What’s up with gold?

Don’t look, but gold just rose above $2,000 — the highest level in well over a year and just a hair under its record high.

Now, it isn’t just against the greenback. Gold has been all strong and muscly when measured in a host of other currencies as well.

Yes, you could make the case for the “banking crisis” being the reason why the yellow metal has popped up over the last month. But those who have been paying attention know that gold has been etching higher for the past six months in USD terms and even longer in other currencies.

Here’s a chart we shared in the most recent issue of the Insider Newsletter. It shows gold in different currencies (SGD, AUD, EUR, CNH, JPY) going back a decade.

As you can see, gold began to creep up back in 2019 — way before Covid. And the recent banking crisis circus is just “fleas on a dog’s back” for gold.

In other words, there is something “systemic” going on, and the lack of trust on a global scale is revealing itself in gold.

Here at Capitalist Exploits HQ, we have a strong conviction that this is just the tip of the iceberg, and the upside of gold in multi-currency terms is a long way from being done. It would seem that the odds are in favour of gold outperforming the world stock market at least for the next couple of years.


Chris laid out his thinking on gold in the most recent Insider Newsletter issue. We figured it would be worth also sharing it with you here:

The below chart takes us back to 2000 — 20-odd years ago. Multi currencies against the yellow metal indexed to zero. Is this not monetary debasement in a simple picture?

Obviously, it depends on where you take your time period from, but from 1990 the world stock market is up some 380% whereas gold is up 450%. So it could be argued that all the gains in the world stock market have been on the back of monetary debasement.

There is one key thing we left out in the chart above — the effect of compounding dividends. If we include dividends and assume they are reinvested, then the return of the world stock market goes to 710%, but around half of those returns are accounted for by monetary debasement.

Our thinking is that, longer-term (a 10-year view), holding a “whack” of your money in gold (physical or an ETF) in preference to the general equity market (or other growth orientated ETFs) isn’t a stupid idea and is actually a no brainer.

Are we on the verge of massive outperformance of gold relative to the S&P? Like the 1970s or even from 2000 to 2013? Well, s<>tranger things have happened. Note that when gold gets going, the trends tend not to last for just a couple of years but rather 10 years at least.

Here is where things are far from being a no-brainer… What is going to outperform over the next 10 years or so? Gold or gold miners?

From 1983 to 2008, gold and gold miners tracked each other reasonably well. Then, from mid-2008 (the onset of the GFC), something happened and gold has outperformed miners dramatically. Sorry, but 1983 is as far back as the XAU (Philadelphia Gold Miners Index) goes.

Gold miners (XAU) and gold spot indexed to 1 as of 1983

From mid-2008 until present, gold miners have underperformed gold by some 70%, although they have moved in lockstep since the start of 2015 (eight years).

What is the reason for this underperformance? Some say it is because of the increase in costs from energy. From 2008 until present, crude (a good proxy for diesel prices) has gone down relative to gold.

The contrarian in us suggests that we are approaching a time for gold miners to outperform gold. But we are lacking a fundamental reason for that genius idea.

Stacking up relative to the S&P 500… gold miners have performed more or less in line with the S&P 500 since the start of 2015.

And gold miners are as out as favour as they were during the height of the TMT/dot-com bubble of 2000.

All this leads us to believe it won’t be too difficult to outperform the S&P 500 with gold and/or a basket of gold miners over the next 10 years.

Also, what’s interesting is that retail investors aren’t participating in this (yet). So far this has been mostly central bank buying, which actually explains the lack of any meaningful action in gold miners.

Food for thought for the weekend. Have a great one!


Leave a Reply