Gold Moving Toward A Reset

The comments below are an edited and abridged synopsis of an article by Rudi Fronk & Jim Anthony

Gold is the ultimate safe haven for 2 simple reasons: its total above ground supply only grows 1.4% per year, and gold is final settlement for the payment of obligations. It is universally accepted, in physical form, and doesn’t need to be translated into someone else’s currency.

Markets are not interested in safe havens right now, and gold has been languishing. When investors become more risk averse, gold will have its next big run.

A move in gold is likely to correspond to a reset of global debt. Since the financial crisis of 2008, central banks have avoided deflationary collapse by keeping interest rates low. Defaults have been sidestepped because companies can be financed at low rates no matter what the creditworthiness. The result: a huge increase in debt, much of it of low quality.

Over the last 20 years, global debt has increased from $74 trillion to $238 trillion, while the global economy has stalled. This is creating financial claims on the real economy that far exceed the increase in production of goods and services.

The driver of the next collapse will likely be financial claims against the real economy that cannot be met. The financial claims and the real economy must reconcile and achieve relative parity. Instead, they are moving farther apart.

Growing debt has not underwritten accelerated economic growth. As debt has increased, its productivity in terms of economic growth has dwindled, probably due to the depressing effect of the debt itself.

However the Fed tries to reconcile the outsized financial claims on the real economy, savers will lose. Investors will try to preserve their purchasing power by crowding into the comparatively small gold market (currently $6.5 trillion in above ground supply).

If there is a reset coming, where do you want your savings to be: in financial assets, or gold?