Fed may reach 'tipping point' by November as world 'breaks apart' into two - Ronald-Peter Stoeferle

Kitco News special coverage of the precious metal Summit is brought to you by Nucor gold we're here to discuss the future of gold and the economy with a fan favorite of the show Ronald Peter stoffler who is the managing partner of incremental AG as well as the author of the famous in Gold We Trust report welcome back to the show Ronald thank you David uh we're gonna break down some of the key themes of your book and look ahead of what's going to happen with gold um you mentioned in your one of the earlier chapters of this book that there were a few fundamental reasons as to why gold did not perform maybe as well as some might have hoped this year you cited the strong US dollar as being number one high opportunity cost because of soaring stock markets crypto assets that stole the show from gold and most importantly you wrote Market participants believe the transitory nature and the do not fear that inflation would remain high in the longer term we're going to break down all those things and examine whether or not these headwinds are here to stay for 2023 and Beyond but first I want to talk about something you brought up in the presentation yesterday which is that you you believe the FED will maybe pivot relatively soon you said that they might pivot by midterm elections I'll let you elaborate on that well I think we I don't know if we have already seen peacockishness okay I'm not 100 sure but I think we're getting closer to this point when they will have to Pivot however I think it's it's naive that many Market participants think that you know there will be the big U-turn and the Federal Reserve will uh will will will end tightening will start QE again aggressively lower rates that's not going to happen yeah I mean they're they're kind of in the corner because obviously inflation is the topic um so I think anybody who expects something like um a YouTube like in 2018 will be very disappointed yes my take has always been and that was that was actually the the title of my keynote last year here it was called the monetary Tipping Point and I made the case saying that actually we should focus Less on central banks and we should focus more on fiscal stimulus and I think for the for the next pivot and I think that's that's really for for financial markets in general but also uh for gold I think fiscal stimulus will be the most important driver now when it comes to the Federal Reserve I think everybody looked at at Powell's speech in Jackson Hole which was Equity markets didn't like it um however there were was a speech by Lyle Brainerd um device Vice chair that was quite dovish from my point of view and and I think it's really worth watching and she didn't give a speech since April so that was the first one um since then and then it was another one by by Williams fed New York which was also from my point of view it kind of told me that there you know very close to where they want to be and from my point of view of course this week the CPI print came out and it shocked markets yeah um you know U.S Equity markets were down four percent right just to give you one number uh 1.5 trillion were wiped out in U.S Equity markets so that's the GDP of South Korea so really really big move um but I still think that um over the next couple of months we will see falling inflation rates especially in the United States in Europe that's a different story but from the indicators that I'm watching inflation expectations yeah what the market is pricing if you have a look at uh uh um inflation sensitive Equity sectors it's not it's it's it's I would say it's it's more and more telling us that this inflation is the name of the game for this CPI print I think it was mostly affected by um uh about a housing market by rent which are very much of a lagging indicator so I think um over the next couple of weeks we will see that inflation rates will come down dramatically this will give Central Bankers some leeway it will say well you know Jay Powell I'm the new Paul Folker I killed inflation um we can step on the brakes um so that's kind of my scenario for the next couple of weeks I think uh we won't go like in a straight line up to 5.5 or 6 because I mean let's face it we're having the highest debt levels ever we're at 360 of of GDP three times higher than uh than in 2000 therefore it's the most rate sensitive economy ever and I think you know so many markets are already breaking we're already in a recession in the US we're already in a deep recession in the Eurozone China is not doing so well so I can see that or I don't understand let's put it that way why the market really be believes this narrative that they're now so hawkish or the market also believes a narrative I think that the Federal Reserve will be successful in bringing inflation all the way down to two percent um let's talk about inflation first and then we'll come back to fiscal policy and some of the other things you mentioned um okay what are these indicators you're looking at that point that inflation point to the fact that inflation has peaked in your words um if you recall the last CPI print headline CPI came down by 2.2 percent from 8.5 to 8.3 but uh core inflation stripping out energy actually Rose from 5.9 to 6.3 so uh the declining gasoline and oil prices was largely a contributing factor to declining headline inflation but taking that out everything else still went up so how are you reading Peak inflation well you know per definitional recession is is disinflationary yes um and and I just see most of the numbers coming out I mean the the ism was an exception and still the labor market is holding up quite okay um but I just don't see inflation remaining at these levels yeah my take is that two percent will will not be the new ceiling but rather than the new floor so I I expecting some inflationary waves like we had it uh in the 1970s okay so so I could imagine you know inflation rates going down to I don't know four percent something like that yeah and this would definitely you know um give Central Bank some some some breeding room um so that's kind of my take in our proprietary uh inflation signal it actually switched to disinflation um by the beginning of the summer interesting so so we moved out of inflation sensitive assets quite early yes and and actually you know the interesting thing for for for for me as an asset manager I mean managing inflation protection fund which is doing really well this year but actually the the classic inflation Hedges right gold silver housing tips I mean tips were a disaster this year Commodities didn't really work and and actually if you have a look at commodity markets since late spring their screaming recession I mean I I from my point of view this this this big interplay that we're seeing between asset price deflation 50 trillion were wiped out from financial markets since the beginning of the year 50 trillion that's that's a huge number and on the other hand we're seeing Consumer Price inflation so I think this interplay is extremely interesting we haven't seen such an such an environment for for ages and I just see that just one more point from from from from financial markets risk appetite um credit markets it feels like 2008 to me so so that's not really an environment where I see inflation Rising further that's a point that I need to come back to because that you just you know Dropped a Bomb here I have to address that but I had a question about inflation so I'm going to ask you about that you're absolutely right in the fact that uh recessions are usually uh either disinflationary or outright deflationary I'll give you you know some some evidence for what you just said here if you look at the Historical inflation rate going back to the 50s and only one episode that you have inflation Rising during a recession that was 1975. in every single other episode of a recession inflation actually started dropping so if you were to assume that history is to repeat more likely you will be right that is that inflation will come down but the the the title of your book this year is stagflation 2.0 and you've actually made a number of comparisons to this stagflationary period versus the last one in the 19th 70. so first of all why did you title it stagflation 2.0 and what are the differences and similarities actually we we discussed the title The Light motif of this year's report already last year we said stagflation might be something uh that that will will uh become more of a topic and we didn't believe that you know a couple of months later it would be the topic so so we crunched uh the numbers uh regarding you know how different asset classes performed during stagflation and we read uh you know the the theory and the literal literature about stagflation and actually there's we found there is no quantitative definition of stipulation it's rather qualitative yes so we came up with our own definition of of stick inflation and calculated what actually worked uh in stagflationary environments um and then first of all we made the the comparison what you know what's what are the similarities between the 70s uh stagflation uh and the current environment but what are the differences yeah and I think it's it's important to say say that you know the root cause of the 70s deflation Camp will probably be found in the 1960s already like at the moment I I think it would be naive to to to just blame Putin for for for you know the the the uh how do you say that the Putin price hike um I think you know there's many many factors coming together and and we we always said in our Publications based on the Austrian School of Economics first there's monetary inflation that's the first stage second stage is asset price inflation and only the third stage is Consumer Price inflation so that worked out pretty well and and therefore you know I think that that's that's that that's the takeaway of of of the chapter um I think that the major difference between the stagflation in 1970s and now are the debt levels approximately three times as high compared to the 1970s on a corporate level on a government level and on a private level so this means that the sensitivity regarding higher interest rates is significantly higher than in the 1970s so every time I hear like Jay Powell is the new portfolker I don't see it it's just not possible I I said in an interview recently if if you think that um Paul uh Jay Powell is the new uh uh Paul Folker you probably say that Danny DeVito is the new Brad Pitt so that's I don't see it and and I think you know he will have to reverse at some point and it will be you know the the emperor has no clothes moment for the fair Reserve I I well I think somebody else I interviewed earlier said that uh Paul Walker had less of a gap to fill his interest rate level was really high of the time you came in and so raising it to double digits is not the same as raising from zero to nine percent but that aside uh you've highlighted the differences between the two stagflationary periods uh we are wondering investors are wondering when the stagflation period could end and uh to do that we have to examine the triggers you've outlined the triggers in 1970 to 83 the Oil Embargo of 73 was a trigger the Yom Kippur War 1979 uranium Revolution now you have the covid-19 pandemic supply chain issues and the war on Ukraine both episodes sound like they were caused by supply issues in other words the inflation came from the supply side not the demand side so one could argue that Supply if supply issues were fixed or the urine Ukraine is resolved uh we don't we no longer have really extensive lockdown measures anymore stagflation should fix itself is that an argument you can make it is it is one point definitely that that I that would would partly agree to okay um I think first of all um we should not forget that you know when it when it comes to energy markets I think it's the lack of capex over the last couple of decades that's that's basically the the biggest problem we are now we did a chart recently showing that compared to 15 years ago um we use 40 more commodities but capex is at the same level more qualities for what uh in general yeah sort of the the the demand for Commodities like 40 higher than than 15 years ago that just because there's more people of course yeah but the capex is is on a nominal basis exactly at the same level like 15 years ago so actually you know and I can I can tell you know uh uh managing Assets in a commodity space that's like in this ESG world that we're in yeah I mean you almost have like you're embarrassed to say that you know you're into Mining and investing into into the commodity space so so I think what you really really experiencing this year is some sort of a paradigm shift um people realize that actually Commodities are something that we need yeah um we need um we need safe suppliers we need reliable relationships so this is something where I would say that the the the inflation coming from the commodity side is mostly leave from from coming from the supply side and this is because of a lack of capital uh investment yes when it comes to other drivers of inflation I would say that the labor market is definitely one major driver I mean since 2019 I think we're seeing a shrinking Workforce in the United States which is a which is a big thing and and what I'm what I'm experiencing uh uh over over in Europe is one thing that that's actually quite concerning and this is telling me that inflation will be very very sticky over the next couple of years because inflation is the topic now so so we are coming now in a inflation mindset um environment that we know from Emerging Markets but everybody expects that inflation will continue to be high and therefore this price wage spiral is just getting started I'm gonna throw a curveball at you Ronnie Elon Musk came out uh well September 9th was his tweet he tweeted that a major Fed rate hike risks deflation it's not even disinflation it's deflation can you comment on this well look Elon Musk is not an economist but you know this is I think he's mirroring a thought that a lot of people have yeah I mean we're in the middle of it and and you know we're seeing you know um first of all this this reverse wealth effect that the Federal Reserve wants to orchestrate so basically you know bringing bringing Capital markets down and this should have an impact on on demand and therefore they they try to get inflation numbers down so they want to orchestrate a mild recession um which is from my point of view in theory it sounds fantastic yeah in practice it's just not gonna work out because I think they kind of um underestimate the time lags yeah okay and the complexity of our economy so so we're seeing like um massive asset price deflation I said 50 trillion uh equities bonds starting with real estate now um other more illiquid pockets of the market like private private Equity are starting crypto um in in a huge bear Market um so we're already seeing that then we're seeing a very very aggressive uh um uh Federal Reserve now and actually you know we shouldn't forget last year when we sat here interest rates were zero percent that's right and now we're heading to four percent by the end of the year so that's a huge move and I think people tend to underestimate that and deflation hasn't happened yet it hasn't happened yet since then where were the the 10 years were like I don't know tenure went up tremendously as well yeah so so from 30 basis points I think last year at that time up to 3.3.8 300 basis points so so huge move additionally we're seeing quantitative tightening kicking in 95 billion a month starting in September and then we're seeing this enormously strong US dollar that acts like a wrecking ball so so David those drivers for me um they scream like you know risk aversion they scream you know not a mild recession but a deep and severish recession and at some point you know they will they will have to show that they're not hawkish that so they will have to make this U-turn but again I think fiscal policy will take over uh let's talk about goal your outlook for gold as I mentioned there's several factors that way down on goal that start with the US dollars since you talked about that the strong U.S dollar um how long is this going to last I want to read a paragraph from your book uh this is more of a long-term thesis but we'll talk about the short term as well you said that with the weaponization of money however the US and the EU are unlikely to have done themselves any favors in the medium to long term the decision clearly demonstrates the many U.S critical Nations how quickly U.S dollar reserves can transform from a highly liquid asset to useless pieces of printed paper de facto the US and the Euro area have told the world that they no longer want to pay their economic quid pro quo from previous trade deals you're referring to uh the fact that the U.S Cuts Russia off the Swift system so the web weaponization of the dollar is long-term very bad for the Dollar's status as a world global Reserve currency let's talk about that well and notice this whole topic of dedolarization is is really not that that's a long-term process yeah and and we're in and I think we're uh you know this year really really uh um you know it it it's the momentum picked up significantly and what happened you know those 640 uh a billion were basically wiped out with a stroke of a pen and and I mean China is watching that and and they they they're following they know what the Playbook of sanctions actually is and we're seeing so many signs that this detolorization is is happening yeah and this the dollarization is of course a part of the uh the globalization that we unfortunately see and deglobalization if globalization is is disinflationary or deflationary then deglobalization is obviously inflationary so um so that's that's I think another important driver but but coming back to to those measures I think it's it's it's very interesting what's going on with Moscow now coming up uh with the new kind of uh gold uh standard like similar to The lbma Standard uh we're seeing uh Nigeria which is I think the ninth largest just a oil exporter they came up with the with the gold exchange you know we're seeing so many trade agreements between China Russia uh obviously also Saudi Arabia Iran just mentioned that they will join the SEO so so actually you know um those countries that are pretty um have got a high affinity for gold not only as consumers but also as producers I mean China is the largest gold producer Russia is the third largest producer um then you've got like countries like like India especially um which is together with China that by far the two largest gold consumers the Indians basically say well you know we we have to feed our people we don't really care about the morals and the ethics of this war so they are quite pragmatic I would say so so actually I think that unfortunately we've seen this year that this breakup in this world is is clearly happening Yeah you mentioned another uh anecdotal well you quoted somebody else to talk about this breakup Charles gave a French Finance here I believe he said that the world is breaking into two distinct economic zones the Empire of the sea or the Western block of Nations and the Empire of the land or the Eastern Bloc the former's currency is based on Fiat money referring to the west and the latter is the East is based on an emerging tandem of currencies Commodities are Commodities gold and oil so that that directly reflects what you've said is this something that is a theoretical exercise or is it already happening right now that's happening I mean uh you just have to follow the news especially the news in in Asia what's what's going on there with uh as I've said trade agreements but also you know new alliances coming up yeah I mean uh the south is not not picking up the phone when Joe Biden calls yeah I mean those those are things that are that are that are developing and and definitely I think that in the worst Western World especially in Europe we have completely overestimated our our position um and I think there's there's a there's a mind shift happening for example in the UK they they uh kind of stopped this uh moratorium on on fracking so I think we're slowly realizing that we're very very dependent on on a couple of Nations and we but that's a very very long process yeah so in the intermediate terms so long term the dollar status could be challenged um in the intermediate term in short term the dot the dxy strength has really you know frustrated the gold market let's put it that way uh it is at the highest strongest point in the last for 20 years the Euro has reached parity which has not happened since 20 years ago and you actually even said that in a presentation yesterday and I watched a very good presentation by the way that you said that it's possible for the euro to continue depreciating perhaps to even point a or 0.7 relative to the US dollar tell us about that process over a couple of years I I said yeah but actually you know last year when we were sitting here the the Euro was uh to the dollar like 120 yeah now we're below parity right and the euro is still the second largest currency on this planet yeah so that's a really big move and and I think you know the strength in the US dollar it is as I've said it is a wrecking ball especially for emerging markets we're clearly seeing if you have a look at CDs spreads for example uh for some Emerging Market countries yeah you can see that that actually it's getting risky and riskier so so every time the dollar goes through the roof that that causes Emerging Market uh crises uh why should it be different this time um but I see you know going forward you know the the dxy I think that's 54 Euro so it's it's primarily the weakness of the euro versus the US dollar while some commodity currencies like the uh the Brazilian real actually is holding up really well against the US dollar and from my point of view I think that first of all as a European it's uh it's a concern because uh obviously that that adds further fuel to to to this inflation mess that we are in um however I think that going forward I could clearly forecast a strong dollar versus many many other G7 countries yes um against the the Euro against the Japanese Yen um but dollar weakness measured in some commodities um for example gold uh for example oil and so on so so I could see that that development happening because you don't think bottom line you don't think the dollar strength will continue to be a problem for gold of course it's it's it's from my point of view the driving Factor at the moment yeah and as I've said I I can I can unfortunately see the dollar going to the Dixit to to 220 because it's clearly the the least dirty shirt yes um and you know for Euro investors because everybody is obviously disappointed with the performance of gold um for for euro-based investors gold is up eight percent year-to-date uh it made several new all-time highs on a Euro basis so it perfectly did its job in Japanese Yen terms gold is up 16 so I think measured in those currencies okay and those are not like small Emerging Market currencies yeah um I think gold perfectly did its job preserving purchasing power but still you know everybody's just staring at the dollar price of gold at some point the dollar will reverse I think that the Federal Reserve at the moment is feeling quite okay with the strength of the dollar because that's another disinflationary Factor obviously um but they will realize that especially for the for the multinational companies uh the strength of the dollar is an issue okay let's move on to the next Point uh you mentioned that uh High opportunity cost from The Soaring stock markets have also been a factor for a low gold price uh well this was last year you know this year the stock markets went down s p was down 17 roughly uh going forward what's your outlook for the stock markets will this continue to be a high opportunity cost for gold oh let's put it that way I think that it would be like the Assumption of many Market participants yeah is that you know we'll see the reversal and then everything's just gonna go up in a straight line again okay um like we saw it in 2020 yeah um from my point of view that's that's you know the market is a maximizer of pain that's what a Trader friend once once called me and I think you know the by far the largest Trend in Asset Management over the last couple of years was passive investment so you know it was all about you know you don't need any active managers it was all about the fees and I think the biggest pain in financial markets over the next couple of quarters over the next couple of years could be a really nasty sideways Market with you know bear Market relays and then sell-offs again yeah so I think perhaps I'm talking my book because we're active asset managers um but I think that that could be in the cards like like really a volatile sideways Market where you have to be picky where you have to to trade the rallies we have to really be active uh for the stock market in general I think that that earnings expectations will come down quite a lot uh we're already seeing uh our earnings revisions and therefore equities aren't very cheap at the moment yeah I mean from my point of view what's on a relative basis what's becoming uh uh uh reasonably attractive yes as a trade his bonds his duration I mean interesting bonds have had the worst year in decades exactly and the sentiment is by far the worst so so I think you know bonds are actually closer to to the bottom than than equities yeah um that's not like uh that's a trait That's Not A Love Affair yeah with bonds but I think at some point if this disinflation really kicks in then I think it might be it might be a good opportunity yeah um but you know in general I would say this this Market that we're seeing now is heavily driven by you know risk aversion by I would see some Panic also um coming here to the US actually for me it feels like vacation because the the general mood in Europe is extremely tense it's nervous it's aggressive you know it's funny I was just in Paris a couple months ago but I was a tourist so I didn't feel that it's always better when you're having fun but yeah I see your point yeah I mean the French they they know how to how to live and have a good time no but still you know um people and especially uh uh business business owners are extremely concerned when it comes to to the fall into winter yes and people tend to forget that you know it's crisis in Europe our electricity crisis is mostly because of you know the French used to be the by far the largest exporter of uh of of of of of of energy and they did it shut down I think uh 31 out of their 56 uh nuclear power plants yeah so uh due to maintenance and technical issues so they are actually importing lots of lots of energy at the moment yeah so so this is at some point this is going to change and I'm not scared regarding the natural gas situation for for this winter but we'll see what next winter happens yeah so so as I've mentioned I think the situation in the U.S is is clearly recessionary but compared to the Eurozone you know this is like Goldilocks the German word for uh firewood on Google Trends spiked up dramatically in Germany so maybe they're I don't know what this means but there's an interest amongst Germans of uh printing their fuel the old-fashioned way this year so the concern like you pointed out is very real amongst a lot of people interestingly interestingly the word for acts in Germany was not trending up so I don't know how they're going to cut the firewood maybe with a chainsaw I haven't looked up the German word for chainsaw okay okay I'll look that up players here that one's ending up we talked about inflation uh you last point you mentioned crypto assets stole the show from gold uh you have a chapter in your book entitled uh Bitcoin uh I think you're you mentioned that bitcoin price is in the bear Market um well you're right I mean it has been tell me about your outlook for Bitcoin well I think you know compared to last year we're down like 50 yeah more than that if you take the bottom 70 yeah but but but still I I think you know the the level of of Innovation happening in this space yeah and and and and and what's really going on and I have to say when I attend log like those Bitcoin events um the energy is a little bit different compared to the let's say the gold industry and the mining industry is really buzzing it's it's positive people see opportunities uh and they actually the real Bitcoin is don't care about the price yeah they're in for the for for for the long term and actually I talked to some some some some crypto millionaires over here that kind of intuitively uh understand gold and they say well you know we're switching a little bit of money now into the gold space into the mining space which which I thought was was really interesting um but I think you know uh the last couple of months have have shown that you know the the wheat is separated from the chaff I think many crypto projects that are rubbish you know they're just getting wiped out of the market which is which is healthy which is normally in a bear market and I'm not concerned regarding Bitcoin I think that as I've said in our last interview it's quite binary uh if Bitcoin should still be around in five or ten years it will be significantly higher um so you know the the thing is there wouldn't be a case for some money like gold or Bitcoin in a healthy environment but if I look at financial markets if I look at politics if I look at the whole world at the moment yeah it seems that unfortunately we're going clearly into the right into the into the wrong direction and and I don't see let's say the purchasing power of Fiat currencies uh Rising significantly over the next couple of years so so basically in hard assets like Bitcoin with an annual inflation of 1.6 which is the same for for gold at the moment I think there's a very strong case to be made for let's say monetary insurance and in one of our funds we combine 75 physical gold 25 Bitcoin it's a very very old and established monetary technology and then of course a volatile and new monetary technology that's our approach many people have criticized us for uh for that but I think it's it's still prudent one last point before I move on to your gold price Outlook which will end up and we'll end the discussion there I'm going to come back to what you said credit Market looks like 2008 I didn't forget that point uh that is a major bombshell um 2008 was a terrible time for all markets the credit Market in particular uh what indicators are you looking at and why is it as bad as 2008. well there's a great chart from from Alfonso what's his last name yeah exactly Trader alph yeah um and he's he he's doing a fantastic job I have to say there's one credit impulse uh uh a chart that uh or indicated that he's calculating and it confirms that actually you know it's it's taking a nose dive and it's worth it in 2008. if you have a look at broader monetary Aggregates if you have a look at credit growth um it clearly shows me that that actually and and this is I think what most people have a hard time understanding that actually that the current environment is also like Elon Musk said highly deflationary um and you know the asset price deflation that we mentioned this is only you know now people are starting to realize well actually this is not just a small correction it's actually a brutal bear Market um and I talked you know uh coming here I I talked to a guy he's importing um very very expensive uh Italian sports cars like Ferrari's Lamborghinis but really like the two million dollar cars okay this is for him it's fantastic I mean he's buying those cars in in uh in Europe yeah he's got great purchasing power with the US dollar however his clients really rich people they say well we don't do anything because we're feeling significantly less Rich compared to you know one year ago so you're clearly seeing so before I could buy two yards now I can only afford one yeah but but still you know those things are often not not very rational yeah and I know many many very rich people in 2008 2009 you know uh quitting there at their Golf Club memberships yeah which they're rich because they know how to manage the money so but but I think you know this is I don't want to sound too gloomy but we have to be realistic yeah the current setup is um you have to be defensive I think it's it's now really time to to do your homework yeah that's why I'm here for visiting tons of companies I also see that many companies are a bit uh let's say ignorant yeah I think they're then don't really understand or or um want to understand the global macro picture that we're in and therefore I think that many companies will have a hard time uh uh um doing financings at reasonable terms over the next couple of months all right let's put everything together now you're seeing uh intermediate terms strengthen the US dollar the stock markets haven't bought them yet Bond markets potentially have credit impulse looks bad inflation is stickier uh then maybe some people like Elon Musk might think and finally the crypto markets if Bitcoin is around in the long term you think it has a lot more upside potential so still maybe a competitor for gold what does this all mean for the gold price in the next six months it makes six months well we'll talk about your long-term Outlook yeah well I think you know and that's that was basically what what we wrote in the in the final chapter of this year's report that came out uh end of May yeah we said that actually you know we shouldn't expect too much from the price of gold um unless there's really this this U-turn happening but if they and you know let's face it in in in in in Spring I think uh end of uh end of March expectations for for fed funds rate at the end of the year were 1.5 and then there was this huge move when the market actually realized well okay they're serious they have become more hawkish they don't believe in their um transitory uh uh uh narrative anymore so that was a huge move and we said okay as soon as this this hawkish narrative is still in the market as soon as they um they they keep continuing raising rates uh it's it's it's a tough environment for gold it's a tough environment for for asset markets in general but we also wrote that once this um this U-turn happens then probably um uh gold will be the the first one to to Really bottom and I think that my sense has always been that gold you know being traded all over the globe um being something really special that you know everybody has an opinion on gold so I think this um Collective knowledge that the gold price has um it might sound a bit esoteric but but my view is that gold sniffs out those developments quite early so I think that gold will make a bottom and anticipate uh this this U-turn bottom at 1700 right now half 1680 is is is a technical support but I can see it going to to the 1500s easily okay easily yeah um but I think you know it would be it would be crazy to think that for this crisis Central bankers and politicians will say well let's have an Austrian approach lesser Fair Let The Crisis happen no stimulus I think that's not going to happen and we saw already um in 2020 fiscal stimulus in terms of GDP was 24 2007 2008 I think it was five percent it was mostly monetary stimulus and I think politicians really enjoyed a position now saying well you know we're now the the the the kings in town we're taking over we're solving the crisis and that's already happening in Europe you know with all those um electricity subsidies uh I think in the UK it was like five percent of GDP big number um so I think as I've said fiscal policy will become much much more important fiscal policy has a more direct and faster impact on the GDP on inflation um and that's that's what I'm expecting and you know we've got the midterm elections coming up um so when is it November perhaps something's gonna happen over the next couple of weeks and I think that gold will sniff that out it's stimulus is good for gold long term yes now let's talk about finally your long-term outlook for gold you have a model that you haven't updated uh and uh in your model you predicted a base case I believe where the highest probability of four thousand dollar gold by the next 10 years tell us about how that model is derived yeah it's 4 800 US Dollars based on the probability so it's basically you know I I know how how models work and how you can overfit them yeah and I worked in a bank so so very complex models that usually don't really work but I've never seen a bad back test yeah so so we know how that works um but what we said what what actually counts for for gold it's first of all trust in a currency uh so kind of a confidence indicator and then on the other hand monetary growth uh for broader monetary aggregate we we took M2 um because that gave us the the the best results and then we basically made uh made three different scenarios like a highly inflationary uh environment uh stable and then like uh uh very very conservative uh M2 growth and then we crunch the numbers made a regression and we came at the end of 2030 4 800 US Dollars uh was most uh uh the the the the price and it sounds like a lot but on a compound annual growth rate that's like I think 13 or 14 hey it doesn't sound like a lot at all in fact some people might say it's uh that Outlook might be a little bit disappointing for investors considering that it's only what a more than two times growth yeah over the next 10 years and if you look at what gold has done in Prior bull cycles 2001 there was a four hundred dollars an ounce up in a rose to almost two thousand dollars an ounce in exactly 10 years so then that 10-year bull cycle it Rose multiple times um you know why do you think the magnitude of increase this time will be slightly less well well obviously uh I mean there is there's also uh Alternatives yeah I mean when it comes to inflation protection uh clearly uh Financial repression is a big topic I will have to point out that your model did say that there is a lower probability of even Higher Goals yes it's just a normal distribution so you're not saying that is the only target you're just you're assigning lower probabilities at higher prices yeah yeah and I think you know we're still in the bull market yeah I I think you know um gold is doing okay yeah um but I'm not super happy about the development to be honest yeah clearly but I think you know we should we should face the fact that we're like in the middle of a big thunderstorm yeah and gold so far I mean there's some damage to the house but but still it's it's holding up pretty well I would say yeah um but I've got I've got no no doubt that as soon as the as the pain will become too big I mean they will have to reverse and as I've said fiscal and monetary stimulus let's just look at Japan for example yeah I mean there is they're driving I think Japan is kind of the poster child for for monetary policy and they had like 15 rounds of quantitative easing um they are now implementing this very very aggressive yield curve control so they try to keep the the 10-year jgbs at 25 basis points and they have to spend like if we compare it to the uh GDP of the US that would be like 300 billion QE per month just to defend this pack so from my point of view at some point yield curve control will be implemented I think that governments will continue to go direct with you know helicopter uh uh helicopter money style policy like we're already seeing them yeah I think that at some point I think over the next couple of years uh the Federal Reserve will start buying equities uh it's pretty easy to change that actually um so so a lot is going to happen and I think you know in this environment I just don't see perhaps I'm dead wrong but you know starting monetary history I just don't see gold not performing well in this before in this environment absolutely all right uh I'm just going to close on this data you have a gold to iPhone ratio which is a very creative way of illustrating goals purchasing power what would you say using this basically what what it shows will show the picture on the on the on the video it just shows that the ratio of the number of iPhones you can buy with an ounce of gold has stayed relatively constant what would you say to somebody using this example who understands nothing about gold explain why he should buy gold because gold protects your purchasing power that's that's what it's all about and you know David we we did a gold Oktoberfest yeah ratio and uh uh your colleague Niels yeah your colleague Niels uh he loves that because we said okay we've got a Time series since 1950. for the Munich Oktoberfest how much is a a liter like a mug of gold of beer at the Oktoberfest how much does it cost and actually the inflation rates at the Oktoberfest is significantly higher than the official um uh inflation rates and then we said okay let's let's calculate the purchasing power of one ounce of gold at the Munich Oktoberfest and actually it was pretty stable not 100 stable but pretty stable this year um after two years where uh no Oktoberfest uh did take place um the beer is up 19 percent compared to 2019 and actually it's it's pretty funny because the purchasing power measured uh in Gold has actually risen over the last couple of years again in Euro terms yes and then we said okay you know um this chart golden beer that's that's definitely you know a very high correlation between gold parks and beer drinkers so so the community loves this chart let's do it for the little bit younger generation measured in iPhones and the first iPhone came out at 500 now the most the newest one um like the the iPhone Pro costs uh I think 1500. and obviously the product has become significantly better and that's a big difference compared to the Oktoberfest so so you get much much more iPhone beers beers but still the purchasing power of one ounce of gold in iPhones is actually stable yeah I could argue you could buy more iPhone with one ounce of gold because the iPhone's getting better yeah so so I think that's that's really important to say gold is not Gold's job is not to make you rich right gold is there to stop making you poor exactly exactly if you want to get rich you know buy Junior mining companies Yeah by Bitcoin would leverage whatever but gold shop is really to to protect your savings and as I've said in Euro terms it has done its shop brilliantly excellent Ronnie thank you so much for your time I held you long enough I held you captive at the Kitco desk long enough but uh thank you so much thank you very much David interview all right and thank you for watching Kitco news I'm David Lynn Kitco News special coverage of the precious metal Summit is brought to you by new core gold [Music] foreign

Channel: Kitco NEWS

Views: 155,941

Keywords: gold, silver, finance, news, investing, investing news, finance news, financial news, economy, precious metals, gold price, silver price, gold price today, silver price forecast, gold price forecast, kitco news, kitco, david lin, ronald stoferle, ronald stoeferle, incrementum ag, us dollar, dollar, swift system, russia, ukraine, commodities, copper, lithium, esg, european energy crisis, energy crisis, federal reserve, jerome powell, interest rates, fed pivot

Id: neqgKiC6TSU

Length: 47min 18sec (2838 seconds)

Published: Mon Sep 26 2022