Gold has become the Forgotten Asset Class of 2021.
There are two general reasons for this:
- Many investors have been diverting dollars into Bitcoin and other cryptocurrencies and this has caused the gold market to flatten out.
- Gold mining stocks have been weak, partially due to the lethargic gold market and partly due to general weakness in small-cap stocks in recent months.
For investors, gold has become the Forgotten Asset Class at the worst possible time
: when market/economic conditions are shrieking “buy gold”.
Gold: the go-to asset class for every knowledgeable investor
What sparked the sell-off in small cap stocks, including gold mining stocks? “Inflation fears”
. This would be hilarious if it wasn’t so tragic.
Stocks, in general, are seen as a hedge against inflation. But gold is universally recognized as the ultimate insurance against inflation
. For some, it is also seen as “the ultimate insurance against stupidity”
Today, investors have never been more in need of both forms of insurance.
Selling gold during “inflation fears” is like California homeowners cancelling their fire insurance while wildfires are raging. S-T-U-P-I-D.
Investors have been selling gold and gold mining stocks when they should be loading up. Even sillier is the shift into cryptocurrencies.
Many totally clueless pundits are now talking about “crypto replacing gold”
as (lol) an inflation hedge. This is like claiming that a particular roulette wheel that had started paying off more than average could somehow protect us from inflation.
Cryptocurrencies have no intrinsic value, and that
is what “hedges” against inflation. Hard assets.
Gold does have intrinsic value. In any nation in the world, at any time, you can exchange a gold coin, gold jewelry, or even a gold filling for cash.
Gold not only has intrinsic value due to its prized aesthetic qualities, it is also very useful for many industrial purposes. Indeed, if gold wasn’t coveted so much (driving up the price) it would be used in many industrial applications.
Real estate, as another hard asset, is also traditionally viewed as an inflation hedge. But with Western real estate prices at all-time bubble extremes, real estate is a very poor inflation hedge today.
Cryptocurrencies are not a “hedge” against anything. They are an anti-hedge – like all naked gambling.
Cryptocurrencies: gambling on Ponzi schemes
What cryptocurrencies resemble today are Ponzi schemes. Gambling on a computer algorithm that can only generate gains as long as ever-increasing sums of capital flow into it
From the SEC
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors
. Ponzi schemes are named after Charles Ponzi. In the 1920s, Ponzi promised investors a 50% return within a few months for what he claimed was an investment in international mail coupons. Ponzi used funds from new investors to pay fake “returns” to earlier investors. [emphasis mine]
How is this any different from a cryptocurrency?
Crypto-fanatics like to pretend that they have somehow reinvented the wheel. They haven’t. They have merely created the newest market fad – where the vast majority of people gambling on cryptos have no basic understanding of what a cryptocurrency is
Crypto-mania has morphed into a herd of lemmings mindlessly charging ahead. It will likely end in a similar manner.
Gold is the real “hedge” for inflation
But don’t take the word of Dynamic Wealth Research for that. Ask the world’s central banks.
Central banks: the creators of inflation are the world’s biggest gold bulls
It is the wildly excessive currency creation by central banks that is producing all of the inflation in the world today. Indeed, the economic definition of inflation is to “inflate” the supply of money.
Skyrocketing house prices. Skyrocketing food prices. Skyrocketing lumber prices. Skyrocketing steel prices. Skyrocketing bond prices. Skyrocketing stock prices.
In legitimate markets, it’s not even theoretically possible for stocks and bonds to simultaneously sit near/at all-time highs
. These are counter-cyclical asset classes.
What are the Creators of Inflation doing to protect themselves
from inflation? Buying gold.
This isn’t new. In fact, central banks have been loading up on gold
since 2008. By coincidence(?), 2008 is when central bank currency creation began to spiral out of control.
Now central banks are accelerating their gold buying.
Hungary’s central bank tripled the nation’s gold reserves
earlier this year. And China is rumored to have recently accumulated another $180 billion in gold
Some nations, like Turkey, have actually off-loaded large quantities of gold in 2021. Does Turkey have a low opinion of gold?
Quite the opposite. Turkey had
disproportionately large gold reserves in the nation’s overall foreign exchange reserves.
But Turkey is in the midst of a severe monetary/economic crisis. Its own paper currency is rapidly descending to worthlessness as inflation spirals out of control
. Only Turkey’s gold has retained its value.
All roads lead to higher gold prices
Central banks have been talking
recently about restraining their out-of-control currency creation.
Right. And I want to lose 10 pounds, so I’m simply not going to eat anything for two weeks.
Central banks may want
to restrain their reckless monetary insanity. That doesn’t mean they have the capacity to do so.
What happens if central banks reduce the flow of funny-money they are currently injecting into the economy, which mostly runs directly into markets?
To start with, we will no longer have simultaneous
stock and bond bubbles. One (and most likely both) of these bubbles would burst in particularly spectacular crashes.
Let’s not forget about the real estate bubble. Reduced money-printing implies higher mortgage rates. Ka-boom goes the housing market.
Any brief “tapering” of central bank monetary insanity would quickly lead to an even more-frantic binge of money-printing
(and even more inflation
) – to re-solidify the bond/stock/real estate bubbles.
And we can’t leave out the $1.5 quadrillion
derivatives bubble. The Mother of All Bubbles is the most unstable bubble of all.
“Inflation fears” will be with us now for as long as we have central banks. Or until all the bubbles created by these central bankers go ka-boom.
Media muppets perennially talk about gold as “a bad investment”
If we put all of our investment capital into such “bad investments”, most of us would become multi-millionaires.
And most of the move in the price of gold from $35/oz to $1775/oz came during decades of (relatively) low inflation
. Now central banks have completely released the Inflation Genie from the bottle.
a time to forget about gold.
Gold mining stocks: oversold and even more upside than bullion
As already noted, gold mining stocks have faced headwinds on two fronts in recent months: a weak price of gold and a selloff in small caps (only a handful of gold mining companies in the world qualify as large caps).
While gold mining stocks are not equivalent to gold as a Safe Haven, they do offer strong protection as a hedge against inflation.
For investors new to gold mining stocks (and resource stocks, in general) gold mining companies leverage gains in the price of gold
– and that leverage extends to not just the gold miners, but also the gold exploration and development companies.
All roads lead to higher gold prices. So all roads lead to much
higher gold mining stock share prices.
The gold sector can frustrate investors with less patience. Often long periods of sideways price action -- then a furious rally.
But with “inflation fears” increasing (and apparently with us for good), either the rallies in the gold market will get more frequent or even more extreme.
Gold has often been a Forgotten Asset Class in recent years. A victim of uneducated analysts regularly ignoring the best-performing asset of the last 50 years
It’s always been a mistake to ignore gold as an important component in one’s portfolio. But ignoring it in 2021 will prove to be especially costly to investors.
People can gamble on cryptocurrencies any time (assuming these Ponzi schemes don’t implode first). Today
people need to own gold and gold mining stocks.