Global Investors Demand Gold as Protection against Financial Repression
The comments below are an edited and abridged synopsis of an article by Daniel Lacalle
Lacalle discusses the disconnect between markets and economic reality (which is huge, based on 2020 being a lost year… investors need to think of 2021 as a recovery year… estimates for 2021 are excessively optimistic, and the V-shaped recovery is more than elusive); the reaction to liquidity injections (markets have been aggressive to the liquidity injections coming from the Fed and European central banks… the level of risk-taking is too high considering the challenges on the economic growth recovery, but more importantly because it’s driven by the most cyclical sectors, the recovery in earnings cash flow and balance sheets); gold miners/ BANG stocks (if you want to invest in the fundamentals of precious metals, the best way is through the commodity itself, not through equities, because cost of capital is also rising and there are financing challenges); the Covid-19 vaccine and the implications for gold (there has never been a vaccine for a coronavirus; when 18 previous types of viruses have never seen a vaccine, you cannot expect it to happen, or at least happen as quickly, as markets would want).
Gold has proven in 2019 that, in an environment in which markets remain positive and remain attracted to a certain level of expectation of economic growth, gold and the dollar can—and do—rise in tandem.