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The Central Bank Shell Game

Posted July 7, 2020

Gold is going to be the best investment over the next five years.

My friend and co-author of Christian DeHaemer's Bull and Bust Report, the esteemed Luke Burgess, put out an epic treatise on gold on Friday in Energy and Capital. You may have missed it with the BBQ preparations and whatnot.

But it’s important enough that I call your attention to it.

He wrote: 

Gold is set to experience one of the greatest and most powerful bull markets in history.

Forget the run-up in gold prices back in 2011. We called that a “bull market” back then. But what's coming will make the 2011 gold rally look minor in comparison.

And forget the gold bull market of the 1970s. Although it's often hailed as the greatest bull market for gold ever, the 1970s gold bull market will become secondary to what's about to come next.

I'm not even sure calling gold's next move a “bull market” will suffice in describing price increases. What's coming next might be better described as a “hyper-bull market.”

We're talking about an event for gold that will be studied by future economists, argued by future academics, and honored by future gold bugs.

It will disrupt monetary and fiscal policy. And it will make fundamental changes to global economies.

It will change perceptions of fiat money. And it will force currency revaluations.

It will completely bankrupt some. And it will make others insanely rich.

That's a bold and powerful statement. But he then went on to back it up, telling you why it would happen in an in-depth, but easy-to-read, article. Read the whole thing here

Luke’s argument, and it is a correct one, is that money printing will devalue the dollar. Furthermore, only the low velocity of money is keeping a lid on the price of gold. When that lid is removed, gold will skyrocket.

If you want proof of this, you only have to look at those organizations that are printing money i.e., the central banks.

Central Bank Two-Step

Central banks are looking in the face of the greatest economic downturn the world has ever seen. In response, they shot a howitzer of cash at the problem. They talk of monetary easing and priming the pump, but if they really thought this would work, they wouldn’t be buying gold in record numbers.

From Bloomberg:

In 2018, gold touched a 50-year record, as far as central bank demand for the precious metal is concerned. Data shows that 2019’s gold purchases are up 17 tons more than the 651.5 metric tons purchased the previous year. Some of the biggest central bank gold purchases this year came from places like Kazakhstan, Russia, and Turkey. A variety of newer gold buyers also appeared in 2019, surprising a few economists. For example, in February, the Reserve Bank of India increased buying by 40 tons and the country hadn’t increased in over a decade. Poland increased gold purchases as well, seeing a 25% rise year-over-year (YoY) with an increase of 25 tons. In 2019, Hungary bought more gold than it has in the last 30 years.  

More Gold

A recent survey by the Global Gold Council showed that 20% of the central banks that responded to the survey said they would likely increase their gold holdings, versus 8% of those responding to the same question a year ago. 

Three quarters of all the central banks that responded to the survey thought that global bank gold holdings would increase.

They are buying gold for two reasons: Global money printing will devalue global currencies. And, after the last crisis in 2009, fixed income products became worthless while gold and gold stocks went up by as much as 3,000%.

In a world where people care more about the return of their investment than a return on their investment, gold becomes essential as a storehouse of value.

Why would someone buy a negative-rate bond knowing that they would get back less money over time? A rational person wouldn’t.

Central banks are hypocrites. They print money with one hand and buy gold with the other. But it's more than that — they create money from thin air, hand out lower interest rates, and encourage borrowing while at the same time buying gold as insurance against the very risk they are creating.

It’s a shell game and a scam. Watch what they do and not what they say. Buy gold.

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Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.

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