OTW #45: $15k gold, Gov't changes the answer key, Common investing mistakes, and more
Important financial stories to check out over the weekend
Hi Antagonist readers,
I’m sorry for sending this out today instead of our typical Saturday. It took me a long time to review the data behind the top story. I found it very intriguing and important, and I wanted to include it in this edition of “Over the Weekend.” At the same time, I didn’t want to rush to publish without conducting due diligence.
With that said, let’s dive into this week’s OTW!
1. $15k gold?
Leigh Goehring, managing partner of Goehring & Rozencwajg, predicts the price of gold will rise to $15,000 per ounce by 2035. That’s nearly 8x the current price of $1,990!
That’s obviously a bold claim. Goehring’s reasons behind his prediction are noteworthy, however.
On this MacroVoices podcast, Goehring noted that when commodity prices have been significantly depressed compared to financial assets, such as the late 1920s, late 1960s, and late 1990s, substantial rises in commodity prices followed. He sees several similarities between those periods and today.
Goehring’s most compelling argument is his linking the price of gold to the size of the Federal Reserve's balance sheet relative to the amount of gold the U.S. Treasury holds.
According to Goehring, the larger the Fed's balance sheet becomes in relation to its gold reserves, the more undervalued gold is (assuming the metal retains its historical role as a store of value and a hedge against inflation).
Here’s how he described his methodology in his interview:
[I]f gold is money, and the Federal Reserve prints a lot of dollars, there’s some loose relationship between all that dollar printing and dollars in circulation, and the amount of gold that’s outstanding.
And we’ve done that calculation and back in 2000 with gold at $275. It said, given the fact how much gold the Treasury holds, how much money has been printed, that there was a chance in the next decade that gold would appreciate to $2000, which it did.
Using that same methodology of the relationship of the size of the Federal Reserve’s balance sheet, and the amount of gold that the Treasury owns, which is I think 265 million ounces today, is that basically gives you a dollar-gold price of something between $15,000 and $25,000.
And you say, well that’s incredible how can that be? But it’s happened before.
It’s happened before. It will happen again. You just have to have a change to psychology, that's all.
Tavi Costa, Partner and Macro Strategist at Crescat Capital, also sees gold as tremendously undervalued. He provided these astounding figures and chart:
71% of investment advisors hold 0-1% of gold in their portfolios today.
I cannot recall a time in history when the metal was as underallocated as it is currently.
Keep in mind that in 1980, gold constituted 75% of global central bank assets, whereas now it accounts for less than 20%.
These massive pools of capital have just started to shift significantly toward the metal, presenting one of the most compelling opportunities to invest in gold to date.
If you’ve been an Antagonist reader for a while, you know that I’ve been urging investors to allocate a portion of their portfolio to gold. Premium members have also received specific recommendations.
Next month, I’ll be adding another gold position to our Blend Portfolio. It’s a company with a fascinating business model that is unique to its industry. Its stock also has the potential to soar several times higher than the price of gold, even as the metal rallies.
You can also visit this page to see if you’re eligible for any discounts.
2. The government changed the answer key.
Stocks rallied last week after the October CPI showed that consumer prices rose at a slower-than-expected pace across the board.
But did inflation really slow that much?
Much of the price decline can be attributed to the government changing the way it calculates its data (credit: Don A. Steinbrugge, founder and CEO at Agecroft Partners).
One significant factor in reducing inflation was the adjustment made by the Bureau of Labor Statistics in October, changing the calculation method for health insurance within the Consumer Price Index (CPI). This alteration, which constitutes over half a percent of the CPI, resulted in a notable decline of -34% over the past year. Government doing their part to bring down inflation.
This chart shows how much the BLS’ adjustment affected the health insurance price calculations:
Investors seem convinced that this cooler-than-expected inflation report signals the end of rate hikes. That’s been the rallying cry for months, however, with some even believing that rate cuts are imminent.
I don’t know when the Fed will cut rates let alone decide that hikes are no longer necessary. I prefer to focus on what Chairman Jerome Powell and company actually say.
Here’s Powell in his own words during his November 1st press conference. This was a direct response to someone asking, “Could we see [rate cuts] maybe pulled forward…?”
So it’s, the fact is the Committee is not thinking about rate cuts right now at all. We’re not talking about rate cuts, we’re still very focused on the first question, which is; have we achieved a stance of monetary policy that’s sufficiently restrictive to bring inflation down to 2 percent over time, sustainably?
That is the question we’re focusing on. The next question, as you know, will be for how long will we remain restrictive? Will policy remain restrictive and what we’ve said there is that we’ll keep policy restrictive until we're confident that inflation is on a sustainable path down to 2 percent.
That'll be the next question, but honestly, right now we’re really tightly focused on the first question. The question of rate cuts just doesn’t come up because I think the first, it’s so important to get that first question as close to right as you can.
(Source: transcript of Jerome Powell’s press conference on November 1st, page 9; emphases added)
Powell’s comments make me very hesitant to believe that we’ll see rate cuts any time soon. We may be done with hikes, but I believe many investors are overconfident right now. They’re simply ignoring the Fed or maybe they believe he’s bluffing. Either way, that’s a risky bet on future monetary policy.
3. 20 common investing mistakes.
Visual Capitalist provided this chart and explanation of 20 common investing mistakes:
Whether you’re a seasoned investor or just starting out, we all commit errors. Reviewing foundational principals like the ones above can help us self-assess and correct course.
4. Top 25 stock exchanges.
Antagonist subscribers hail from 40+ countries. I’ve also lived in 2 countries outside of the U.S.
Given our community’s global perspective, I thought you’d find this visual interesting. It maps the largest stock exchanges in the world:
To limit the length of Over the Weekend to 5 minutes, I can only highlight a few stories.
If you’d like to receive more summaries and links to important events and data,
Thank you for reading, and have a great weekend!
P.S. If you enjoyed this edition of Over the Weekend, please hit the heart button at the bottom of this message and share this post with others!