Fresh from releasing his exhaustive 340-page annual report titled In Gold We Trust, Ronald Stoerferle joins us to summarize his forecast for the yellow metal.
Stoerferle, an author of several books on Austrian economics and head of strategy and portfolio management at Incrementum AG, concludes that gold is poised to move explosively higher. He sees a new bull market beginning for the precious metal — one likely to quickly build momentum as the impending recession arrives and the world’s central banks revert to extreme easing policy measures.
We are all part of huge monetary experiments being conducted around the world. Right now, trust in the U.S. economy and in the Federal Reserve is still pretty high. We’re seeing the mantra of “deficits don’t matter” at the moment. And everybody thinks that the U.S. dollar is “the least dirty shirt”.
But this trust is crumbling. Recession clouds are getting darker and from my point of view there is no doubt that the Federal Reserve and the other major central banks will step in with very, very aggressive measures.This is actually what we’re seeing at the moment, with very sophisticated papers coming out from the Federal Reserve mentioning that negative rates would be quite favorable and have positive effects, along with comments from Donald Trump that the Fed should cut rates by 1% and do more QE. And other representatives are proposing that additional measures such as controlling the yield curve should be considered.
So from my point of view, we will see that the monetary policy u-turn that began in December will continue. That’s why gold has reacted so positively of late. We’re in the central bank zero interest rate trap — and there is no way out. Gold is a good hedge in this kind of environment.
In the fourth quarter every asset class was down. But gold was up 7% and mining stocks were up 17%. So fourth quarter 2018 was really, really important. More people are now beginning to question the viability of the status quo. More are beginning to realize there is a systemic error in the structure of our monetary system. All the rescues and the measures that were taken in the last couple of years only address the symptoms but not the root cause of our problem.
This perspective shift is a one way street. Once you’ve shifted, you’ll never go from the critic’s camp back to the believer’s camp. And as more people move from the camp of the skeptics to the critics this should have some sort of natural demand for gold. As an example, it’s pretty interesting that we’ve seen institutional demand quite recently in GLD, the biggest gold ETF, we saw the biggest single day asset inflow since Brexit. So those trend followers are coming into the market again. Once we go above the massive $1,360-1,380 resistance that has been very, very tough to crack I think then we can go to $1,500-1,600 pretty quickly.
Click the play button below to listen to Chris’ interview with Ronni Stoeferle (69m:12s).
Chris Martenson: Welcome everyone to this Featured Voices Podcast at Peak Prosperity. I'm your host, Chris Martenson and it is June 5th, 2019. Now, as you probably know, I'm an enormous, huge gigantic critic of the central banks. Once the lenders of last resort to stress banks with good collateral, the central banks are kind of now daily interlopers in equity and bond markets across the globe and feel they can apply monetary solution almost every economic problem. And every single time, magically, those solutions mean more money printed up and looser financial conditions. It's not too much to say that everybody listening to this is part of a gigantic, never before seen social and monetary experiment being conducted by a few people at the central banks.
Now, what's missing--now what's missing is any connection to the real economy and to real tangible things. So, what's an investor to do? Well heck, what's somebody to do who simply wants to avoid having their purchasing power stolen away by central bank printing presses? Well, that's easy. You just hold real assets. And perhaps the simplest and certainly the most liquid of them all is gold--which we have been advocating people hold as a portion in their portfolios for well over a decade now.
And good news--today we are going to be discussing gold with Ron Stoeferle of Incrementum--a firm that offers wealth management and investment funds. Gold has been on a bit of a tear the last five days. This morning, I'm looking at my charts here it's at a multimonth high of $1346 an ounce in U.S. dollars, of course, after bottoming out around 1170 last August in 2018. So, will it go higher? If so, what's the investment thesis? Now, this is where Ronni's firm really delivers the goods. Each year at the end of May, Incrementum's research team delivers the most comprehensive report on gold to be found anywhere in the world, and then releases it for free to the public. It's a huge educational service for everyone.
Ronni is partner of Incrementum AG and responsible for research and portfolio management. Ronni has studied business administration and finance in the USA and at the Vienna University of Economics and Business Administration, and he also gained work experience at the trading desk of a bank during his studies.
Upon graduation, he joined the research department of Erst Group where he published the very first--his first In Gold We Trust report in 2007. Now, over the years the Gold report has proceeded to become one of the benchmark publications on gold--money, inflation, monetary policy. We're going to look at all of that stuff today.
Ronni is married. He's a proud father of three daughters. He likes to spend his spare time with his family watching and playing football, running and at classical concerts. Welcome Ronni. Good to have you to the program.
Ronni Stoeferle: Hi, Chris. Hi. Thanks for having me again.
Chris Martenson: Yeah, you know, I first met you in person in Munich and you treated me to a very nice lunch at a traditional Bavarian café. I remember that all very fondly.
Ronni Stoeferle: Yes. Yes. Yes. We had a really nice meal without any--any traditional Bavarian Munich beer, unfortunately, because we had to work afterwards. But it was a really nice--nice conversation. I really enjoyed meeting you.
Chris Martenson: Yeah, just that one missing detail, but otherwise just perfect. It was just yeah. Really, I consider you to be a friend and a colleague and certainly a compatriot in these times where we're--we're working very hard to educate people about what's really going on.
So--so let's start with this year's big, shiny new In Gold We Trust report. Just first, just give people a little history how we came about and in very broad terms you know, how big is it and--and how widely is it being read?
Ronni Stoeferle: Yeah, well we actually hit a new all time high. This year we wrote more than 340 pages. (LAUGHTER) So every year we sit together in fall and discuss the counting of the next gold report and we say we really have to try--have to try writing a bit less and then we end up with more and more pages every year. But there is just so many different things to--to write about and just to give you a--a brief summary of the content. We--we're writing of course, about the development of gold in different currencies. We are writing about technical analysis. We are writing about the de-dollarization. We are writing about hyperinflation. We got a great guest comment by Keith Weena about gold bonds bringing back an extinguisher of debt to the bond market. We compare gold to bitcoin. We write about mining stocks and what is going on in the mining industry. We are writing about gold storage. We are writing about portfolio characteristics, especially how gold performs in different stages of recession. We've got a fantastic exclusive interview with FOFOA. I don't know if you and your listeners are familiar to Free Gold, that is one of the most interesting blogs out there from a real central bank insider.
So there is a special--there is a 40 page interview with FOFOA the blogger. Then we are writing about China quite extensively because China is, nowadays the biggest producer but also consumer of gold and starting in 2019 we--we are going to publish the report not only in English and in German but also in--in Chinese, so there will be a Mandarin translation.
So, yeah 340 pages. So you at least have to reserve the weekend to work through the report. But there is also a compact version of In Gold We Trust which still 100 pages, so--yeah. (LAUGHTER) I think if you really want to--to know what's going on in the--in the space, I think this should be one of--one of the few reads every year and you get the full package of information.
Chris Martenson: Well, it's really it's so comprehensive, and there is a lot to cover because finance and economics touches all sorts of different areas, and gold has had this central role for a really long time. I know some people think you know, Chris it's the barbarous relic; it's just this inert metal. We got cryptocurrencies we're going to talk about the relationship between those two in a second. But let's--let's just back up in a second and look at I think what your core motif as I read through the front of this is really around crumbling trust.
And one of the things that is a central pillar of our financial system right now and all debt based fiat currencies is trust. There has to be trust in the system, right? You have to trust that your central bank isn't going to overdo it or do something really stupid. You have to have a lot of different pieces of trust and you have to have trust that the reserve currency is going to be well managed. So, take us through that piece of--of how trust plays a role in all this and why you think it's crumbling.
Ronni Stoeferle: Well, I always like to start a discussion with a definition and the definition of trust is the firm belief in the reliability, truth, ability or strength of someone or something. And from my point of view trust is very often underestimated because many people think that trust is for granted but basically all human interactions are based on trust. When we visited the restaurant in Munich we trusted you know, that the cook will not use any spoiled ingredients, that it ensures cleanliness of the whole preparation and that eventually makes us a really good dish. We trust when we--we trust that the airline company and the--and the pilot when we sit on the plane. We trust other people in traffic when we get into our car. So, there is many, many different areas in life where trust is really I would say that the--the basis of all human interaction and when it comes to money of course, trust is also crucial. And I have to tell you back in 2007 when I was a young analyst sitting in a bank and I thought okay I want to write about gold and what would be a good title and I came up with In Gold We Trust, I actually didn't understand the meaning and the importance of that title.
And now over the years I read quite a lot of books about trust and how trust is established and also how trust is destroyed and it's highly asymmetrical. It takes ages to build up trust, for example, in relationships--in business relationships and then it just takes seconds sometimes to destroy this trust. And from my point of view the trust in the monetary system is still pretty high. Especially given the fact that we are all part of huge monetary experiments and I think the trust in the U.S. economy and in the Federal Reserve is pretty high. We are seeing the mantra of deficits don't matter at the moment. And everybody thinks that the U.S. dollar is -- how do you say--the least dirty shirt. But from my point of view this trust is crumbling. And we have seen the last couple of weeks that the recession clouds are getting darker and from my point of view there is no doubt that the Federal Reserve and--and central banks in general will step in with very, very aggressive measures. If the recession clouds should become darker and this is actually what we are seeing at the moment and it is no coincidence that in the last couple of weeks there were some papers--very, very sophisticated papers coming out from the Federal Reserve. For example, mentioning that negative rates would be quite favorable and would have positive effects. There were some comments from Donald Trump of course, on the Fed policies, so the Fed should cut rates by 1% and do more QE.
Then there was, of course, some representatives saying that not only negative rates but also additional measures like you know, controlling the yield curve should be considered. So from my point of view in the next couple of weeks we will see that this monetary u-turn that already began in December this will continue. And this I actually the reason why gold has reacted so positively the last couple of weeks. And from my point of view, we are in the central bank trap--zero interest rate trap. We just published a book in German which is called The Zero Interest Rate Trap--and there is no way out. From my point of view, gold is a pretty, pretty good hedge in this kind of environment.
Chris Martenson: Indeed and so let's go--I love that idea that trust takes decades to build and seconds to destroy. It is very asymmetrical in that regard and that--that's true in our personal relationships. But I lost my trust in the central banks a long time ago when I simply started to look at what they were doing and why they were doing it. And--and I think that this whole idea that the direction they pushed us all into is--is a trap, right? There is no possible way for interest rates to renormalize at this point given the levels of debt that are out there and given the financial conditions of various companies, triple B debts, junk debts, sovereign debts it's just there is so much debt in the system. Their classic mistake--the blunder they made was thinking that--that somehow I think they confused asset price inflation with real prosperity. And they encouraged financialization as an activity. So corporations bought the stocks but they didn't invest in property, plant and equipment.
So, they just confused money with wealth and that's I think the classic blunder of them all. Money and wealth are very separate things. But gold has been considered both money and wealth for millennia. So let's if you could, Roni, gold really in some respects you might say it has been going nowhere for five or six years. It has been recently exciting. But what role does it still play in someone's portfolio at this point?
Ronni Stoeferle: Well it should play an important role from my point of view. But of course, I'm definitely, I'm not really representative for the mainstream investor. And I think, you know, Chris, there's a big difference when it comes to thinking over here in Europe where let's say our monetary DNA is probably very, very much influenced by the hyperinflation we experienced in Austria, where I come from, but also in Germany with the Weimar Republic hyperinflation, which of course, laid the foundation for Adolf Hitler. Compared to the U.S. where the Great Depression and the deflationary developments definitely also influence the--the thinking and the philosophy of the Federal Reserve where really this is everything that they want to avoid and Ben Bernanke was very, very vocal about that. And he basically spent all his academic career studying the Great Depression and putting out those papers suggesting ideas how to navigate in such an environment.
Now, I think when it comes to gold from portfolio perspective this is a concept that we already presented in 2006 and I think it's still highly relevant. From my point of view, I'm traveling quite a lot doing keynote speeches all over the globe about gold, about inflation, about mining stocks, and it seems that there is basically three different groups that can be correctorized; and when it comes to gold at the moment I think that investor's demands is really basically the demand that will make a difference because we haven't seen any investor's demand the last couple of years. But this will really be the crucial difference going forward. Those three groups are the believers.
For them, they got very high trust in the status. I think that, you know, the Federal Reserve and the central banks did a terrific job we are in a bit of a longer recession or downturn. We are already on the road to recovery. Everything takes a bit longer, the healing process takes a bit longer. Everything is basically fine. They probably also believe in Santa Claus and in the tooth fairy and this is fine. I always tell my kids those stories and they love it. We could say it's kind of conspiracy story but you know, they believe in it and that's fine for me. So the first group, those are the believers. And this is probably still one of the biggest groups.
Then there is the skeptics. Those are people who kind of had initial doubts about the recovery but they regained trust in the status quo because as the prices were rising you know, we are in this -- in this everything bubble, so it's not only equities doing very well it is also of course, bonds doing extremely well. Corporate bonds, also sovereign debt. We are seeing real estate all over the globe going crazy. We are seeing that the art market is running really hot. So, it is not only equities that rose significantly due to this monetary injustice. It is basically every asset class.
So, this definitely fueled this asset price inflation that you referred to before. So, for this group the skeptics I think they are very pragmatic when it comes to gold. For them, within the financial markets and within the industry you have got this let's say cover your ass policy. You have got for many fund managers, for example, they are not able or they are not really -- not really able to take contrarian positions. They would rather go with the mainstream. So, for them, I think they are sitting on the sidelines at the moment. But they want to enter gold because the fourth quarter 2018 when basically all asset markets were down. I think this was a big warning shot for financial market participants.
We are seeing December was the worst performance since the Great Depression. And in the fourth quarter every asset class was down. But gold was up 7% and mining stocks were up 17%. So fourth quarter 2018 was really, really important. Now, the second group I think as soon as we go above this 1360, 1380 resistance I think they will really, really start buying gold and this will really move the market. And then the third groups--those are the critics, and I think both of us are in this camp. Those are people that kind of question the viability of the status quo. So, for us there is a systemic error in the structure of our monetary system.
We know that all the rescues and the measures that were taken in the last couple of years they only address the symptoms but not the root cause of our problem. So, I think it's important to make this distinction and the beauty of it is, Chris, it is a one way street. So, you will never go from the critic's camp back to the believer's camp and say you know what the Federal Reserve is doing now with more QE and lower rates, this will probably make everything better and this will heal everything and everything is going to be fine. So, people will come from the camp of the skeptics to the critics. They will go from the believers to the skeptics, and this should have some sort of natural demand for gold. And it is pretty interesting that we have seen institutional demand quite recently in TLD, the biggest gold ETF, we saw the biggest single day asset in flow since the Brexit. So those trend followers are coming into the market again, and I think this is really going to be interesting the next couple of weeks. And from my point of view, if we go above this massive resistance that has been very, very tough to crack, we failed five or six times in a weekly chart, I think then we can go to 1500, 1600 pretty quickly.
Chris Martenson: Well, let's take the trend followers I love watching people pile in and pile out so maybe those people I don't know which class to put them in--maybe skeptics or something but--let's talk about the fundamental case for gold here. This is something I have been tracking for a while. You have got some really exciting stuff in here, as well. And, of course, we know some things. I want to talk about gold--gold mining. A case was made a couple of years back, maybe two years ago, about peak gold from a mining standpoint. We know that China is still accumulating. China has a very different love affair with gold so does Europe with the U.S. where honestly, I got to be honest, Roni, almost every article written about gold in the U.S. still bashes it subtly or not so subtly, right?
Chris Martenson: It's just very much a psychological operation running against gold for whatever reason. So it's a little bit held in disdain in the U.S. but it's loved in Asia and India as well. So, let's talk about that fundamental case including maybe central banks and their buying. What are you seeing there from that standpoint?
Ronni Stoeferle: Well, I would say that first of all, we should not forget that 70% of all physical gold demand is coming from emerging markets. So, I am quite often [in] Asia and if you talk to investors in Singapore, in Hong Kong, in Shanghai for them you know talking about gold is totally different than compared to--to western investors. They don't really care about the daily noise. They are in for the long game. They know what gold does for your portfolio. That it is an asset without any counterparty risk. And this is really one of the most important characteristics of gold, obviously. They know that it's a good hedge against the U.S. dollar. They know that it is an asset that was basically worked the last 5000 years.
So for them they have got a completely different attitude when it comes to gold. So 70% of all physical demand nowadays is coming from Asia. That's really important. Now, it is not only institutional demand and private demand, it is also this dedollarization topic. So, last year we have seen the highest gold demand since the end of the Bretton Woods agreement in 1971. So central banks all over the globe bought 650 tons of gold in 2018. The largest--by far the largest buyer was Russia, buying 270 tons. Then it was Kazakhstan, it was India. Also, countries within the European union like Hungary or Poland buying gold. The Chinese bought gold and we all know that they bought much, much more than officially published. So, I think this dedollarization trend that we are writing about for already four years, this is really going mainstream now. I had interviews with Bloomberg for example. Two or three years ago if I told them about dollarization that they couldn't care less about this topic but now I think the world realizes also because of this lack of trust or crumbling trust in international policy alliances or whatever, and--and increasing tensions that we are seeing geopolitically not only between China and the U.S. but also between many other nations.
I think this is a very strong additional case for this dedollarization trend. And this is the reason why it picks up momentum in the last couple of months. And I think this is something that Donald Trump is really concerned about. And I think that, I'm absolutely certain that we don't see a quick deal regarding the trade negotiations with China, because China doesn't want a quick deal, and from my point of view I'm not sure if Donald Trump wants a deal really quickly because he needs some momentum for the election year. So, I think this will be a topic that will become more and more important. And if we look below the surface, it's not about trade it is from my point of view it is primarily about currencies. Nowadays, everybody wants to devalue its currency. Nobody wants a strong currency because you know, a strong currency is something like a fitness program for your economy. And we wrote about it quite extensively. It is no coincidence that mostly hard currency nations like Switzerland, but also like Germany and Austria, are very prosperous because strong currency and hard currency makes you work harder, be more innovative, be closer to your clients and deliver better products.
And from my point of view, this devaluation race that we're in those currency wars these--those will become more important. And of course, gold does not participate in those currency wars. And therefore I think that, you know, this is a topic that emerging markets realized but we aren't--and they address this by buying gold by significantly buying gold. But we have also seen that industrialized nations stopped selling their gold in 2008 and 2009. And the fact that now there is even some countries within the European Union aggressively buying central bank gold. I think this is really big sign in the paradigm shift that we are in at the moment.
Chris Martenson: Very well said. I think at the highest level the trust is you have to trust that your currency will be able to buy something, right? So there has to be a relationship between the claims which is currency and also debt. Those are claims. And the real stuff, right? All the things we want to buy our houses, vacations, whatever those things are. And there are--and when those things get out of balance, as you mentioned the famous Austrian inflation, so you know, Europe is going to fight that last monster which was inflation and in the United States I guess our big last monster that really scared us was deflation. So, we are fighting different monsters but everybody is kind of doing it the same way by printing like crazy and that starts to erode that trust. That is at the high level.
And then at the more specific level I think what's interesting what you are raising is the United States has been the world's reserve currency has been I don't know 62% of all reserve assets out there in currency form. I might be off a percent or two but I think that's about right. And the United States has been using that very heavily as a weapon. It has weaponized it, right? Cutting people off from SWIFT transactions and punishing countries that want to you know, like say trade with Iran because we didn't like a deal on a treaty that got signed that we didn't like or something like that.
So, without that trust that you can believe in the contract that is going to be fulfilled that does begin to erode. Very interesting point you have made which is that gold is a way and a very important way because it is unanchored from the currency wars because everybody is fighting that. Everybody wants a weaker currency. And at the same time they don't want to be exposed to two things. One, the dollar. Two, to the idea that currency--that erosion of currency power loss can really bite you.
So, that hedge of gold in a national portfolio feels kind of a -- some of those same reasons are why I hold it in my personal portfolio.
Ronni Stoeferle: Yeah. I mean, I think it is pretty interesting to a quote what the Hungarian national bank said. Basically, in their first gold purchase since the year 1986 and let me read that out--the Hungarian Central Bank, it seems that they are readers of the In Gold We Trust report. So they wrote--in normal circumstances gold has a confidence building feature. It may play a stabilizing role and act as a major line of defense under extreme market conditions or in times of structural changes in the international financial system or a deep geopolitical crisis. In addition, gold continues to be one of the safest assets which can be related to individual properties such as the limited supply of physical precious metal which is not linked with credit or counterparty risk, given that gold is not a claim on a specific counterparty or country. Isn't that--that's just great. That's just perfect.
Chris Martenson: Thank you for bringing that up because that--I could have written that. You could have written that. That is coming from a central bank. Go Hungary. That's really good.
Ronni Stoeferle: I think you know, what you refer to mentioning SWIFT that's really important that the U.S. is using it basically as a weapon and Vladimir Putin said we aren't ditching the dollar but the dollar is ditching us. So, I think it's really important to say that it is not only you know this--this excess of gold like Russia, China, Kazakhstan, Turkey that is referring to this dedollarizatoin. It is also the European Union for example. There is Jean-Claude Juncker the President of the European Commission he said it is absurd that Europe pays for 80% of its energy import bill which is worth $300 billion euro a year in U.S. dollars when only roughly 2% of our energy imports come from the U.S. It is absurd that European companies buy European planes in dollars instead of euro. The euro must become the efface and the instrument of a new more sovereign Europe. So that's not--not like a small blogger from some random place. It is basically, the head of the European Union making those comments. And I think this is really what I've said before this is really a sign that this dedollarization is gaining momentum now and Donald Trump I think you know, when they did the trade deal with South Korea explicitly there were currency terms negotiated and I think we all don't know what is going on behind the curtains and on the negotiations between China and the U.S. But we all know that the big guys the most important countries they already have significant gold reserves. It is the U.S. holding more than 8000 tons of gold. It is the eurozone more than 10,000 tons of gold.
And interestingly, the eurozone is valuing the gold reserve mark to market. So they are updating the value on the balance sheet of the ECB on a quarterly basis mark to market. I think this is pretty interesting especially compared to the U.S. I tis China holding more than 2000 tons. It is Russia holding more than 2000 tons. The IMF holds more than 3000 tons. So, the most important players they already got significant amounts of gold in their vaults and from my point of view at some point there will be a revaluation of the gold price and actually if you read and if you study monetary history in those transition phases from one currency to another from one world leading currency to another gold always played a major role. And I think next time it will be probably pretty similar.
Chris Martenson: You know, a piece of analysis that really stuck with me over the years was my Grant Williams about gold and he titled it Nobody Cares.
Ronni Stoeferle: Yeah.
Chris Martenson: I'm sure you're familiar with it, of course, and for people listening to his thesis was that when you talk to people in the United States in particular they don't care about gold. Nobody in the treasury department is thinking about it and you know, it's just sort of this afterthought. But the truth is when you look at a lot of the data and the analysis--I like a lot of the stuff that Kuz Jansen and Ronen Manley have done at Bullion Star to track the flows of gold--where is it coming from? Here is the fun thing about gold--you can't print it up.
So, if there is a deficit that means that it came out of somebody's vault somewhere to make that up. And according to their research, Roni, there has been a pretty big deficit of gold in the west and a pretty big surplus of gold flowing to the east that has to be coming out of somebody's vaults. Did you take a look at that and have a position on and the reason I am asking this question is because it feels like I think the west will begin to care about gold when the vaults get a little bit bare and they want to stop the flow--and there is only a couple of ways to do that and the most important one is raise the price, right? Do you have a sense of that flow of gold from west to east and where we are in that process?
Ronni Stoeferle: Yeah, well you mentioned Kuz Jansen and Ronen Manley who are doing terrific jobs on that. And it's pretty obvious that gold is flowing from the west to the east and this is something that we have also you know, seen in history all the time. So, we have seen that, for example, in the Roman Empire. We have seen that basically, in all big shifts of the international economy we have seen those -- those developments and from my point of view you are totally right. The price will probably, as always, make the difference the question is if gold now goes from weak hands to strong hands the big question is what price will those strong hands become sellers again?
And from what I know from discussions with Chinese friends, with friends from India, from Vietnam and so on we would have to have a significantly higher price that they would even consider selling their gold again. Because for them, and this is also the approach that I really follow. I mean it would be I would most appreciate the fact if I would never have to need my gold as a monetary insurance and if I could inherit to my--to my kids. And this is I think also the approach of many Asian investors where we are seeing that okay--as I mentioned before--they are really in for the long game and they don't care about the short term price movements.
I think there is a great quote by John Moral; he said Like Liberty, gold never stays where it is undervalued. As I said, we have seen it wit the Romans. They realize this more than 2000 years ago when the Chinese and the Indians accepted only gold and not Roman goods in exchange for spices and silk. So, the fact that emerging markets in 2020 will already be 50% of world GDP, while this number was 19% in the year 2000. And that we are seeing that they are constantly buying gold as an insurance and as an investment. I think this perfectly makes the case for future rising prices. And actually, I think this is something that people completely underestimate. Gold is trading at or close to all time highs in so many currencies at the moment.
Just have a look at the Canadian dollar, just have a look at the Australian dollar. Gold is trading at all times. Just have a look at gold in many emerging market currencies. Gold is trading at all time highs. Since the Euro was established as book money, gold is up 370%. On an annualized basis gold rose since 1999 almost 8%. But still everybody is still looking at the dollar price of gold. And from my point of view we have seen dollar strength in the last couple of years, of course. The main reason was that the Federal Reserve was basically the only important central bank that was able to raise rates. But now with this monetary uturn that I referred to I think this interest rate differential will shrink, and this should also be the nail in the coffin for the U.S. dollar.
Chris Martenson: Yeah, very well said. So, let's talk then very quickly about this idea--so here is the theory that I have -- I have a theory that nobody cares. And by nobody I mean it's the big money, right? We don't -- I'm not aware of any pension funds investing in gold from the United States. Maybe a couple but really not the big ones. I'm not aware of endowments having a lot of expire. I'm not aware of big families. Like as we all know silver let's imagine there is a million ounces of viable silver in the world. That means that basically 1/10 of Jeff Bezos' post-divorce, you know, haul could buy all the silver in the world. One dude, right?
Here is my thesis--while nobody cares people like myself I'll call myself the retail investor--I can get access to gold and silver. But that when that phase shift happens and when there is a lot of interest in gold and silver, I think retail investors are going to have a hard time potentially getting their hands on gold and silver just because of the asymmetry of power in the structure. You know, once billionaires decide they have to get their hands on gold and silver they have to have access to LBMA vaults. I don't, potentially.
So, what are your thoughts about that? Do you think there is a risk at some point where when everybody suddenly cares again that the average investor will have a harder time participating?
Ronni Stoeferle: I don't think so. I mean, we have had that in 2011 when gold was at 1900. Of course, there were at some points there were people lining up in front of the coin dealers and over here, in Europe, for example, I think it is a pretty big difference--it is totally normal to buy gold coins and bars at branch of a bank, for example. Just going to the bank and saying okay I want to buy 10 philharmonic coins or 10 kruger rounds or whatever. And we have seen that at some stages there was very high demand. But we haven't seen any real scarcity.
And, of course, I think, if our thesis is right that we are moving from this based on a down theory. We have been in the accumulating phase and now we are entering the public participation phase which is the longest and the most interesting one. And then of course then there is this mania phase at the very end. If we are right and we are entering this public participation phase, of course, there will be more demand in silver, for example. At the moment, nobody cares about silver. It's a tiny market but we all know if gold picks up momentum silver will probably outperform gold by at least three to one.
We know that people will start buying mining stocks again. We have seen this merger mania in the mining space and I think that many companies not all, but many did a tremendous job. We have seen this creative destruction according to Shumpet in the last couple of years in the mining space. So there will be new demand from generalist investors coming into the mining space.
And, of course, you know, as the bull market progresses people will take more leverage. They will become more aggressive. They will pile into the juniors, for example. They will go into more speculative forms of buying gold. But from my point of view there is basically two different ways how to invest in gold. And two different motivations Fist of all, there is Sicherheitsgold in Germany would be safety or security gold. It is really as a hedge for worst case scenarios like hyperinflation, financial repression, a currency reform, whatever. Then you want to have physical gold. Then you want to have as little counterparty risk as possible.
And then, there is of course the speculation aspect. You can buy performance gold. You can buy mining stocks. You can buy options, whatever. But never make the mistake to hedge against monetary worst case scenarios, hyperinflation whatever and then buy a certificate issued by a big bank that just wants to kind of outperform the price of gold. That doesn't make any sense when really the shit hits the fan you want--you don't want to have lots of counterparty risks.
So, those two different motivations, I think they are really important. And from my point of view when it comes to physical gold, there shouldn't be any real lack of supply and normally if there is a lack of supply, and normally the price will solve this problem. So, at some point I am going to become a seller. At the moment I am on the buying side, of course. But at some point I am going to be a seller. So if there--if there is a real market and we can discuss that of course then I think that prices will take care of it.
Chris Martenson: Well, let's discuss that. Do we have a real market in gold?
Ronni Stoeferle: Do we have a real market in general?
Chris Martenson: All right.
Ronni Stoeferle: I mean--
Chris Martenson: Roni, I have been arguing for a while on Twitter, bad place to argue, but I've been putting up a little meme where I say financial markets are now government operated utilities change my mind, right? And so, that's a point I've been taking for a while that the markets are now so big, so important--tail wags the dog now that--that of course they are not left to chance and gold is a very important signaling element and, of course, some would say that is not left to chance. We have lots of history to say London gold pool, etcetera, and so forth where it hasn't been left to chance. Now people would argue oh, nobody cares about gold so of course it is not officially you know, even looked at let along manipulated. Of course, that is one aspect of it and the second is the structure of the market. And this isn't just related to gold and silver. But when you look at how all commodities trade and this extends to other assets as well. But you can see that computers, algorithms play games in ways which are clearly price manipulative. Both up and down, right? And that destroys the concept of a free and fair price discovery mechanism in a marketplace when you have somebody who is able to whip the price to a point which is not based on a true fundamental bid-ask spread.
So, we got lots of pieces around that -- together erode my trust in the market of course if I look at them carefully. What are your thoughts about the markets that we do have for gold and silver right now? Are they free, fair, reflective?
Ronni Stoeferle: Well, from my point of view, the biggest intervention out there is the intervention of manipulation of interest rates because that is by far the most important price in an economy. And you know, a bunch of Ivy League PhDs setting the price for money and trying to come up with explanations why this and that interest rate level is the right one. I think this is the even more important question that we should ask but nobody is really questioning central banking nowadays.
When it comes to gold, from my point of view, you refer to the you know, the algorithms. I think as soon as we go above this massive resistance 1360, 1380 I think they will switch to the long side again and, from my point of view, of course there is intervention happening in every market. But we are not only seeing it in the gold market. I think this would be naïve to say the central bank is they only care about manipulating the gold price because, you know, gold was able or allowed to rise from $220 up to 1900. So where were the manipulators back then?
From my point of view, we are seeing interventions in every market nowadays but I just believe that the market forces are too strong and that they will, at some point, they will just you know overtake those interventions. So for me, I would say it is yeah, I think it would be more important to really discuss the consequences of central bank action with QE completely getting the--taking the bond market into their custody; also, buying equities nowadays and with their interventions basically completely destroying the pricing mechanism of all markets. Just have a look at real estate markets all over the globe.
Of course, rising prices are a consequence of interest rates being way too low. And over here in Austria, for example, it is basically impossible for a young family nowadays to buy a home and there are fantastic papers about the consequences of the interest manipulation and rates being too low. For example, on families, that it's just not due to high prices of real estate. It's just not possible to have a big family with three or four kids anymore because nobody can afford so much space anymore within cities, especially.
So, this is also the reason why we wrote that book the Die Nullzinsfalle or The Zero Interest Rate Trap because we are not only talking about the financial consequences of the interest rate manipulation but rather about the consequences for all of our lives. I don't know if you realize it and perhaps it is mostly European thing but it seems that everybody is getting, get two nowadays. So, if you walk the streets there are so many people having to tattoos now and this is really don't want to judge everybody. Everybody should do with his own body what he wants I'm totally fine with it. But the fact that people are getting tattoos. And I don't know, Chris, do you have a tattoo?
Chris Martenson: A what? A tattoo? No.
Ronni Stoeferle: Okay, but you know, from my observation, after five to 10 years every tattoo looks horrible. Skin doesn't get any better. It just looks bad but it shows you that people are only thinking about the moment. They don't care about the long-term. They don't care what is going to be in 10 years and 50 years and 20 years, and my point of view the manipulation of interest rates really manipulates our time preference. We've got extremely high time preference at the moment, so we don't care about the long-term anymore. And this is something that concerns me quite a lot. And this is, perhaps it might sound a bit philosophical, but I think this is something that also is the -- this reason why we are seeing this lack of trust. Because interest rates are very, very important for the trust in the financial system and in money.
Chris Martenson: Absolutely. Very well said. So this brings up an important point--it's interesting to hear about how young families can't get started, can't afford to live in a typical house in Austria that's true. All across the United States it's true in Canada and Australia. It's true all over the place and that's thanks to the central banks manipulating the interest rate, setting the price of money--specifically to reward and I use that term loosely--reward people who already held those assets, but punish the people who need to move into those. And so they are picking winners and losers which is a very political act. Another discussion around that later, maybe. But for now this idea that inflation has been really low, too low. It's a big worry. It's all over the headlines. In fact, I believe it's we're going to have the ECB meeting and all these headlines came out and said inflation is just too low. Maybe the ECB needs to do more with QE.
But the truth is if inflation was really too low, people would find it easier and easier to live. My perception is that they are finding it harder and harder. So, to me that is because inflation is measured incorrectly or very inaccurately. Where do you stand on this idea of inflation because I think we see it everywhere. Inflation is a monetary phenomenon and whenever you have too much money you end up with inflation. So, where has the money gone? To the rich. Great. Art, you already mentioned high end trophy properties, gulfstream jets. Good luck landing your jet at Davis this year, so lots of inflation right. There is a lot of inflation I think for the average person more than is being admitted. What are your thoughts on this?
Ronni Stoeferle: Yeah, I mean absolutely. We've got a fantastic chart, and you know, Chris we really like long term charts. It is on page 328 of the report. It shows the income share of the top 1% from 1915 to 2016. So, back in 1971 when Nixon temporarily suspended the convertibility of the U.S. dollar the income share of the top 1% was 10.4%. At the moment it's 21%. And it is rising big time so of course we are seeing the so-called counting effect. Those people that are closest to freshly printed money the profit from it. It is no coincidence that real estate prices in financial centers like Hong Kong, like New York, like London are the highest. It is because those are the financial hubs that profit the fastest from monetary inflation while, I don't know, in some rural areas like what would it be in the U.S., Alabama? Something like that.
Chris Martenson: Sure.
Ronni Stoeferle: You basically--you don’t profit really from newly printed money, from asset price inflation. You suffer from price inflation. So I think it is, of course, something that puts enormous pressure on people and it clearly shows that, you know, if you don't get any interest on your savings account of course I say, okay I don't care about it. Just spent the money, buy a new car or a new cell phone, whatever, go on vacation. We are not getting anything in our savings account anyways. And I think when it comes to inflation, we should not forget that at the moment there is roughly 12 trillion, so 12,000 billion U.S. dollars in bonds at a negative yield. And what is the absolute pain trait for those negative yielding bonds? It is inflation. And we have seen Bloomberg business week a couple of days ago. They came out with a cover saying and they showed a dinosaur saying “is inflation dead?” And the subtitle was, “a new era has some frightening downsides.” And this year really reminded me of the cover of Businessweek in 1979 and the title was The Death of Equities, how inflation is destroying the stock market.
So, compared to 1979 when we have seen a decade basically of high inflation and of escalation. Compared to that, the sentiment has completely shifted and nowadays it seems that rising inflation seems to be a big contrarian trait. And we should not forget that this is exactly what politicians and central bankers want. Powell just recently said he's very much concerned about the lack of inflation. Of course, measured by their own statistics. So they will try everything to get inflation up and, you know, once the genie is out of the bottle it is hard to get it in again. So from my point of view having some inflation hedge definitely makes sense. And we crunch the numbers. And it is clear that commodities, mining stocks and especially gold and silver are the best hedges in times of rising inflation rates.
So, if you think that at some point central bankers will succeed with getting higher inflation, you at least have to have some gold in your portfolio.
Chris Martenson: Well, I agree. I think that central bankers are going to succeed beyond their wildest dreams. Let's pick on Japan; they have been trying to destroy their currency for a long time. I think they are going to succeed eventually. And so people are going to be absolutely ruined by that. I happen to believe that a little bit about what's different this time and I hate those words--very dangerous words in investing but what's when inflation comes along the typical way that central bank then has to go about combatting that is to raise interest rates. Which normally meant removing money from the marketplace now the Feds got this other crazy mechanism where they just dial the interest in excess reserves.
But if you do have to go out and raise interest rates I think inflation quickly leads to a financial systemic crisis. Because when that inflation comes the system will be crammed right up to its nose with too much debt and it can't sustain a rising interest rate. So what do you do if you're a central banker where you have inflation you need to contain but you got too much debt to sustain a higher interest rate. There is really nothing to do there at that point in time. So, that's why I think that leads very quickly into a systemic crisis. Because I'm kind of an Austrian economist at heart. Particularly von Mises, where he said you either voluntarily abandon your credit expansion or you face a destruction of the currency system.
That's really where this feels like it is heading. It has taken a lot longer than I thought. But is that possibly you know, where your thesis leads is that there is no--we are in a box canyon it is just a question of you know, do we smash into the left wall or the right wall? Or do you think there is a way out of this if central bankers suddenly got smart?
Ronni Stoeferle: Well, the new kid on the block seems to be MMT. I mean we kind of tried that in the Weimar Republic. It didn't end so well. And I think you know that the thing that you refer to that those very, very basic numbers that just don't work out anymore with rising interest rates. I think those are just facts. And we talked about Leslie Neilson before and we are quoting Inspector Frank Drebin in the report saying, truth hurts. Maybe not as much as jumping on a bicycle with the seat missing, but it hurts. (LAUGHTER)
And you know, just having a look at the official forecast by the CBO, the Congressional Budget Office for the U.S. deficits for the next 10 years; so they say deficits above 1 trillion every year in the next 10 years. But on the very positive or let's say naïve assumption that we will see real growth at I think 2.8 or 3% and no recession within the next 10 years. And we already are seeing you know, that the debt burden is kind of getting out of control in the U.S. And especially if you compare it to the eurozone. Just to give you one number--I think this is completely underestimated by many market participants. If you compare the debt dynamics of the U.S. to Japan and to the eurozone, there is, you know, it is basically like crocodile's mouth going up because the whole combined budget deficit in the eurozone last year was 67 billion U.S. dollars for the whole eurozone. While in the U.S. it was roughly 700 billion last year.
So, actually, the eurozone and you know, the euro gets a fair amount of bashing from all market commentators. But you know, the fiscal responsibility within eurozone is much higher than tin the U.S. and it seems that Donald Trump is let's say one of the first MMT presidents out there because you know, we actually have this prolonged cycle because of this massive fiscal stimulus that we have seen, despite the fact that we have seen record employment and really, really good growth numbers, at least on the surface. But of course, he prolonged it this massive fiscal stimulus.
So, from my point of view over here in Europe, we are seeing that I would say the extreme populous parties on the left but also on the right side of the spectrum winning most elections. I think that we are going to throw fiscal responsibility overboard because of this you know, kind of success story of U.S. growth that we have seen the last one or two years.
So, from my point of view, this clearly shows that at some point even the slightest rate increase and let's not forget that in the eurozone we are still kind of in the Mr. Dragi who will step down in October. He will go down in history books as one of the very, very few central bankers that did not raise interest rates at least once he never raised interest rates. He only lowered interest rates which is kind of odd because over here in German we say Währungshunter which is the translation would be currency watchdog. And if you have a look at the euro since Draghi took office, of course. It is down significantly and this was some sort of a from my point of view very expensive stimulus for the industry especially the German common manufacturers and so on they got an artificial boost and they created massive over capacities that at some point and then we go back to Austrian economics. At some point will have to be restructured because a recession is only reallocation of resources. It's something very, very normal within a cycle. But it will hurt. And the longer we try to avoid this recession the more it will hurt.
Chris Martenson: All very well said, and I love that you quoted Frank Drebin. In fact--in fact, I will say for anybody listening to this that if you want to read In Gold We Trust, you should do it if only for the amazing quotes that have been assembled on the sidebar. You quote all kinds of people--Janet Yellen you have got Jim Richards but also Homer Simpson. I really appreciate that--to be honest. (LAUGHTER)
Ronni Stoeferle: Yeah, this is some sort of hobby of mine. Not only, you know, Roman politicians but also you know John McEnroe we have got many, many sports stars we are quoting some songs so this is something that also tries to you know, loosen up the whole--the whole material. You know, my readers, they invest their previous time in reading our thoughts. So, I really want to make this also kind of entertaining because time is really precious and therefore we said okay let's put some good cartoons in. Let's put in some good quotes and make this really a fun time investing in reading the report.
Chris Martenson: Well, it's very well laid out. It is very easy to read and the quotes of course really do assist with the whole thing. And just, I really like the lay out. Lots of space. It is very easy to read and the writing is just wonderful. So, I would advise everybody to read it if it has got a lot of history in there. But this is really a critical moment in history. Roni, this is something I think you and your team are working for. I work for this. A lot of people you are quoting are working for this which is your importance of educating everyone to the true conditions of where we are. This is really extraordinary. It is kind of - -we are the proverbial fish in water. We can't really see the water because it's around us all the time, so we don't have a concept of it.
But this monetary regime that we are under right now has never been tried before in history. Well, it has but blown up and locally--local terms. But this is a global experiment. Everybody is printing like crazy. The idea is that we can just do this forever and it is all going to work out. And as long as we can keep asset markets inflated everything is good. But this is really not the case and to have that solid grounding in history I think allows people to see the forest, right? We are in the trees. We are in the water. Whatever the metaphor is. But if you can back out and take a peek at it then you have a chance to plot a way for yourself to not just secure your own financial aspects in life but maybe those for your family.
And because I am really investing for grandchildren I don't have yet and really thinking about how I am going to pass wealth on. And I don't know how to do that if I'm just investing in something I don't believe in. But I'm a critic. Maybe some people listening are skeptics or believers, as you put them. But I think that your report will help move people nudge people into that realist camp. This is just--this is the nature of the world we live in. Monetary experiments, they have pros and they have cons. And we are only ever told about the pros. What are the cons? We need to know those. So that is I think a real service.
So, A, thank you for writing the report again. Thank you for your time today. Thank you for making it accessible to everybody for free and please tell people, Roni, how they can access the report.
Ronni Stoeferle: Yeah, thanks Chris. It is really something we try to make a slight difference for our lives and the lives of our readers and kind of society, to educate people and inform people about monetary history and how to prepare and how to hedge against extreme scenarios.
So, this is also the reason why the report is available for free. We should not forget that it is a big team working on the report. There is 15 people working on it so we are really proud to have a great companies that support us without them it wouldn't be possible to put it out for free. And we probably will hit 2 million readers for this report as we are also going to publish it in China for the very first time. And yeah, it is all available on our webpage InGoldWeTrust.report You can sign up for our newsletter. So there is the In Gold We Trust report and extended and compact version. But we also have chart books that we publish twice a year in fall and in early spring, normally.
And you can find more about our company, Incrementum, which is a wealth manager and fund management company on our webpage. Incrementum.li and you can also find me on Twitter I'm quite active. I am tweeting out charts especially increments about macro but also gold of course and my handle is [email protected], and yeah. So that's it basically.
Chris Martenson: Well, fantastic. Well thank you so much for your time today and I can' t wait to see you again in person at some point.
Ronni Stoeferle: Yeah and then we'll have a beer, Chris. Thank you very much for taking the time. I really enjoyed it and hope that you and your listeners also did. Thank you very much, Chris.
Chris Martenson: Thank you and the pleasure has been all ours.