The super powers in the West are doing what they can to provoke Russia and
indirectly China and Iran into a world war. Most people alive today were not
adults when WWII started and therefore did not follow the lead up to the war.
But today the whole world can watch how the West has chosen to attack a
country which has no major significance geopolitically and does not threaten
any other country. Still the West clearly knows that bombing of Syria can
start a global conflict with potentially horrendous consequences.
There is no intelligent reporting of these events in the Western media.
Whatever propaganda the media is fed, they just publish it without any
analysis or investigation. And the US with its allies do not wait for any
independent verification of alleged use of chemical weapons. That a
world war could start on such fickle reasoning is absolutely frightening.
UK & US starts a war to divert attention from domestic woes
Syria is of course only an excuse. As a country it would be of no
consequence for the safety of the rest of the world if it was left alone. Most
wars are started by nations which are under economic pressure domestically.
The US and UK fit that picture perfectly.
With debts growing exponentially and massive budget and trade deficits,
both these countries are on the way to bankruptcy. Added to that, their
leaders are under major pressure at home. Trump has “Deep State” and
impeachment pressures and Theresa May suffers from weak leadership in a
minority government with an unresolved Brexit. This is the perfect
background for pretending that there is a major global conflict and diverting
the attention to the international scene.
It is only Russia’s restraint which has so far stopped this conflict from
turning into something very serious for the world. We must remember that Russia
only has two military bases outside of their country whilst the US has around
1,000. Also, according to independent experts, Russia’s military
might is far superior to that of the US. But in the case of a nuclear war,
both countries have more than enough power to destroy the world. So we must
hope and pray that it won’t come to that.
Protect against financial risks
Virtually nobody can protect against a global nuclear conflict. But we can
protect against local conflicts and we can protect against a financial
crisis. In 2001 we decided as a company that protection against a potential
financial crisis was an absolute necessity. Thus we took the decision to
invest in physical gold for our clients and ourselves. At the time, I regarded
the continuous deficit spending, credit growth and the derivative time bomb
as major risks.
The best time to make a strategic and long-term investment
decision is when the asset you intend to buy is unloved and undervalued.
That was certainly the case with gold at the time. Gold had been going down
for 19 years from $850 in 1980 to a low of $250 in 1999. Central banks around
the world had been selling a major part of their gold. The UK and Switzerland
comes to mind as two countries selling the majority of their gold around the
lows – a very good buying signal.
As we were forecasting a potential financial crisis at some point in the
future, we recommended, in early 2002 to our investors to buy gold
for up to 50% of their financial assets. Gold was then $300. At the
time this was quite a radical proposition, especially since gold was then a
barbarous relic that was totally out of fashion. The advantage with
buying an undervalued asset that is not on the front pages, is that the risk
is so much smaller than when the trade becomes crowded.
Gold ready for the next strong move up
The timing was quite fortunate. As the chart below shows, gold rose every
year from $300 in 2002 to $1,920 in 2011. In 2013 a bigger correction started
which ended in 2015. Since then gold has only moved up slowly just like it
did in 1999-2001.
In my opinion, gold is now in the process of breaking out from the
5 year consolidation. We need to get proper confirmation with a move
to $1,400 but the position of the quarterly chart confirmed by the rising
MACD indicator is a strong sign that the next move in gold to new highs is
imminent.
The chart below also shows that gold is in a strong uptrend and that the
correction in the last 5 years is minor and finishing.
Physical gold is held for wealth preservation not for speculation
We must remember that gold is not bought or held as a conventional
investment for capital appreciation purposes. No, gold has a much more
important function than that. Our company invested in gold in 2002 because we
identified the risks in the financial system as very high. But today the
risks are substantially higher and the reason for buying physical gold even
more compelling.
WE BUY PHYSICAL GOLD BECAUSE:
- It has been money for 5,000 years
- It is the only money which has survived
throughout history.
- It guarantees stable purchasing power over time.
- It is scarce – It cannot be printed. (Unlimited
paper gold creation will soon collapse.)
- It is durable – All the gold ever produced still
exists.
- It is nobody else’s liability – Thus no
counterparty risk.
- It is held and traded outside a fragile
financial system – Thus gives independence.
- It is the ultimate wealth preservation asset and
insurance against a rotten world economy.
Gold Bug?
It
might appear that I am a gold bug but that is far from the case. We bought
gold in 2002 to protect against the colossal risks we saw in the world
economy and financial system. We are not in love with gold but
believe that it is the best protection you can buy and own today. At
some point gold will be overloved and overvalued. Then we will recommend to
our investors to sell some of their gold or swap it against other assets
which are unloved and undervalued. But I expect that time to be quite a few
years away.
Inflation adjusted gold should be $16,450 and Silver $761
Today at $1,350, gold is as unloved and undervalued as it was when
we bought in 2002 at $300. On an real inflation adjusted basis gold at $1,350
today is at the same level as in 2002. (see chart below) and
also at a 300 year low. The 1980 gold peak at $850, adjusted for inflation,
would be $16,450 in today’s money – 12x higher than currently. That price is
more in line with our own targets.
Silver is even more undervalued. On the same inflation adjusted
basis, silver is also at a 300 year low. At $17.20 today, inflation adjusted
silver is the same as in 2000 at around $4. And the 1980 silver high of $50
would today be $761 – a 44x increase from here.
Gold at $16,450 and silver at $761, makes the gold-silver ratio 22, which
is in line with historical levels. But since the ratio is just below 79
today, it means that silver will move almost 4x as fast as gold.
Gold and Silver are at historical lows – inflation adjusted
Bearing in mind that credit creation has been exponential in this century
with global debt having doubled to $250 trillion since 2006, gold has in no
way reflected this money printing and total destruction of paper money. So
this is still to come. Once the intervention in the paper market
fails, which could happen at any time, the moves in gold and silver will be
explosive.
The time to own physical gold and silver is today and not when
they move to new highs. Both metals are at inflation adjusted historical lows
and the downside risk is minimal. Also, they probably are the most
undervalued of all assets currently.
With geopolitical, economic and financial risks at an extreme
high, please don’t ignore these risks and don’t ignore history. And with the
precious metals at extreme lows, it would be very unwise not to own
substantial protection in the form of physical gold and silver.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
GoldSwitzerland.com
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