Gold, an “attractive insurance policy”


After 20 years, the longest war in US history is finally coming to an end (awkwardly managed). The war on opium poppy production in Afghanistan, on the other hand, looks set to escalate, at potentially high cost to taxpayers.

In case you didn’t know, Afghanistan produces a lot. The United Nations Office on Drugs and Crime (UNODC) estimates that the country is responsible for 85% of the world’s poppy supply, much of which is used to make morphine, codeine and poppy. ‘heroin.

The Taliban “officially” banned poppy cultivation in 2000, but soon realized they could not do without poppy cultivation. Poppy is “an attractive insurance policy,” according to a recent Inspector General report. It is “light, easy to transport, lucrative, and can be stored pending more favorable market or safety conditions.”

Since 2002, the United States has spent some $ 9 billion to fight Taliban drug trafficking. Nevertheless, the culture continued to intensify. Last year, the area used for opium poppy cultivation in Afghanistan increased 37% from 2019, even after U.S. airstrikes destroyed a quarter of Taliban-ruled poppy fields in 2018.

Now that the US military is about to withdraw, do you think things will get better? I suppose not. Billions more will likely have to be spent to curb the cultivation and export of poppies, the Taliban’s main source of funding.

Gold and Bitcoin have no counterparty risk

It’s yet another reminder that US taxpayers and investors need their own “attractive insurance policy” against free-wheeling government spending and currency depreciation.

For my money, gold is such an asset because it has no counterparty risk. The more money you print to cover government expenses, the more I think gold goes up in value.

The same goes for Bitcoin, which many perceive as “digital gold”. But as I told Michael Saylor during last week’s webcast, I don’t think Bitcoin should be more than 2% to 5% of your wallet right now. Crypto has incredible upside potential, but since it’s only been around since 2009, it doesn’t have gold’s centuries-old history as a store of value.

Risk is precisely the reason why Palantir Technologies decided to invest in gold. The data analytics firm, partly founded by billionaire Peter Thiel, announced last week that it has stored up to $ 50 million in gold bullion for a “future with more money. black swan events “. Additionally, Palantir, named after the all-seeing crystal balls in the Lord of the Rings– also allows customers to pay for its software in gold.

Palantir’s move “is just the beginning of what many large companies will soon be diversifying their liquidity from US dollars to gold,” the National Inflation Association (NIA) wrote in a note to subscribers.

Is the gold manipulated?

That said, Bitcoin is trending upward – today it broke above $ 50,000 for the first time since May – while gold has continued to trade in a very narrow range since the last lightning crash. two weeks ago, which saw the yellow metal dip below $ 1,700 an ounce. .

The stronger dollar bears much of the blame for gold’s woes. But something is wrong when inflation hits 5.4% yoy and real rates remain deeply negative. On the one hand, rates are lower today than they have been since 1980, the same year gold hit its highest level after adjusting for inflation.

Are investors betting that inflation will be “transient,” as Federal Reserve Chairman Jerome Powell insists?

Where is the gold handled?

If you talk to Chris Powell (not related to Jay), secretary and treasurer of the Gold Anti-Trust Action Committee (GATA), the answer to that last question is a definite yes.

In 2019, Chris told me that gold is widely manipulated through the London futures and OTC market. “The mechanisms are gold swaps and leases between central banks and investment banks, and through the sale of futures,” he said.

When I asked him where he thought gold would be without the kind of institutional manipulation he’s seen, Chris wisely replied that “the true value of gold is what our free market wants it to be” .

If gold is phased out, as Chris and others believe, with the G7 countries and central bankers continuing their modern monetary theory (MMT) experiment, the spring effect could be even larger. We could see gold at $ 2,000 at $ 2,400 an ounce.

Gold miners could be a buy

No surprise, but gold miners are also down, up 20% for the year so far. Based on the 14-day Relative Strength Index (RSI), the NYSE Arca Gold BUGS Index shows producers are currently oversold, meaning they could be a buy in anticipation of a price increase. metals.

If I invested, I would focus on royalty and streaming companies such as Franco-Nevada, Wheaton Precious Metals, and Royal Gold. As I have explained many times before, these companies offer many benefits of the gold mining industry without much risk.

Recent income is proof of this. Take Franco-Nevada. Despite the drop in gold prices, the Toronto-based company reported record second quarter sales of $ 347 million, a 78% increase from the same quarter a year earlier. Adjusted net income was $ 182 million, almost double the income from a year ago.

This sets Franco for a record year, said Paul Brink, President and CEO, adding that the company’s royalty business model “is particularly attractive during times of industry cost inflation.”

Missed last week’s webcast with Michael Saylor? Read my 10 best takeaways by by clicking here!

Disclosures: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be suitable for all investors. By clicking on the link (s) above, you will be redirected to one or more third party websites. US Global Investors does not endorse all of the information provided by this site (s) and is not responsible for its / their content.

The Relative Strength Index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to assess the conditions of overbought or oversold in the price of one or another stock. active. The NYSE Arca Gold Bugs Index is a modified, rules-based, equal-weighted equity benchmark designed to track the performance of companies involved in gold ore mining that do not hedge their production beyond 1 , 5 years old. Holdings may change daily. Holdings are reported at the end of the most recent quarter. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors as of 6/30/2021: Franco-Nevada Corp., Wheaton Precious Metals Corp., Royal Gold Inc.


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