I received the following from a subscriber yesterday;
“Following the late, great Rob Wenzel’s advice, my portfolio is heavily weighted toward SOG (silver, oil, gold) and it has been for years, missing quite an upside in the S&P.
Gold continues to stumble downward. This makes no sense to me. The inflation has hit and hit hard. WHEN will gold start shooting up? Not only is my portfolio worth a lot less as gold prices slip, it’s worth a lot, lot less given inflation. If I had a crystal ball I would have stayed in the market (SPY) for all these years, and maybe now switch it to SOG.
So when???”
I can totally relate to this. I had been a follower of Robert Wenzel for a long time. He first hit my radar in early 2008 when I had first learned about Dr. Ron Paul. I was hungry for more information on the liberty movement and found Robert was one of the few that would cover his ideas. By Thanksgiving 2016, I had begun subscribing to his ‘Daily Alert’ and following his investment advice.
However, I know from reading the alert that Robert was pressed on many occasions about when certain events would take place. He was always cautious about setting a specific date or he would give broad time windows. The big reason for this is that market euphoria can go on much longer than most realize. A great example of this is Michael Burry in 2005.
Dr. Burry did the leg-work and found gaping holes in the mortgage-backed securities that were being bundled and sold to investors. They were rated in far excess of what should have been allowed. They were vulnerable to downside risk that was not being taken into account. He saw an opportunity and began shorting these mortgage-backed securities… in 2005. The collapse in these housing related assets did not begin until the end of 2007. Dr. Burry had to hold onto his shorts for over 2 years until they began to turn around. Even then, there were never priced fairly for him until mid-2008. Dr. Burry had a long-term view on these and stuck to his investing thesis because the ruling reason had not changed, these mortgage-backed securities were overvalued and susceptible to downside risk.
In a similar vein, Robert Wenzel saw that the Fed was trapping itself. To solve the 2007-2008 financial crisis, the Fed did what it always does, it prints money to paper over the recession. Robert saw that they were creating money excessively and found that the best way to capitalize on the inevitable dollar devaluation was to hold gold and silver. When 2020 hit and the Fed juiced the money supply, Robert was really pounding the table that a giant wave of inflation was preparing to hit us. If I remember correctly, he announced that he was adding to his physical gold stash sometime early in 2021 (If someone knows the specific date, I would greatly appreciate it if you could share it in the comments).
The inflationary wave has arrived, so why haven’t we seen a big surge in gold yet? Didn’t Robert expect gold to be going up “$50-$100” a day? These are frustrating questions for sure. It boils down to ‘how much longer do we have to wait to see our investment pay off?’ This is a question time immemorial. It has been asked by investors for as long as men have traded assets, built businesses, and pioneered new products. The gold and silver investment thesis will play out to our advantage when other investors realize that gold and silver is what they want to own and they want to own it at any price they can get it.
For Dr. Burry, this took over two years. Value investors have been waiting their turn to surpass growth stocks for over a decade. My expectation is that we won’t have to wait that long to see our thesis materialize. The reason is that we are starting to see some of the key pieces of this puzzle come together.
The big pieces are the CPI, PPI, and PCE. These are the major inflation indicators for investors. We’ve been keeping a close eye on them here at the Bearing. I’ve written about them many times and they seem to continue to rise with every new data release.
These pieces fit together in a special way. The PPI or producer price index, represents the costs businesses have to pay in order to get goods on their shelves for consumers. The CPI and PCE represent what consumers are paying for those goods. While the CPI and PCE are fairly close, PPI is roughly double the CPI. There are two reasons for this. First, businesses are hesitant to pass on higher costs. They worry that consumers will balk and find a cheaper alternative. Second, businesses are importing goods from overseas to fill their shelves and these costs do not show up in the PPI data. The best way to see them is in import and export statistics.
Imports have been rising because goods can be made cheaper overseas than in the US. This has artificially suppressed the CPI and PCE figures. At the same time, exports have been declining. This is because the increase in the PPI has made US goods very expensive overseas. In time this imbalance between imports and exports will be reflected as a decline in GDP and then, in the dollar. This is when things will really get spicy. Dollar strength has been the key lynch-pin to preventing a surge higher in gold prices. As the US economy consumes more and produces less, the dollar will take a beating.
In addition, the Fed and the mainstream financial press believe that the inflation we are seeing is due to shortages and bottlenecks in the economy. What they don’t realize is that these bottlenecks have actually hampered inflation. In time, these bottlenecks will alleviate and we will see inflation stay strong. I expect that this will be the time that investors will realize that the Fed has duped them and plow into gold and silver to save their purchasing power.
In summary, when will we see gold prices rise? When investors realize the Fed tricked them and they want to preserve their purchasing power. When will that happen? When a decline in the GDP takes place due to the import/export imbalance which will weaken the dollar. When can we expect that to happen? When the shortages and bottlenecks in the economy start to relieve themselves. At that point in time, everyone will be on gold like a fat kid on cake. Its best to get in now and look at the big picture.
Gold has been building a floor for a year. The next move will be higher.