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Short The Fed, Buy Gold

By Peter KrauthMarket OverviewFeb 10, 2021 09:28AM ET
www.investing.com/analysis/short-the-fed-buy-gold-200559806
Short The Fed, Buy Gold
By Peter Krauth   |  Feb 10, 2021 09:28AM ET
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Yellen is Treasury Secretary. Powell is Fed Chair. And Sanders is head of the Senate Budget Committee. 

Most of the time, it’s impossible to tell the future. But there are exceptions. Right now, there’s no room left to read between the lines. The goals, and outcome, are obvious.

America, along with the rest of the world, is going to try and spend its way out of the pandemic crisis.  

This crystal ball is perfectly clear, and Wall Street’s been peering into it. That’s why stocks are near all-time highs. It’s why, increasingly, the savviest managers from corporate America are also catching on, and acting. 

It’s why Tesla (NASDAQ:TSLA) just moved $1.5 billion of its cash into Bitcoin. Naturally, that’s big news. But what didn’t make the Tesla headlines may surprise you.

It’s time to manage your cash, with gold.

The Dollar is Fizzling

Here’s what Tesla’s latest 10k filing said:

“In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity...we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future.” (emphasis mine)

Alternative reserve assets? Gold bullion? Gold exchange-traded funds?

Folks, the writing is now all over the wall. Corporate America is cluing in, but the vast majority of individual investors haven’t…yet. It’s why gold, silver, and pretty much all commodities have started to run higher.

The dollar is toast.

Look, the dollar’s been the undisputed reserve currency for nearly a century. But that’s the average life span of a reserve currency going back over 500 years.

Global Reserve Currencies
Global Reserve Currencies

The dollar enjoyed a short reprieve over the last decade or so, but central bank and government reaction worldwide to the COVID-19 crisis was the final straw. The camel’s back is now broken.

Even bond king Jeffrey Gundlach’s firm, DoubleLine Capital, via Bill Campbell, recently said: 

“…a series of equal and opposite reactions are occurring as nations move to remove the role of the U.S. dollar at the center of global trade and finance.  This will have long-lasting structural impact in ending the dominance of the dollar as the world’s reserve currency.”

US Dollar As %age Of World FX Reserve
US Dollar As %age Of World FX Reserve

The action in the US dollar index over the past few years tells a similar story.

US Dollar Index
US Dollar Index

The dollar has clearly broken down below a rising trend line after peaking near 105 last March. Today, it’s trading near 90. By all accounts, it appears the dollar has resumed its long-term downtrend.

Stanley Druckenmiller, once chief portfolio manager at George Soros’ Quantum fund, recently said in a Goldman Sachs) interview, 

“It’s possible, in fact probable, that all this stimulus is still going to be in place and frankly increasing just when we release the biggest increase in pent up demand globally that we’ve had maybe since the 1920s, which could make the world look extremely different than today…I would say that my overriding theme is inflation relative to what the policy makers think.”

That makes gold a go-to option not only to preserve, but to grow your cash.

The Future is Golden

2020 was challenging for everyone, including gold miners.

Annual gold mine production actually dropped about 3% last year, from 3,300 tonnes to 3,200 tonnes, as miners were forced to temporarily shut down their facilities.

Annual Gold Mining Production
Annual Gold Mining Production

Still, most analysts expect gold output to grow over the next decade. A report by Fitch Solutions forecasts about 2.5% annual gold production growth between 2020 and 2029, led by Russia which would overtake China as the largest producer by then. But it’s worth noting Russia’s drive to grow its gold output is in order to increase its central bank holdings as a buffer against ongoing U.S. sanctions and risks of Russian banks being excluded from dealing in dollar-denominated assets. So a lot of Russia’s production may never reach market.  (Source: The Northern Miner, Sept. 1, 2020)

Going all the way back to the mid-1970s, gold has not only kept pace, but surpassed global M2 money supply growth.

Gold V M2 Money Supply
Gold V M2 Money Supply

Overall, I expect demand drivers to hold up. According to the World Gold Council, central banks are set to remain net buyers again this year. In my view, financial and geopolitical uncertainty, near-zero or negative rates, historic levels of fiscal and monetary stimulus, and massive pent-up demand as pandemic effects subside mean gold is primed to outperform.

Here’s the big takeaway.  

The dollar has resumed its long-term downtrend, as investors are beginning to realize it’s about to be printed into oblivion. You need to take steps now that will help you protect your cash and purchasing power. And that means prioritizing precious metals and commodities.

In my gold-focused newsletter, I provide my outlook on which gold stocks offer the best prospects as this bull market progresses. I recently added two new companies to the portfolio, which I believe have exceptional potential to double or better in the next 12 months. 

In the end, it’s not just me saying gold’s a necessary reserve asset.  

Now even Elon Musk likes gold.

Short The Fed, Buy Gold
 

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Short The Fed, Buy Gold

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Comments (13)
Big Dollar Bust
Big Dollar Bust Feb 21, 2021 10:54AM ET
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Sounds like angamiliar thesis
Theophilus Punuval
Theophilus Punuval Feb 11, 2021 7:43PM ET
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The Fed is going to "punish" China?  That's about as funny as Wile E. Coyote "punishing" the Road Runner.  The Fed has just put on their Acme Industries Batman costume and have jumped off the nearest cliff.  Good luck with that.   Har, de-har-har-har!  ( and -HAR! )
Mehdi Captain Music
Mehdi Captain Music Feb 11, 2021 4:17AM ET
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The fed is about to punish the Chinese and the Chinese new year because of the corona pandemic. Do what you want but gold doesn't have enough backup for rising. Short gold and long again around $1800
Solomon Lalani
Solomon Feb 10, 2021 11:01PM ET
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Thanks for your contribution.
Mehmet Dutlu
Mehmet Dutlu Feb 10, 2021 4:27PM ET
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Donˋt bet against America! Donˋt fight the Fed!
Mehdi Captain Music
Mehdi Captain Music Feb 10, 2021 4:12PM ET
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We are not enemies in the trading playground. We are just buyers and sellers and should be on the trend line.Gold is between 1855 to 1818.
la popeye
la popeye Feb 10, 2021 2:12PM ET
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only problem. central banks don t want people rushing on gold. They know and will do anything to avoid gold soaring.
DuBose Kapeluck
DuBose Kapeluck Feb 10, 2021 2:12PM ET
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Well if you actually try and buy a gold coin it's about $170 over the spot price.  That's a significant premium and makes you wonder how "real" the spot price is if push were to come to shove.
DuBose Kapeluck
DuBose Kapeluck Feb 10, 2021 2:12PM ET
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Well if you actually try and buy a gold coin it's about $170 over the spot price.  That's a significant premium and makes you wonder how "real" the spot price is if push were to come to shove.
peter neal
peter neal Feb 10, 2021 1:32PM ET
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Great article. Biden to spend 11 trillion this year on his agenda. The deficit will destroy the Country and there is nothing the Fed or the Government can do about. All in physical Gold. Buy some if you can find some it's pretty much sold out.
Abbas Khan
Abbas Khan Feb 10, 2021 12:41PM ET
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today what expectations about gold any body help me up or down
la popeye
la popeye Feb 10, 2021 12:41PM ET
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gold, you buy and forget for the next 20 years.
Abbas Khan
Abbas Khan Feb 10, 2021 12:41PM ET
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la popeye what mean sir go down for big time
Nate Johnson
Nate Johnson Feb 10, 2021 12:31PM ET
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"A report by Fitch Solutions forecasts about 2.5% annual gold production growth"... Which is still more than the feds 2% inflation target. At which point they will increase rates thus driving up usd. So this means there will be 0.5% increase in gold supply over demand. Thanks for making a good case for why gold prices will go down. The supply of gold is not limited. They are always finding new mines, proprietary ways of extracting more gold etc etc. And gold is always denominated in usd. Yes everyone is printing money but what matters is which country will have normalcy sooner. This will cause huge flows into that country. Look at the current case of gbp. They have estimated that Britain will have herd immunity by mid summer. And gbp skyrocketed against all other currencies. What do you think will happen when the US virus numbers and vaccination rates are more favorable? Usd going up like crazy. Therefore causing gold prices to drop. Thanks again for the information. Good article tho
George Steven
George Steven Feb 10, 2021 11:39AM ET
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I have been holding HGU (TSX Gold miners) for a couple of years. It's frustrating to watch. But the April to August run up shows how gold can go up in a hurry.
Nate Johnson
Nate Johnson Feb 10, 2021 11:39AM ET
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Pandemic related. Gold's flight to safety. Once pandemic fears are over gold price going down no matter where usd is. Gold is overbought. Same thing that happened around Dec 2019 when the US killed the Iranian commander. Gold shot up. Same thing that happened during pandemic. People there are 5 main aspects to gold. Not just inflation hedge. Look them up. Know them. Study them and write down.
Paul Barron
Paul Barron Feb 10, 2021 11:39AM ET
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Nate Johnson how does the 40% more usd in past 30 months work into you system. You are seeing what you wantvto make your case. Its not a black and white picture as you paint. Its a rainbow So how do all the dollar printing factor in?
Paul Barron
Paul Barron Feb 10, 2021 11:39AM ET
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Nate Johnson oh yes, that don’t matter. Like Trump said, “it will all just disappear. ******
Vincenzo Tilotta
Vincenzo Tilotta Feb 10, 2021 10:39AM ET
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Awesome article as usual from Peter, real hard facts
MT Investments
MT Investments Feb 10, 2021 10:35AM ET
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Nice and informative.
 
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