“Gold is money. Everything else is credit.”
–J.P. Morgan
With interest rates trending lower, gold’s rally is on track to continue — and a major catalyst lies ahead.
September 19, 2024 – The Fed has finally cut interest rates. And judging by the market’s reaction this morning, traders have decided to go all-in on stocks.
Kudos to the central bank for goosing markets before the election and potentially averting a traditional September sell-off.
We have our suspicions. We have two major questions.
First, boomers who had locked in ~2.75% mortgage rates on their principal asset, benefitted greatly from higher rates in money markets and cash CDs. The total amount of cash in these vehicles reached a record high of $5.88 trillion at the start of the year, according to Fundstrat.
That level of savings is, for now anyway, helping to keep the economy afloat, giving banks a healthy margin in their commercial businesses and giving millions of everyday investors some quietude.
What happens when the rate-cutting cycle really gets underway?
Second, and this could be the doozy, yesterday’s 50-basis point cut, September 18 2024, perhaps coincidently mirrors the same cut 50-point cut made on… September 18, 2007.
What data is the Fed looking at that wasn’t already widely available on Tuesday, September 17?
In hindsight, the 50-point cut 17 years ago was a harbinger of a fairly nasty era in the financial, bond and credit markets.
The market believes the narrative of a soft landing this time around, at least for now. Unlike in 2007 when everyone, at least the partially sentient everyone, could see the collapse of the housing market and the freezing up of credit markets.
(We’d already written the first edition of Empire of Debt and written, produced and were on the film festival circuit with the feature documentary I.O.U.S.A. at that time.)
We don’t pretend to know how things will end this time around.
But we can see that the stock market is engaging in one of its favorite pastimes: making us all feel foolish. Statistics suggest that stocks should be falling this time of September, and possibly into October.
Perhaps, given August’s market tantrum over the yen carry trade and the early September selloff, the worst is behind us for this year. The election throws a wrench in any forecasting tool we might ordinarily rely on, too. And stocks generally get a boost during the holidays.
But, the trends are aligned and chances are high we’ll see a reckoning in 2025. We are, in fact, in the final stretch of our 2025 Trend Forecast. You’ll want to read our findings when we’re ready to release them.
In the meantime, let’s check in with our intrepid portfolio director, Andrew Packer is fresh back from FutureProof – an annual conference of financial advisors and institutional investors.
His overall impression? Central banks are unusually bullish on gold, especially for a “soft landing” scenario. But one group hasn’t come to the party yet…
Andrew takes a closer look at gold, and its unusual performance so far this year, below. He also gives a few good reasons to believe its bull market may just be getting started. Enjoy ~~ Addison
You Aren’t Bullish Enough on Gold
Andrew Packer, Grey Swan Investment Fraternity
So far this week, I’ve had about 40 meetings.
Sadly, that’s not a typo.
But most of them have been useful. That’s because I’ve been at FutureProof, out in Huntington Beach, California.
Sure, being on the beach for a conference was fun and different. But FP, which is primarily focused on financial and wealth advisors, brings together a lot of the traditional financial community.
As far as conferences go, FutureProof is the next big thing. In just its third year, attendees have gone from 1,600 to 3,000 to over 4,200. It’s definitely now bigger than what the local hotel infrastructure can provide.
And with elements like food trucks, a music performance from 90’s band Third Eye Blind, they’re picking up on the fun, relaxed vibe that’s more fit for a bitcoin conference than for wealth advisors.
But it’s easy to see why it’s a success. FutureProof is a conference that’s built around one-on-one meetings.
More specifically, timed 15-minute meet-and-greet affairs with fellow attendees. Before the conference, I was able to select dozens of possible folks to interact with – and in turn, a few folks wanted to pick my brain.
This is a sizeable leap forward for the networking process, although the sound of hundreds of simultaneous one-on-one conversations is loud.
Fortunately, I’m happy to report that I’ve had the chance to meet with several people who have ideas that can help make the Grey Swan Investment Fraternity more robust.
And there are some subtle trends in financial markets that I may not have picked up on. Our full fraternity members will get a first look at my research once that’s completed.
While I let my voice recover from the conference though, I have one urgent takeaway, on an asset that’s near and dear to all of us: Gold.
All That Glitters Is Still Bullish
While gold wasn’t a big topic at the conference, I’ve walked away with the sense that the metal’s move higher is just getting started.
For reference, as of yesterday’s close, the S&P 500 was up over 18% year-to-date. That’s impressive for its average annual performance.
But gold? The metal is up 26%, and topped $2,600 per ounce. That’s a 44% higher return.
What’s unusual is that gold shouldn’t be going up at all right now. The macroeconomic environment just doesn’t make sense for it.
After all, inflation is coming down, or “moderating” as the Federal Reserve likes to say. Gold is better as an inflation hedge.
Gold also doesn’t pay an income. Even with the Fed lowering interest rates this week, with their 50-basis point kickoff, the metal shouldn’t be that attractive as an alternative asset.
So what gives?
One big reason for gold’s strength is central bank buying. It’s not as high as it has been in prior years, but it remains elevated:
Central banks may talk about how gold is a relic of the financial system. But they’re doing the opposite and buying the metal hand over fist.
Overall, central banks scaled back on their buys in 2020, focusing on the response to the pandemic. In the inflationary aftermath, buying surged.
This year, buying kicked off strongly, with the biggest first-half buys by central banks on record. Some countries like Turkey, Russia, and China have accelerated their buying this year.
Is central bank buying enough? Yes. In total, central banks aren’t just robust buyers, they’re buying nearly all the new mined gold coming onto the market.
Where’s the retail trader in all of this?
According to Jeremy Schwartz, Global Chief Investment Officer for WisdomTree, they’re not at the party yet.
“Just look at the ETF flows,” Schwartz told me at FutureProof. “Retail investors have been sitting out gold’s rally this year.
That’s usually the way it works in financial markets, isn’t it? The big money moves in first, driving prices higher. Then the little guys see the move and get in.
Sure enough, that is the case for investors who buy gold based on expected price moves. The ETF data shows some lackluster buys and sells over the past year. But the big buying of 2020-2022 is muted:
One sign of this trend could be in gold mining stocks. Sure, they’re up over the past year. But they’re not outperforming gold overall. Investors wary of a market soaring to new all-time highs looking for a value may find it with gold.
Given the tight global market for gold right now, retail buying could push gold to $3,000 and beyond.
Yes, retail investors aren’t buying or melting their own 400-ounce bars. But in a tight market, even a marginal increase in demand could mean soaring prices.
I’m not buying gold right now in anticipation that retail investors will start to push in and drive prices higher. I’m buying because, relative to the amount of fiat currencies in the financial system, gold still looks like a value here.
I believe this is part of a bigger commodity trend. (This time next week, I’ll be off learning more about one of America’s biggest success stories, the shale oil boom – stay tuned.)
Knowing there’s a catalyst ahead for gold gives me confidence there’s far more upside ahead.
Investors aren’t bullish enough on gold yet. But come the next spike in inflation, or the next financial crisis, and the fun could really get started ~~Andrew Packer, Grey Swan Investment Fraternity
So it goes,
Addison Wiggin,
Grey Swan
P.S. Our trend forecast for 2025 is tentatively titled:
America’s Lost Decade: Opting Out Of USA’s 2025-2035 Economic RESET
7 Existential Threats to America’s “New Way Forward”
(and how to survive them)
Like I said, it’s still in research mode. We’ll keep you apprised as it nears completion. Our paid-up fraternity members will get the first crack at the full research, but keep an eye out here for the highlights.
In the meantime, you might ask yourself:
How did we get here? Get a provocative view of the financial, economic, and political history of the United States from Demise of the Dollar through Financial Reckoning Day and on to Empire of Debt — all three books are now available in their third post-pandemic editions.
