Special Guest: Ronald-Peter Stoeferle, Incrementum Liechtenstein
Prior he worked for Raiffeisen Zentralbank (RZB) in the field of Fixed
Income/Credit Investments and then later on joined Erste Group Bank, covering
International Equities, especially Asia. In 2006 he began writing reports on
gold and gained media attention when he expected the price of gold to rise to
USD 2,300/ounce when the current price was only at USD 500.His six benchmark
reports called "In GOLD we TRUST" drew international coverage on
CNBC, Bloomberg, the Wall Street Journal, Economist and the Financial Times.
He was awarded "2nd most accurate gold analyst" by Bloomberg in
2011. He also writes reports on crude oil. Mr. Stoeferle is managing two gold
mining-baskets and one basket for silver mining-equities. He studied business
administration and finance at the Vienna University of Economics and the University
of Illinois at Urbana-Champaign. Mr. Stoeferle is also a Chartered Market
Technician (CMT) and a Certified Financial Technician (CFTe).
41 Minute VIDEO with Slides
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Today, the 2015 edition of the gold report "In Gold We Trust"
was launched. It is the 9th edition (read the 2013
and 2014
edition). With a global reach of some 1 million readers, it is probably the
most read gold report worldwide. The In Gold We Trust 2015 is written by
Ronald Stoeferle. He is the managing partner of a global fund at Incrementum AG in Liechtenstein,
focused on the principles of the Austrian school of Economics.
2015 Edition: "In Gold We Trust"
The gold price has stabilized in 2014, after its collapse in April and
June of 2013. Investors' interest in the yellow metal is lost. Hence, market
sentiment vis-à-vis gold is standing at a multi-year low, maybe even a
multi-decade low. History learns that extreme underperformance usually lasts
for one year. If history is any guide, than there should be a recovery in the
gold price in the foreseeable future. Even with the severe underperformance
since 2013, gold is up approximately 9% per year since it started to trade
freely in 1971. As seen on the next chart, depending on the currency in which
it trades, the average yearly performance is excellent for investors with a
long term horizon. In other words, gold does what is always has done
throughout history: preserve value and purchasing power.
Preservation of wealth is the primary reason why one should hold gold
nowadays. Monetary policies of central banks are extremely unusual. The U.S.
Fed could be talking about "normalization," but with 7 years at
zero percent interest rates we are nowhere near "normal"
conditions. The most extreme monetary conditions, today, are being seen in
Japan. It is really no coincidence that the gold price in Yen is near its all
time highs. The gold price in Yen is simply reacting on the extreme expansion
of the monetary base by the Japanese central bank. As the next chart shows,
the balance sheet of the Bank Of Japan (BOJ) is approximately 65% of the
country's GDP. In other words, the assets that the BOJ is holding nears 2/3
of the total economic output of the country. When compared to other regions,
it is clear that is a monstrous amount. It seems that Japan is near its
endgame.
One of the "reasons" gold has gotten so little attention in the
last two years is that investors have been focused on stock markets around
the world. The U.S. stock market has seen a huge rally since October of 2012,
European stocks catapulted higher when the European version of QE was
announced earlier this year, Japan keeps on making multi-year highs in the
wake of an ever expanding monetary policy. Meantime, however, stocks are not
cheap anymore. On a historic basis, when expressed in a price/earnings ratio
according to the Shiller method, the stock market in the U.S. sits at
relatively high levels (although no extremes). Although it is not given that
the stock market is about to go south, there always is a possibility that the
top is set in which case gold should see positive returns. As the next chart
shows, during periods of the worst performance of the S&P 500, stocks and
commodities have lost significant value while gold remained steady.
A correction in the stock market is certainly in the cards. Why? Because
traditionally the gold/silver ratio is mostly negatively correlated with the
S&P 500. In other words, as the gold/silver ratio goes down which means
there is a disinflationary environment, stocks come down as well. Over the
last 25 years, that correlation has held very well, but started to diverge
strongly 3 years ago.
Gold is underperforming in a disinflationary environment. That has been
one of the key observations in the last In Gold We Trust reports. There was
enough evidence in the datapoints so far, but the most up-to-date chart says
it all (see below). While the real rates were standing at -4% in 2011, they
have gone up steadily since then, and are again in positive territory this
year. The gold price has moved in the opposite direction in that same time
period. The In Gold We Trust Report 2015 focuses, among many other things, on
the correlation between the gold price and inflation expectations. Gold is an
inflation sensitive asset. The U.S. 10-Year real yields provide an indication
of inflation expectations. As readers can see, a strong divergence is in
place since 2013, arguing for a strong revaluation of the gold price as
inflation expectations are in an uptrend since then.
Suppose, however, that inflation expectations will change their trend …
would that be bad for precious metals? The answer to that question is to be
found in the last chart. During deflationary periods, like the ones starting
in 1814 or 1864, the Great Depression of the 30ies or the financial crisis of
2008, gold did remarkably well. It is during those periods of "financial
stress" that gold shows its real value, i.e. preserve wealth and provide
protection against other assets.
The themes in this years 2015 "In Gold Trust Report" are the
real value of gold as a financial asset and the end of gold's
underperformance.
