I have not yet drunk myself under the table following gold’s passing $1800, although there is a small bottle of Ouzo which has come to my attention in the cupboard. The question is perhaps where now and how to play it, but the bigger question for me is just how bad things are going to get? Actually, the mess we are in as a result of the Covid-19 pin pricking the everything bubble and the consequences of the lockdown absolutely terrify me. How long will the dole queues get once the government’s furlough scheme comes to an end? What will the effect on consumer confidence from that, as well as the lingering Covid restrictions and continuing fear in the population as a whole be? How many businesses will throw in the towel either because all their customers have disappeared or the continuing Covid restrictions make it uneconomic to operate or because the debts were just too big to service? How much will all this cost the UK taxpayer in the form of printing money or just layer upon layer of government borrowing? How will the debt be paid off? But of course, the answer will in the end be running the printing presses at full steam ahead – the easy option – and thus we will eventually see horrific inflation.
After the banking crisis, central banks also wheeled out the printing presses but the market more-or-less bought the idea that all this new funny money would eventually be reversed. But it was not reversed – and when the US Federal Reserve tried, it quickly had to reverse course. History tells us that you can’t just print your way out of trouble; eventually the profligacy will catch up with you. It is not just in modern times (think Zimbabwe), roll the clock back to the inter-war years and we have the Weimar Republic, when citizens had to carry their cash in a wheelbarrow. Go back to around 1720 and we see John Law and his Mississippi project ripping the heart out of the French economy. Fiat currencies just don’t work because the printing press is just too easy to use. The position now is that central banks are printing like there is no tomorrow (perhaps for some there won’t be) to bail out economies once again suffering from dreadful over-indebtedness and to provide liquidity to refloat economies. Is there any chance at all this QE on steroids will be reversed? The FCA tells us the past is no guide to the future - I completely disagree, and the worst of it is that I just don’t think any amount of money printing will work. I think we are headed for a grim recession at the very least , if not a depression, and that is why I believe the rush to gold and precious metals will gather steam. Regardless of whether I am right or wrong on that, the problem is that if the central banks print enough funny money the currencies will be devalued in the end. If they don’t then there will be a monster recession. Or both.
Some people think flocking to Bitcoin as the new gold of the digital age will offer protection. I have no problem if they want to do that, but it is not for me. Call me an old-fashioned dinosaur, but gold has a history stretching back aeons and I see no reason it will be different this time. As such, the outlook for gold remains highly positive in my view. And that means that gold equities, as a geared play on the yellow stuff, will have a good run too.
So to answer my question as to how to play gold, the answer – for those already having taken a position – is absolutely nothing. I’m sure there will be bumps ahead, but in my view the trajectory is very firmly upwards, and will remain so for a good time to come. This is the time to be holding your favourite gold stocks extremely firmly, including my formal tips of Centamin (CEY) and Ariana Resources (AAU) as well as my non-formal tips of ETF plays of GDX (gold majors) and GDXJ (gold not-so-minors), BlackRock Gold and General Unit Trust and Junior Gold unit trust which are also surging very nicely. If you want more than that, why not book a ticket for the MineProphets online conference on July 18 – a bargain at just £2.99 (although I would say that!) – where you can hear such experts as Peter Hambro, Lucian Miers, Chris Bailey, Malcolm Burne (of Golden Prospect), Ross Norman (of Sharps Pixley) and a host of other heads populated with far greater brain power than mine. And of course, the man with the finest beard in gold mining on AIM, Kerim Sener of Ariana. Now, back to that Ouzo bottle……perhaps laced with Valium in view of my macro-economic fears. There’s a cocktail well worth avoiding……Roll on $1900 gold.
Filed under: Gold, Bearcast, Rolls-Royce, Iconic Labs, Dave Sefton, EQTEC, Escape Hunt
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