictions on wealth enhancement and, most importantly, wealth preservation. 

Instead, my thinking, which is always blunt, long-term and respectful of unemotional math and the cycles of history (and historically bad policy making) is oh-so confident these days…

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Why Rates Will Be Suppressed
So, let’s start with rates and why they can’t get much higher and hence pose a long-term threat to gold’s much higher price rise down the road.

Using the U.S. Fed as the perfect proxy for delusional as well as desperate central bankers around the world, we can do some quick math to see a very clear path ahead for gold.

As the Biden administration adds another $1.9T of “stimulus” debt to an already historically toxic debt pile, the U.S. will be sitting upon over $30T in government debt before Q1 of this year.

With its economy on its knees and tax revenues dwindling, this debt, and hence U.S. deficits, will only get higher, much higher by year end.

Now, let’s compare this current reality to the pre-pandemic math of 2019 when the over-stimulated (i.e. artificial) economy was running hot. 

It’s Simple Math
During that time, the U.S. was spending $4T per year and taking in $3T in taxpayer revenue. The net result was around $1T in annual deficits.

Again: This deficit was in a “strong” environment wherein interest expense on U.S. debt for 2019 was around $400B—roughly 10% of total spending.

But if we fast forward (calculator in hand) to 2021, the picture (and the math) turns very dark, very quick.

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At $30T of total debt and counting, if rates were allowed to rise much higher to anywhere near the historically normal range of 5%, that would mean $1.5T in annual interest expense for Uncle Sam, which would equate to 50% of national revenues rather than 10%.

Such a scenario of rising rates would mathematically make the U.S. insolvent. 

By the way, such a rising rate scenario would be equally true in Asia, the EU, Canada, Australia etc.

In simple terms then, rates will not go much higher for the blunt reason that countries (and hence central bankers) can’t afford them to go much higher.

As a result, central banks have no choice but to cap and repress rates for as long as they can. It’s a simple matter of natural math and artificial survival.

Inflation Expectations
As for inflation, that too is as plain to see coming as a cavity is to a dentist.

Right now, rates are going up because investors and markets anticipate that inflation is going up, which is true, but the math most gold-bears are forgetting is that rates won’t go too high for the simple reason, again, that the Fed can’t afford or allow them to.

Let me repeat: In order to pay the bills, the Fed MUST suppress rates going forward (especially on the 10Y Treasury, and possibly the 30Y) while simultaneously pursuing a deliberate policy of inflation and currency debasement to “inflate away” some of Uncle Sam’s debt obligations.

This setup, as explained elsewhere, is in fact a perfect scenario for gold, namely 1) inflation running hot (despite the CPI lie) and 2) artificially repressed yields and rates kept low. 

The net result, of course, is a world of negative real rates, which is the most bullish backdrop for gold, one which is completely ignored by the markets and 99% of most investors right now.

The Fed’s Linguistic Struggle with Transparency
Last week, Powell announced that he expects inflation to pick up, though he did not expect it “to be a persistent long-term force.” 

That’s rich…Much like Bernanke promising the post-08 money printing would end by 2010…

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Folks, the Fed will and can never admit that their text book plan is to create as much inflation as possible to solve Uncle Sam’s debt problem. 

But that’s the reality. Every sophisticated policy watcher knows this. 

Nor will you ever see or hear the Fed go the extra step and publicly announce that they will do their best to create more inflation while simultaneously seek to dishonestly mis-report inflation levels on that openly bogus scale known as the CPI.…..more

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