Gold is up +3,050% since 1970 (more recently, +350% over since 2000), and will only continue to rise as the dollar loses value, and Trump himself has said the dollar is overvalued and must come down.
Most of the short term gains the stock market are experiencing are not based on increased sales and revenue figures, but Wall Street rationalizing increased confidence in the market based on what they believe Trump will accomplish with lowered regulations and tax burdens. This is encouraging to me as well, but doesn’t address the underlying bubbles in the market that, in the long term, have little room to go up, and very much room to capitulate. As an investor, it would be a big mistake to miss out on the positive run on gold to come, which has already started -despite the speculative rise in the major indexes – as shown by the early growth in Q1 2017.
While many will point to the increased jobs created from the recently released Bureau of Labor report as a sign of a strengthening of the economy, they fail to mention that most of those jobs were low paying jobs in the service sector, and that the U-6 unemployment rate actually increased from 9.2% to 9.4%. As stated above, the dollar is severely overvalued, and our president has said as much himself, which is an unprecedented admittance from any recent US administration, and in turn the dollar saw its worst January in 30 years. This means the markets are just now beginning to realize what’s going to happen at the Fed, and to our economy.
All of this points to more of what I’ve been saying is going to happen for over a year now. Everyone wants to talk about the DOW, but it was Gold stocks that had the greatest return in 2016, no one else was even close! And now so far this year again, no sector has even shown close to the same growth as gold and silver, yet for some reason it’s not talked about anywhere? What do you believe will happen when the dollar continues to drop (as our president said must happen) and people are actually forced to talk about the increases in gold/silver?
Now, in fairness, the Dow since 1970 is up +2340% itself. This is also a solid return, but that is not the end of the analysis. We cannot assume a constant rate of appreciation for gold nor the major indexes; instead we must consider why they grew, and how probable the sustainability of said growth is. In 1970, we were looking at an Effective Federal Funds interest rate of 7-9%. Since the major indexes experienced their unheard of ascension in the early to mid-90s, we have yet to be able to get back to 7%. 2000 was the closest we came, getting up to 6.5%, before the recession and the dot com bubble. Stimulating our way out of the dot com bubble caused a recession, and we had to drop rates down to levels unseen since the Eisenhower recession in 1958 (note, the US only had $277 billion of debt at that time, as opposed to almost $20 trillion now).
Since the dot com bubble, the highest we were able to get rates was 5.25% in 2007; this of course, right before having to drop rates to an unprecedented rate of nearly 0% for almost 8 years after the housing bubble caused the great recession. On top of the impossibly low interest rates, the Fed printed an unprecedented amount of money, called quantitative easing, thereby forcing up asset prices by stimulating spending.
All of this goes to suggest one thing – despite irresponsible fiscal and monetary policy to stimulate spending as much as possible – thereby hyper inflating bubbles under all major US markets – we still have seen gold outperform major indexes like the DOW since the 70s. So not only do we have historical precedence suggesting gold is a greater investment, and not only do we have recent precedence suggesting the same (2016 YTD & Q1 2017), but we also have strong evidence to suggest the major markets are artificially inflated, and extremely due for a serious correction.
These are facts. They aren’t based on my opinion, they aren’t based on blindly expecting a constant rate of appreciation, and they aren’t based on emotional feelings (such as patriotic sentiments that may cloud ones judgement to want to believe the stock market gains over the years represent real growth and wealth). If we are to accurately invest based on logic and reason, we must do so on grounds which are not presumptuous and are not predicated on emotional affiliations. Open and honest discourse is the only means we – as humans – have to better analyze the world we live in. I do hope we can continue to do so from a logically consistent basis.