The Current State of Gold… and How to Profit

|August 13, 2020

Alex Moschina: Hey everybody, I’m Alex Moschina, the Associate Publisher of Manward. I’m here speaking, well not here, I’m speaking remotely with our founder Andy Snyder. Hey, Andy.

Andy Snyder: Hey, good to see you.

Alex: Good to see you. There is a lot going on right now obviously in the realm of gold, and that’s what the subject is of this video. So we know that you have questions, we know that there are a lot of things to address what with gold just crossing the $2,000 threshold for the first time. So we wanted to kind of address everything in this video. Actually the idea came last week, Andy, when you and I were talking about this. We’ve gotten so many emails on the subject and I want to get into those emails and those messages.

Alex: But first I want to show you a chart. I mean, I know you know the chart, but I want to pull up a chart because I think it shows something interesting. So it shows the performance of the GLD against the S&P this year, GLD being a fund that tracks basically the price of gold. Tell me, Andy, does anything look odd about this chart to you?

Andy: Yeah. I mean the fact that the gold is outpacing this huge tech rally that we’ve had this year is amazing. I saw some stats on GLD, I think it’s the No. 2 or No. 3 most popular ETF right now as far as volume, you know I’m a big volume guy. And then the only things beating it are SPY, and ETFs attract the broad market. I mean, how appropriate is it though that we’re sitting in our home offices where I haven’t worked outside of this office for any length of time since March, how appropriate is it under these conditions, we’re talking about gold.

This is what the gold bugs have been waiting for. This is what gold as an insurance policy, I think that’s an idea that we’ll talk about a lot today. This is what it’s for, we’re printing trillions of dollars. We’re worried about the … We’ve tossed around the idea of depression another big recession, we’ve talked about the idea of a devastation. So, that’s where gold really comes in.

It’s not surprising that gold is leading the way forward here. We talked about it, not too much within Manward, but Codebreaker Profits last September, I made three recommendations and, and they’re just killing it. They’re way above the market. That was because gold was showing or the markets really were showing some signs of a turnaround.

We went back through some of our old editorial recently and just looked at the clues, getting to this and read one thing by Joey McBrennan, who wrote that we’re just looking for the match to start this fire. The coronavirus wasn’t a match, it was a blow to get things started. We had an inverted yield curve. We had a slowing economy, we had the Fed pulling interest rates lower before all of this, and now we’ve got the COVID mess in there. So it makes perfect sense that the gold is shining.

To me, you look at a company like Apple and Google and especially something like Netflix, or Tesla, even, where all this speculation is, and then you have gold… which one ultimately is going to be stronger? They’re both filled, honestly, they’re both filled with a lot of speculation, but gold has a lot more history, a lot richer history than Tesla or Apple or something like that.

Alex: Yeah, you hold gold typically as a crisis asset and we’re watching these parallel bull markets right now.

Andy: Yeah. And that’s why I’m fascinated by this. You go back in the history books and people are saying the markets are disconnected. To me what’s happening right now is it’s textbook version 2.0. We’re never going to look back at the things written in the ’50s and ’60s by Graham and Dodd and all those guys, modern money theory and portfolio theory, all of that is getting tossed out.

When you have the correlations, I’ve written about this so many times that correlations are great until you need them to be correlated or uncorrelated and then they blow up. We saw it in 2008, we saw it again, we’re seeing it right now where things that are supposed to be uncorrelated suddenly get very correlated and it blows the idea of diversification out of the water.

That’s really what I’m trying to preach to so many people is pay attention to that. The idea of the 60/40 portfolio, bonds versus stocks. So much of that has just been blown out of the water and people are wondering, why isn’t this working? Well, times have changed. The Federal Reserve is printing trillions of dollars. We spent in a month more than we spent all of World War II, fighting World War II across the globe. We spent that like this, and that’s not 1940s dollars to 2020 dollars. That’s the same dollars. So we’re just blasting through money. That money is going to show up somewhere.

It’s not all going to erasing bad debt. It’s going to stimulus. We saw the Robinhood, boom, we’ve talked about that a ton where guys get a $1,200 check in the mail. They’re still gainfully employed. Now they’re working from home and this is a video game generation. So what do they do, they take that 1200 bucks, they use their smartphone, they cash it through their app. They put in Robinhood and they go buy shares of Tesla. It’s no reason we’re seeing that speculation there in that bubble. It’s going to continue as long as we’re printing trillions and trillions of dollars. It’s going to continue and looking at gold, getting off subject there, but getting back to gold, a lot of that speculation is going into the gold markets.

Alex: Yeah. And that comparison, I don’t know if people realize or really think about how crazy that comparison is between World War II. Because we were literally fighting to preserve freedom in the world then. Now, we’re just ordering beer delivery. because we can’t go to the liquor store ourselves.

Andy: Yeah. World War II. Look at the innovations. We had tanks, aircraft artillery. We had victory gardens and that was spread over years, nuclear weapons leading to nuclear energy, just the innovations that came out of all of that spending, compared to what we have now, where, Grubhub and Netflix are the most popular stocks and stay at home stocks are booming.

I mean, it’s a crazy disconnect and the Long Short portfolio, I’m so excited to be writing about that and really sharing the ideas on that because I think it’s going to be huge. The idea that we’re going to see stocks just continue to rise and this machine is going to go out of control before it eventually blows up into something. It’s the idea that we’re long until we’re wrong.

It could blow up tomorrow. I highly doubt it. I think we’ve got tremendous momentum to keep pushing this forward. It could be another 20 years and anybody that sits on the sideline from now until then, is just going to get eaten alive by inflation and roaring stock prices and in a market that just moves beyond that. We saw that from 2009, March 2009, the low was around 6,000… 8,000 on the Dow taking all the way up to almost 30,000 at its high. So going to a 100,000 over the next five to 10 years now that we’re printing two, three, four times as much money with a whole lot more velocity and it’s happening all around the globe, that’s just huge, and it’s extremely bullish for gold.

Alex: Yeah. And Dow 100K this not too crazy prediction that seemed crazy to some folks even a few months ago is happening at a time where our economy couldn’t look scarier to most folks and-

Andy: And that’s why it’s happening.

Alex: That’s what’s really incredible about all of it. And I know that’s a question or that’s a question we’ll just have to keep addressing because folks come into the Manward world and are like, “How are you talking about Dow 100K?

Andy: I think asking that question is almost going back to the textbook ideas. If you’re asking that question, you’re still reading and thinking through as if those old textbooks were up to date and they’re not up to date. If you’re looking at the new textbooks and realizing that we now have five, six chapters at the end of it all about stimulus and quantitative easing and negative interest rates.

Those books were written when interest rates, averaged at 6%, short-term interest rates. Then they got up to 14% on the long side and now they’re dead. Interest rates are dead. Another great reason to be buying gold is the interest rate story. Negative real rates. Everybody says gold doesn’t pay any interest. Why would I buy this thing if it doesn’t do anything for me, it just sits there. I have this 20 ounce or yeah, 20 ounce, 1/20th of an ounce.

Alex: 20 ounces? What are you talking to me for? Why aren’t you out on an island somewhere?

Andy: Yeah, it’d be a little bit bigger than that. That’s 1/20th of an ounce. It just sits there. I keep it in my safe and it just sits there not doing anything. It hasn’t paid a dividend. I read about share buybacks. The myth behind that isn’t buying back those coins at a premium. It just sits there. So why would I want it? We talked about negative real rates. This thing’s guaranteed. As long as my safe is still over there, doesn’t burn down, doesn’t get stolen, it’s guaranteed to be there. So if I go buy a bond, next best thing in the old textbooks at least is the ultra safe bet is the American treasury, the U.S. Treasury. So if I go get the next best thing, that’s guaranteed, it’s paying virtually zero. Then when I add in inflation, that’s negative and that’s a really big thing.

What’s really moving gold right now is interest rates. Earlier this week, the 10-year went back above 0.6 from down about 0.55 and that pulled gold prices down. The more we see those fluctuations and really it’s the inflation expectations that are worrisome. What the gold bugs are really cluing in on. I was talking to a homebuilder this week and they get so much of their lumber from Brazil and South America, and a lot of the countries really ravaged by COVID-19. He was saying that lumber prices are up three times. I haven’t found that. I found that so far this year, you look at the indexes, the official lumber indexes lumber prices are up 60%.

That’s still a big move, but you look, cocoa in the last month is up 17%, coffee’s up 14%, cotton 10% sugar, almost 20%. So we’re starting to see that inflation and the worst that happens, the more that becomes reality. So right now we can say that’s just a blip based on COVID-19, but we know that there’s a lot of new money out there and inflation is too much money chasing too few goods. That’s what we’re seeing.

The more money we print, we’re not making more goods. In many ways we have tariffs with China. A lot of the lumber fights are because of tariffs with Canada. The COVID-19 thing, if this carries on for another year or two and we don’t see supply chains come back, those prices to just keep going. That’s inflation. That’s what gold is for, the historic insurance side of gold.

So really, I see gold as two different angles right now, insurance against the stuff that is keeping us at home right now, that’s causing inflation and speculation. The more we look into the future, and then the more of this money flows into the market… When gold went over $2,000 and we see claims for 4,000, 5,000, 10,000, whatever. That’s just pure speculation based on what could happen, but there’s a lot of money to be made on that speculation.

So when I look at gold right now, I don’t mind paying a bit of a premium for the insurance side of it. That’s why we buy life insurance. That’s why we buy car insurance. We pay a premium, that’s what they call it. We pay a premium on that and we hope to never use it. So I don’t mind doing that for gold. I’m hoping I never have to use it and keeping that as a small percentage. Traditionally, that’s been 5% of your portfolio should be kind of in that insurance aspect.

Now, recently I wrote about going to 10%. So we’re still having that 5% insurance. Now that extra 5% is the speculative side of gold you showed that chart that gold is beating the S&P. It’s keeping up with the tech sector, which is crazy, but that’s the speculative side. So there’s some big, big money to be made there.

Alex: That’s what’s especially interesting right now because, gold, people saying, why would I invest in gold, it’s a speculation? Why would you invest in Facebook? It’s a speculation. How do you know that people are going to be using Facebook in a year? Especially now that it’s becoming increasingly tied up into politics. So I mean, tech in general is a speculation. So gold really is following along those same lines, at least on that end.

But to your point, we’ve got now these parallel bull markets in gold and stocks coming up, and we have a ton of Manward readers who are watching this and are wondering, okay, so what do I do, Andy? Where do I put my money? Do I buy gold or do I buy stocks? What is it?

Andy: Yes. You buy both. So again, it’s that dual-pronged approach. If you’re looking for insurance, that’s where the gold coins, and I have these silver coins. So four of these silver, these are one ounce coins are worth the same as this guy. Again, they just sit back in the safe and do their thing and they’re insurance policy. And a lot of folks ask, if the system collapses, will we be shaving half of this silver coin and buying a loaf of bread with it? No, I doubt that, but this thing could still be very useful. I could trade it for something else. It’s not like it’s going to be the currency du jour, but if we get into a bartering system, again, this is way out there and not likely, but as a store of value, that’s where they really shine.

For just buying something that you know you can put away and not worry about that’s where buying physical gold, physical, silver, any of the precious metals really are fine. Just buy them, put them away. You are going to pay a bit of a premium to get them, especially right now. So that’s what you have to weigh. You don’t want to just go cash in and buy everything. Gold is something that you want to try to buy when it’s cheap. I got these things several years ago, and I know I got the gold coins at a great discount. You buy them when you can. You don’t buy insurance, health insurance, when you’re having a heart attack, you buy it when you’re healthy. It’s the same idea. So, if your interest in getting it today by a little bit by it on dips and slowly get into it.

Then the other side ETFs, like we mentioned that a GLD ETF is super popular. That’s when you can get in without paying a big premium. Again, it’s a good store value, but it’s much more of a traditional investment. If the world goes to hell in a hand basket, get cash out your GLD ETF, isn’t going to be easy. They’re not going to send you gold to your door via UPS. You’re going to have bigger issues. So there is much more risk. It’s not as much of an insurance policy. It’s more of an investment, a speculative investment in gold itself. There’s ways, you can play gold miners. There’s gold miner ETFs. They’re a little further out on the speculation scale because they introduced leverage and business strategy and royalties and that sort of thing. So they’re really popular.

Then on days with big swings, now, these are not longterm investments. The 2X gold miner ETF, there’s bullish to bearish versions and they’re just a leveraged version of the underlying ETF to place the gold miners 2X leverage. There’s higher leverage, but my point is both sides, bulls and bears are down for the year, just because of the way the derivatives market works, the way those contracts roll over.

So those are good short term investments. On Tuesday when we saw a big dip in gold prices, the bull ETF was, the 2X Bull ETF was down about 10% at one point where the bear ETF, which plays the downside was up 10%. Long term, they’re both going to go down, but that’s an easy way to play short term moves is through those leverage ETFs.

Alex: Yeah. It’s, it’s been a joy to watch everything fly off the rails and get pieced back together. I’m sure we will be having plenty to discuss next month, months after that, next year and God willing five, 10 years from now. In the meantime, we’ll just say, we’ll see you next time, and thank you for tuning in. Bye bye.

Andy Snyder: Thank you.