A Deep Dive in Golden Sentiment

The year is 2021. We are slightly more than a year into the great pandemic that started in earnest in 2020. Much of the industrialised world has been or currently is in some form of lockdown. Governments in many developed countries have taken draconian measures to slow down the spread of the disease in the last 12 months, with varied success. Travel between nations has ground to a halt, with economic activity the world over slowing down considerably relative to 2019. Anyhow, who needs a summary of 2020 anyways? We all know the story, having personally lived through what was a 'unique' year.

Disclosure: None of this is financial advice. This is merely the musings of a keen observer of the madness that is before us.

Ok, now onto the topic of magical money printing for the masses. I am not sure which part of the globe you are reading this article from, but I would hazard a guess that you or a family member likely have received some form of a government handout in the last 12 months. I would also hazard another guess: You or said family member have not seen your tax bill go up.

So where did that money or currency come from? How did it get conjured up? I will leave the inner workings of the fractional reserve central banking system to another time, but it is safe to say that digital units of exchange were created, and that there are now more of them looking for a home than there were in 2019. For a stark illustration, check out the image below taken off the federal reserve's website.

Figure 1: M1 Money Supply, Feb 23rd, 2021

But that was from a week ago. Things move fast in the pandemic era. This hit the news a couple of days back:

It seems like we are in the beginning phases of a paradigm shift on money and credit, seeing that governments and central banks have started undertaking one extraordinary measure after another. If this is to continue, the idea of a stable unit of measure (dollar, euro or yen) will be called into question. Heck, even the idea of a hard day's work to pay the bills gets called thrown on the chopping block.

What happens to an economy when the currency, or measure of economic value starts to gyrate? What happens when a store of value starts leaking onto the pavement? Rationally, people become less likely to hold onto the depreciating asset, hence they look to exchange their currency for

• items to consume now

• ownership of items that will have value in the future (asset speculation)

This is especially true and made more acute when said currency is coming through via government helicopter drops. Why not consume it now? Or if not, then surely a punt in the markets is definitely in order. What is one to do when Paul down the road is now fat and retired at 25, holding onto a portfolio of ever printing OTM call options? Ok. I exaggerated. Brandon is actually already 32.

See image below for proof that Brandon might not be alone in his actions.

Figure 2: Global Stock Mkt Cap, Feb 26th, 2021

Leaving speculation on securities and financial assets aside (#BTC chart here), there is also the inconvenient issue of rising consumer prices. Another sign that creation of money has adverse side effects. Side effects that can become disorderly to a civil society if left unchecked. One might expect that the unrest seen and felt globally in 2020 might be ripe for sequels playing out in the near future.

So what is a responsible wage earner to do given the circumstances? The average person that still has an income, or savings in the bank is faced with the following set of unsavoury circumstances:

• a poor economy and job market - travel curtailed, no looking for greener pastures overseas

• negative real yields on savings

• increasing prices on essential goods and services

• ever louder voices on the ease (or need) of striking it rich via speculation

Is there not a rational responsible way out of this?

For millennia, the masses have sought the precious metals as a haven from inflation. The hard form of cash had the advantage of being divisible, recognisable, value dense and very scarce. Most importantly, it cannot be created by decree. As such, gold usually does well in these inflationary periods, or during times of turmoil.

Source: @Capi_Phil (Twitter)

Don't take my word for it. Here are a few quotes from others whose words should carry some ounces of weight.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. - Alan Greenspan

Never trust money more than gold. ― Toba Beta

There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence. – Charles de Gaulle

We have gold because we cannot trust governments. ― Herbert Hoover

Although gold and silver are not by nature money, money is by nature gold and silver. — Karl Marx

In reality, there is no such thing as an inflation of prices, relatively to gold. There is such a thing as a depreciated paper currency. — Lysander Spooner

Considering the times we are in, one could expect gold prices to be going through the roof.

• Disorderly increases in money stock? Check.

• Global reset in motion? Crazy right? Look for yourself below. Check.

• Inflation on the rise? Check.

World Economic Forum's Tantalising 2020 Title

So why is gold sinking (like the rock that it is), rather than soaring to the rescue of the many responsible savers out there? Is history wrong?

The spot price for gold is currently sitting at $1722 a troy ounce, compared to the highs of $2070 a troy ounce back in August of 2020. That is a 17% retrace in about 7 months, and it is causing much gnashing of teeth. From being called a pet rock to a barbarous relic, gold has always had its long term haters. Recently, even true believers are starting to get demoralised. How does the universal safe haven from all things financially scary behave so timidly just when it should be roaring like a lion?

Check out some of the tweets from the precious metals twitter-sphere. Keep in mind that these guys have a bullish bias, as do we here at Daybreak. Be warned, some might put you off your dinner!

Sentiment is pretty low, (see tweet from @258Capital for graphical interpretation) with many believers at least short term bearish. Bottoms are usually made at times like these. Considering the crazy times we are in, one should be happy to get access to protection at a discounted rate. Let me leave you with my favourite tweet of the lot, from Nate over at renaissancemen.org, which I believe sums it all up nicely.

Have fun in the markets, and till next time. Thank you for reading.

Disclosure again: None of this is financial advice. Do your own research before investing anything in these casinos.