“preview chartbook” of the in gold we trust report 2019 · the last couple of years now offers...
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“Preview-Chartbook” of the
In Gold We Trust Report 2019
Ronald-Peter Stoeferle
Mark J. Valek
March, 2019
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2In Our Partners We Trust
Learn More About The Premium Partners of the IGWT
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3Executive Summary of the In Gold We Trust Chartbook
1. A Turn of the Tide in Monetary Policy
• Events in Q4 clearly showed that a "monetary U-turn" is currently on its way, which means that further large-scale experiments
like MMT, GDP targeting and negative interest rates might be expected in the course of the next severe downturn.
• We might already be in a prerecession phase. Crisis-proof assets will probably be in greater demand again in the coming months.
2. A Turn of the Tide in the Global Monetary Architecture
• Renunciation of the US-centric monetary order ("de-dollarization") is now making headlines.
• Geopolitical tensions are increasing: Trade wars -> currency wars
3. Gold‘s Status Quo
• 2019 ytd, gold is up in almost every major currency. In many currencies (AUD, CAD) gold trades at or close to new all-time
highs!
• Despite the rally that started in August of last year, sentiment is still bearish.
4. Gold Stocks
• Mining stocks are in the beginning of a new bull market. Creative destruction has taken place, and leverage on a rising gold
price is higher than ever. The mega-merger between Barrick and Randgold might have marked the bottom.
• Gold & silver mining stocks are probably one of the most hated asset classes these days. We are convinced that the capitulation selling of
the last couple of years now offers investors a very skewed risk/reward-profile.
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1. The monetary tide has turned.The question is, for how long?
“What’s past is prologue.”
Shakespeare
5
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Monetary Policy Tide Turn:From QE to QT
• Last year we pointed out that moving from QE to QT
poses severe risks. Central banks significantly reduced
their balance sheet expansion. 2019 was supposed to be the
year when central banks withdrew liquidity from financial
markets for the first time since the GFC.
• Sure enough, QT and the proclaimed rate hikes made the
markets test the Fed.
“We’ve never had QE like this before; we’ve never had
unwinding like this before…. When the unwind happens of
size and substance, it could be a little more disruptive than
people think. We act like we know exactly how it’s going to
happen, and we don’t.’’
Jamie Dimon Sources: Bloomberg, Incrementum AG
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2003 2005 2007 2009 2011 2013 2015 2017 2019
US
D b
n.
SNB FED PBOC BoJ ECB Total
QE turns
to QT
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6Rising US Recession Probability
• Based on the probability of a US recession predicted by
treasury spreads (twelve months ahead), we are currently
confronted with a 25 percent chance of a recession
within the next 12 months.
• Since this level has been reached only four times in the last
30 years (3x in a recession), we assume that we might
already be in a prerecession phase. Consequently,
crisis-proof assets will probably be in greater
demand again in the coming months.
Sources: Federal Reserve NY, Incrementum AG
0.0
0.1
0.2
0.3
0.4
0.5
1990 1995 2000 2005 2010 2015 2020
Recession Recession probability (12 months ahead)
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7Rising Interest Rates and US Recessions
• Recession risks are significantly higher than the market
discounts.
• In history, the vast majority of rate hike cycles have led to a
recession. Moreover, every financial crisis was preceded by
rate hikes.
• The historical evidence is overwhelming: In the past 100
years, 16 out of 19 rate hike cycles were followed by
recessions.
“The case for a recession is pretty clear and requires looking
ahead and not back.”
Dave RosenbergSources: Federal Reserve St. Louis, Incrementum AG
0
2
4
6
8
10
12
14
16
18
20
1914 1920 1926 1932 1938 1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016
Fed
Fu
nd
s R
ate
(%
)
Recession Fed Funds Rate
1
2
34
5
6 7
89
10
11
12 13
14
15
16
17?
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8Three Consecutive Years of Widening Budget Deficits without Recession
• Consecutive deficit expansions in times of continuing
economic growth are not common.
• How will the US government react? Will it reduce spending,
increase tax revenues, or continue to expand deficits?
“Now, Keynesian seems to mean you stimulate all the time.”
Jeff Gundlach
Sources: Gavekal, Federal Reserve St. Louis, Incrementum AG
-12
-10
-8
-6
-4
-2
0
2
1965 1975 1985 1995 2005 2015
Recession US budget balance in % of GDP
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9Fed & ECB vs. BoJ Balance Sheet in % of GDP (BoJ leading 10y)
• The balance sheet of the Federal Reserve measured in % of
US GDP is slowly decreasing due to QT.
• We could observe a similar process in Japan some years ago,
before the monetary expansion took off and the balance
sheet of the BoJ increased tremendously, actually reaching
the GDP level of Japan!
• From our point of view it is unavoidable that sooner or later
the Federal Reserve will implement another round of QE.
• Further large-scale experiments like MMT, GDP
targeting and negative interest rates might be
expected in the course of the next severe downturn. Sources: Bloomberg, Incrementum AG
0%
20%
40%
60%
80%
100%
120%
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
BoJ Fed ECB
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10Balance Sheet Expansion: A Picture Says More Than a Thousand Words
Sources: Bloomberg, Incrementum AG
in USD bn. Q2, 2007 Q4, 2018 % Increase
SNB 90 813 807%
BoJ 812 4933 508%
Fed 870 4076 369%
ECB 1636 5287 223%
PBoC 1946 5543 185%
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11Volatility Index vs. Inverted US Yield Curve
• The chart at right illustrates the synchronized path of the
volatility of equity markets and the slope of the US yield
curve. From this perspective, volatility should follow the
yield curve and rise in the coming months.
• The yield curve has regularly inverted before recessions.
Currently, we are not far from an inversion in the 10y/2y.
However, it seems that too many pundits focus
solely on the 10y/2y, especially as other segments of
the curve have already inverted.
“Historically, the inversion of the yield curve has been a good
sign of economic downturns, but this time may be wrong.”
Ben Bernanke, July 17, 2018
Sources: Federal Reserve St. Louis, Incrementum AG
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.00
10
20
30
40
50
60
70
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
VIX US T10-2Y (inverted)
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12US Government Debt and Annual Interest Payments
• Due to highly procyclical fiscal largesse, US government
debt outstanding continues to rise rapidly.
• Interest rate service reached a new record high of USD
545bn in 2018 and will continue to rise in the coming years.
“The U.S. is beginning to sport a debt-to-GDP ratio worthy of
any banana republic. Therefore, we believe that exposure to
gold is both timely and potentially rewarding.”
John Hathaway
Sources: Federal Reserve St. Louis, Incrementum AG
200
250
300
350
400
450
500
550
0
5,000
10,000
15,000
20,000
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Inte
rest
Exp
en
dit
ure
s i
n U
SD
bn
.
To
tal P
ub
lic D
eb
t in
US
D b
n.
Total Public Debt Interest Expenditures
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13US Government Debt and Interest Payments in % of Debt
• The exponential debt explosion since the 1970s made
interest payments in % of debt decrease, although interest
payments have never been higher!
• Gradually rising interest rates have made borrowing more
expensive, even without additional debt.
• One thing is certain in our opinion: In view of existing debt
levels we are unlikely to see strongly rising or clearly
positive real interest rates in the coming years. Central
banks are caught in the interest-rate trap.
Sources: Federal Reserve St. Louis, Incrementum AG
0%
2%
4%
6%
8%
10%
12%
14%
0
5,000
10,000
15,000
20,000
25,000
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
US
D b
n.
Total Public Debt Interest Payments in % of Debt
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14US Deficit Projections
• Government debt has more than doubled to USD 21,000bn
in the past decade and is now expected to rise to USD
33,700bn by 2029.
• An additional budget deficit of USD 900bn is expected for
the fiscal years 2018-19 and 2019-20.
• The CBO expects a deficit of USD 13,324bn for the period
2018 to 2029. However, these numbers are based on the
highly unrealistic assumption that there will be no recession
before 2029 (!).
Sources: CBO, Federal Reserve St. Louis, Incrementum AG
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
US
D t
n.
Deficit projection without recession Deficit projection with recession
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15
Due to the Enormous Debt Pile, High Positive Real Rates Seem Implausible.Negative and Falling Interest Rates Boost the Gold Price.
• Real interest rates – their direction and momentum – are
one of the most important drivers for gold!
• There are two time periods that were shaped by
predominantly negative real interest rates (blue shading at
right): the 1970s and the period since 2001. Both phases
clearly represented a positive environment for the gold
price.
• One can also discern that the trend of real interest
rates is extremely important for the gold price.
Sources: Federal Reserve St. Louis, Incrementum AG
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Real
Fed
era
l F
un
ds R
ate
Go
ld
Real Federal Funds Rate Gold
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16Global Asset Class Sizes
• Real estate comprises over 50% of the value of all global
assets, including equities, bonds, and gold (2%).
• Obviously, QE and low interest rates have suppressed real
estate yields and fuelled asset price appreciation globally.
• Real estate is the preeminent asset class and the one that is
most impacted by global monetary conditions (interest
rates) and investment activity.
Sources: PwC, Savills, CIA World Factbook, Worldbank, Goldhub, Incrementum AG
5.08.0
34.0
79.0
86.0
217.0
In USD tn.
Private Funds AUM
Gold
Physical Money
Stock Markets
All Money
All Global Real Estate
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2. Turn of the Tide in the Global MonetaryArchitecture
“The Chinese want to de-dollarize. But they want also to keep their capital account
closed. There is a very astute solution the Chinese have found: China says ‘If you have too many CNY because you have been selling a lot of oil to China, you can keep your CNY
in your reserves, fine with us. Or we can give you gold instead of CNY.”
Charles Gave
18
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Monetary Architecture:The Tide Turns
• The global economic order was and is dominated by
the US.
• On the currency front, the global balance of power is
embodied in the long-standing US dollar-centric global
currency architecture, which critical observers have warily
referred to as an “exorbitant privilege”.
• But: Faith in the US dollar-centric order is not carved in
stone. One measure of international trust is the proportion
of global currency reserves held in US dollars.
Sources: IMF, World Gold Council, Incrementum AG
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1964 1974 1984 1994 2004 2014
USD JPY GBP DEM FRF EUR Other currencies Gold
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19
• In recent years the “axis of gold”* countries have questioned
the US-dominated global economic order. Their distrust is
reflected in the steady expansion of their gold reserves.
• China, Russia, and Turkey in particular have boosted their
central bank gold holdings substantially since 2007, by
209% (China), 307% (Russia), and 118% (Turkey). India has
boosted by 68%.
• The increase in gold reserves should be seen as strong
evidence of growing distrust in the dominance of the US
dollar and the global monetary and credit system associated
with it.
Change in Gold Reserves Held by Emerging Countries
Sources: World Gold Council, Incrementum AG* A term famously coined by Jim Rickards
600
520
116
358
1,853
2,113
254
600
0
500
1,000
1,500
2,000
2,500
China Russia Turkey India
To
ns o
f G
old
Q4 2008 Q4 2018
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Sources: Goldhub, US Treasury Department, Incrementum AG
0
200
400
600
800
1,000
1,200
1,400
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2002 2004 2006 2008 2010 2012 2014 2016 2018
Gold reserves US Treasury Holdings
0
20
40
60
80
100
120
140
160
180
200
0
500
1,000
1,500
2,000
2,500
2002 2004 2006 2008 2010 2012 2014 2016 2018
Gold reserves US Treasury Holdings
Gold Reserves and US Treasury Holdings of China and Russia
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21Gold Reserves: USA, Euro Area, Russia, China (Q4 2018)
• When the gold exchange standard was abolished in 1971, the
US left a back door open: 8,000 tons of gold, which could be
used as seed capital for a new system.
“If it’s not money, what does the US have 8,000 tons? Why
does the IMF have 3,000 tons? Why has Russia tripled its
gold reserves in the last 10 years? Why is China buying every
piece of gold that’s not nailed down at the largest mining
production in the world, and zero exports.”
Jim Rickards
“Gold: The Story of Man’s 6000-Year Obsession”
Sources: World Gold Council, Incrementum AG
8,133
10,778
2,113 1,853
0
2,000
4,000
6,000
8,000
10,000
12,000
United States Euro Area (incl. ECB) Russia China
To
ns o
f G
old
Gold reserves
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22Russian Gold Reserves
• While official gold reserves initially remained by and large
constant after the fall of the Soviet Union and until 2006,
they have been in a steady uptrend since then. In 2018
alone, Russia’s gold reserves have risen by 275 tons,
to 2,113 tons.
• The accumulation of reserves has accelerated significantly
since the beginning of the Ukraine crisis in 2014, in the
wake of which Western countries imposed economic and
financial sanctions on Russia.
• Currently, the monetary base of the Russian ruble
has by far the highest gold coverage ratio, at almost
55%.
Sources: Bloomberg, World Gold Council, Incrementum AG
0
500
1,000
1,500
2,000
2,500
To
ns o
f G
old
Russian Gold Reserves
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23Annual Inflation Rate of Gold
• The growth of world gold production over the previous year
has remained relatively stable, with an average of 1.6%
growth since 1900.
• Gold provides protection from negative interest rates and
fiat demonetization. Importantly in this sense, gold has a
stock-to-flow ratio of approximately 64 years.
Sources: US Geological Survey, Goldhub, Incrementum AG
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Gold annual inflation rate Average
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24Monetary Expansion Decouples from Annual World Gold Production
• The gap between monetary expansion and annual world
gold production increased further in recent years.
• Since 1900, the monetary aggregate M2 has risen almost
180x faster than annual world gold production!
“It's all about relative supply curves – the supply curve for
bullion is far more inelastic than is the case for paper money.
It really is that simple.“
Dave Rosenberg
Sources:, US Geological Survey, Bloomberg, Incrementum AG
10
100
1,000
10,000
100,000
1,000,000
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
1900 =
100
M2 Annual world gold production
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25Value of Annual World Gold Production vs. the Gold Price
Sources: US Geological Survey, Federal Reserve St. Louis, Incrementum AG
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
20
40
60
80
100
120
140
160
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Go
ld p
rice (
US
D)
Valu
e o
f an
nu
al
wo
rld
go
ld p
rod
ucti
on
(U
SD
bn
)
Value of annual world gold production Gold
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3. Gold's Status Quo
“Gold’s 'perfect storm' investment thesis argues that gold is at the beginning of a
multiyear bull market with 'a few hundred dollars of downside and a few thousand
dollars of upside.' The framework is based on three phases: testing the limits of monetary policy, testing the limits of credit markets, and testing the limits of fiat currencies.”
Diego Parilla
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27Gold Performance in Various Currencies
• The price of gold is up in most currencies over the year so
far.
• 2018 was clearly positive for gold across many major global currencies, with the exception of USD, JPY, and CHF.
• In many currencies, such as AUD and CAD, gold is trading at or close to all-time highs!
• The average annual performance from 2001 to 2019 has been +9.1%. During this period gold has outperformed practically every other asset class, and in particular every currency, despite intermittent, sometimes substantial corrections.
Sources: www.goldprice.org, Incrementum AG
EUR USD GBP AUD CAD CNY JPY CHF INR Average
2001 8.1% 2.5% 5.4% 11.3% 8.8% 2.5% 17.4% 5.0% 5.8% 7.4%
2002 5.9% 24.7% 12.7% 13.5% 23.7% 24.8% 13.0% 3.9% 24.0% 16.2%
2003 -0.5% 19.6% 7.9% -10.5% -2.2% 19.5% 7.9% 7.0% 13.5% 6.9%
2004 -2.7% 5.3% -2.3% 1.8% -1.9% 5.3% 0.7% -3.4% 0.6% 0.5%
2005 36.8% 20.0% 33.0% 28.9% 15.4% 17.0% 37.6% 37.8% 24.2% 26.1%
2006 10.6% 23.0% 8.1% 13.7% 23.0% 19.1% 24.3% 14.1% 20.9% 17.2%
2007 18.4% 30.9% 29.2% 18.3% 12.1% 22.3% 22.9% 21.7% 16.5% 21.7%
2008 10.5% 5.6% 43.2% 31.3% 30.1% -2.4% -14.4% -0.1% 28.8% 15.5%
2009 20.7% 23.4% 12.7% -3.0% 5.9% 23.6% 26.8% 20.1% 19.3% 16.5%
2010 38.8% 29.5% 34.3% 13.5% 22.3% 24.9% 13.0% 16.7% 23.7% 25.2%
2011 14.2% 10.1% 10.5% 10.2% 13.5% 5.9% 4.5% 11.2% 31.1% 11.2%
2012 4.9% 7.0% 2.2% 5.4% 4.3% 6.2% 20.7% 4.2% 10.3% 7.5%
2013 -31.2% -28.3% -29.4% -16.2% -23.0% -30.2% -12.8% -30.1% -18.7% -24.1%
2014 12.1% -1.5% 5.0% 7.7% 7.9% 1.2% 12.3% 9.9% 0.8% 6.2%
2015 -0.3% -10.4% -5.2% 0.4% 7.5% -6.2% -10.1% -9.9% -5.9% -3.8%
2016 12.4% 9.1% 30.2% 10.5% 5.9% 16.8% 5.8% 10.8% 11.9% 12.3%
2017 -1.0% 13.6% 3.2% 4.6% 6.0% 6.4% 8.9% 8.1% 6.4% 6.3%
2018 2.7% -2.1% 3.8% 8.5% 6.3% 3.5% -4.7% -1.2% 6.6% 2.6%
2019 ytd 4.0% 1.7% -2.0% 1.1% -0.4% -0.7% 3.3% 3.8% 0.2% 1.2%
Average 8.7% 9.7% 10.7% 7.9% 8.7% 8.4% 9.3% 6.8% 11.6% 9.1%
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28
Source: Investing.com
Technical Setup:Higher Lows, but Now Massive Resistance Ahead at ~ 1,360-1,380
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29
Source: www.sentimentrader.com
Technical Setup:Gold and Silver Optix* Still Show Extreme Pessimism
*The Optix Index – one of our favourite sentiment indicators – is published by Sentimentrader. It amalgamates the most prominent sentiment surveys with positioning data from
the futures and options markets. Similar to most other sentiment indicators, it works as a contrarian indicator, i.e., high levels of optimism are considered bearish and vice versa.
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30Seasonality Will Soon Improve
Sources: Seasonax, Incrementum AG
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month of the year
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31Gold/S&P Ratio Bottoming
• We consider the bull market in equities as the biggest
opportunity cost for gold.
• Comparing the gold price to S&P 500 development, we can
see that the relative performance of gold vs. the S&P
500 is bottoming.
• After seven years of underperformance of gold vis-à-vis the
broad equity market, the tables might soon be turning in
favour of gold.
Sources: Federal Reserve St. Louis, Incrementum AG
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Gold/S&P 500-Ratio 200d Moving Average 90d Moving Average
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4. Gold Mining Stocks
“Right now, gold has been so boring and asleep that nobody cares. It's the first time
that my schedule isn't even filled.”
David HarquailCEO, Franco-Nevada
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33HUI/S&P 500 Ratio
• The HUI/SPX ratio currently stands at a similar level as in
2001 and 12/2015, when the last bull markets in gold stocks
set in.
• The recent M&A deal flow might have marked the bottom of
the bear market.
“It's unpriced optionality, then, because there's going to be
an M&A wave at some point. There has to be, because the
largest companies have been spritzing reserves hand over
fist and will have to come to the market.”
Ned Naylor-Leyland
"Gold: The Story of Man’s 6000-Year Obsession"
Sources: Bloomberg, Incrementum AG
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
HUI/S&P 500 ratio
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34GDX/Gold & GDXJ/Gold Ratios Confirm Rising Strength of Gold Miners
Sources: Federal Reserve St. Louis, Investing.com, Incrementum AG
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
05/2006 05/2008 05/2010 05/2012 05/2014 05/2016 05/2018
GDX/Gold ratio
Peak: 0.067
Trough: 0.012
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
11/2009 11/2010 11/2011 11/2012 11/2013 11/2014 11/2015 11/2016 11/2017 11/2018
GDXJ/Gold ratio
Peak: 0.13
Trough: 0.016
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35Bull Markets in Mining Shares: Duration and Performance Are Way Below Average
• The chart shows all bull markets in the Barron’s Gold
Mining Index (BGMI) since 1942.
• One can see that the current uptrend is still relatively short
and weak compared to its predecessors. Should we actually
be at the beginning of a pronounced uptrend in precious
metals stocks – which we assume to be the case – then there
remains plenty of upside potential.
• Moreover, the chart shows that every bull market in the
sector ended in a parabolic upward spike, which lasted nine
months on average and resulted in prices doubling at a
minimum.
Sources: Nowandfutures, TheDailyGold.com, Barrons, Incrementum AG
0%
100%
200%
300%
400%
500%
600%
700%
800%
1 41 81 121 161 201 241 281 321 361 401
Perf
orm
an
ce
Number of Weeks
10/1942-02/1946 07/1960-03/1968
12/1971-08/1974 08/1976-10/1980
11/2000-03/2008 10/2008-04/2011
01/2016-03/2019
Current bull market
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5. Quo Vadis, Aurum?
“The only permanent truth in finance is that people will get bullish at the top and bearish
at the bottom.”
Jim Grant
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37Gold Performance During US Recessions?
• How does the gold price perform in recessions?
Short answer: Very well!
• On the one hand, investors are looking for safe havens in
times of crisis, and gold is the classical safe haven asset; on
the other hand, many investors will anticipate monetary and
fiscal stimulus and buy gold for inflation protection.
• If the Fed fails in its normalization efforts and the US falls
into a recession – which is our favoured scenario – a loss of
confidence in central bank monetary policy seems likely to
ensue. It is highly doubtful whether the current global
monetary architecture will be able to withstand such a
profound loss of confidence unscathed.
Sources: Deutsche Bank, Incrementum AG
PeriodGold Start
(USD/oz)
Gold End
(USD/oz)Change (%)
11/1973 – 03/1975 100 178 78.0
01/1980 – 07/1980 512 614 20.0
07/1981 – 11/1982 422 436 3.3
07/1990 – 03/1991 352 356 1.0
03/2001 – 11/2001 266 275 3.5
12/2007 – 06/2009 783 930 18.8
Mean 20.8
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38… And How Does the S&P Perform During Recessions?
Sources: Robert Shiller, Incrementum AG
-78.13%
-39.98%
22.31%
-13.71%
19.96%
-15.23%
1.12%
-21.30%
-33.92%
-0.09%
-18.38%
-9.68%
-19.39%
-50.82%
-18.37%
-14.68%
-24.57%
-100% -80% -60% -40% -20% 0% 20% 40%
1929-1933
1937-1938
1945
1948-1949
1953-1954
1957-1958
1960-1961
1969-1970
1973-1975
1979-1980
1981-1982
1990-1991
2001
2007-2009
Average
Average Post WWII
Average Since 1980
@IGWTreport
39Gold Proved to Be a Safe Haven in Equity Downturns in 2008
• Gold outperformed all major stock markets significantly in
2008 and therefore perfectly fulfilled its task as portfolio
stabilizer.
• The fact that gold is an excellent diversifier and hedge in a
crisis is known not only to “gold bugs” but is also accepted
by a number of heavyweights in the mainstream of the
financial industry, like Ray Dalio and Sam Zell.
Sources: BMG Bullion, Goldprice.org, Yahoo.Finance, Incrementum AG
6%
30%
11%
22%
-2%
31%
-14%
-38%-35%
-40%
-72%
-65%
-43% -42%
-80%
-60%
-40%
-20%
0%
20%
40%
Perf
orm
an
ce i
n 2
008
Gold in Local Currency Local Stock Market Index
@IGWTreport
40…and again in 2018: Gold Proves To Be a Safe Haven in Equity Downturns
• 2018 was a rough year for equities. Gold succeeded again in
outperforming all major stock markets in local currency.
• With the exception of USD and JYN, gold has been trading
very positively, especially in RUB, at +18%!
• What happens if both stocks and bonds dive in a
bear market? What will be the safe haven, now that the
traditional pattern of negative correlation has changed? Will
it be cash, property, Bitcoin, or – yet again – gold? We are
convinced that in a bear market environment, gold will be
among the biggest beneficiaries.
Sources: goldseiten.de, boerse.de, finanzen.at, Incrementum AG
-2%
7%
3%
18%
4%
9%
-4%
-9%
-13%
-20%
-8%
-17%
-6%
-17%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Perf
orm
an
ce 2
018
Gold in Local Currency Local Stock Market Index
41
@IGWTreport
Commodities vs. Stocks:Lowest Valuation Since 1971
• This chart was by far the most-quoted one in last year’s In
Gold We Trust Report.
• It clearly illustrates the fact that the relative valuation of
commodities in comparison with equities is extremely low
by historical standards. Compared to the S&P 500, the GSCI
Commodity Index (TR) is trading at its lowest level since
1971.
• Moreover, the ratio trades significantly below its long-term
median of 4.12.
• If we postulate the general tendency of reversion to the
mean, we may anticipate attractive commodities investment
opportunities. Sources: Professor Dr. Torsten Dennin, Lynkeus Capital, Incrementum AG
0
1
2
3
4
5
6
7
8
9
10
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023
SPGSCITR Commodity Index/S&P 500-Ratio
Median: 4.12
GFC 2008
Gulf War 1990
Oil Crisis 1973/74
Dot-Com BubbleEverything
(except
commodities)
Bubble
@IGWTreport
42S&P 500 (left scale) & Bloomberg Commodity Index (right scale)
• Chances are that we are now entering an environment of
stagflation, which we have been warning about for some time.
• Once it is obvious that the normalization process of the
Federal Reserve is faltering, we expect the long overdue
depreciation of financial assets relative to real assets to begin.
“QE is a stagflation machine for market-world, where we’ve
inflated prices for financial assets and crushed productive
corporate growth. MMT will be a stagflation machine
for real-world, where we will inflate prices for
goods/services and crush productive private sector
growth.”
Ben Hunt
Sources: Investing.com, Incrementum AG
50
100
150
200
250
0
500
1,000
1,500
2,000
2,500
3,000
2005 2007 2009 2011 2013 2015 2017 2019
S&P 500 BCOM
@IGWTreport
43Gold/Silver Ratio: Bullish On Gold? Then Consider Silver!
• The gold/silver ratio recently traded at the highest
level since 1991!
• At the moment, it seems as if the ratio has hit a potential
reversal point again after an upward trend of almost seven
years. The ratio has spiked over 80 and is currently trading
at 85.
• According to the results of our statistical analysis, a
sustainable increase in the gold price is unlikely to happen
in tandem with an increase in the gold/silver ratio. A falling
gold/silver ratio significantly increases the probability of a
bull market in gold and silver.
Sources: Bloomberg, Incrementum AG
10
20
30
40
50
60
70
80
90
100
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Falling ratio Gold/Silver ratio
Silver
+64%
Gold
-21%
Silver
+203%
Gold
+80%
Silver
+371%
Gold
+77%
Silver?
Gold?
Silver
+1811%
Gold
+595%
Silver
+159%
Gold
+42%
Silver
+60%
Gold
+8%
Silver
+60%
Gold
+9%
@IGWTreport
44Scenarios for the Gold Price
• Last year we presented several scenarios for the potential
development of the gold price that were in tune with the
momentum of GDP growth and the further development of
US monetary policy.
• The time horizon we used was the term of office of the
current US administration (2017-2021), by the end of which
the Federal Reserve expects monetary normalization to have
been achieved.
• So far, the gold price has moved in the range of scenario B.
• The crucial issue will be whether monetary normalization is
successful – we doubt it – and whether scenario B or C will
prevail in the coming years.
Source: Incrementum AG
@IGWTreport
45
• Recession clouds on the economic horizon are getting darker. As we
have discussed in various publications, we still take the view that the Federal
Reserve will eventually have to make a “monetary U-turn”. This will include
falling interest rates, the end of QT, and sooner or later another round of QE.
• We think the strong move in precious metals since August 2018 is the
proverbial “canary in the coal mine” for a weaker USD environment, a
rise in commodities, and ultimately increasing price inflation.
• Mining stocks are in the beginning of a new bull market. Creative
destruction has taken place, and leverage on a rising gold price is higher than
ever. The mega-merger between Barrick and Randgold might have marked the
bottom.
Summary
@IGWTreport
Subscribe by following the link to get the
In Gold We Trust Report 2019
delivered to your mailbox on May 28!
https://ingoldwetrust.report/igwt-en/?lang=en
@IGWTreport
Addendum
Because we care…
About our Clients. About the Society. About the Future.
@IGWTreport
48About Incrementum AG
Incrementum AG is an owner-managed and fully licensed asset manager & wealth manager based in the Principality of Liechtenstein.
• Independence is the cornerstone of our philosophy. The four managing partners own 100% of the company.
• Our goal is to offer solid and innovative investment solutions that do justice to the opportunities and risks of today’s complex and fragile environment.
• Our core competencies are in the areas of:
o Wealth management
o Precious metal and commodity investments
o Active inflation protection
o Crypto and alternative currency exposure
o Special mandates
more information onwww.incrementum.li
#igwt2018
49
@IGWTreport
About the In Gold We Trust Report
• The gold standard of gold research: Extensive annual study
of gold and gold-related capital market developments
• Reference work for everybody interested in gold and mining
stocks
• International recognition – newspaper articles in more than
60 countries; almost 2 million readers
• Will be published for the 13th time on May 28, 2019
• Further information and previous editions can be
found at:
https://ingoldwetrust.report/?lang=en
#igwt2018
50
@IGWTreport
About the Authors
Mark J. Valek, CAIA
• Mark is a partner of
Incrementum AG and
responsible for Portfolio
Management and Research.
• Prior to Incrementum, he was
with Merrill Lynch and then
for 10 years with Raiffeisen
Capital Management, most
recently as fund manager in
the area of inflation
protection.
• He gained entrepreneurial
experience as co-founder of
philoro Edelmetalle GmbH.
Ronald-Peter Stoeferle, CMT
• Ronnie is managing partner of
Incrementum AG and
responsible for Research and
Portfolio Management
• In 2007, he published his first
“In Gold We Trust” report.
Over the years, the study has
become one of the benchmark
publications on gold, money,
and inflation.
• Moreover, he is an advisor for
Tudor Gold Corp. (TUD), a
significant explorer in British
Columbia’s Golden Triangle.
@IGWTreport
51
Rob McEwenFounder of Goldcorp, CEO of McEwen
Mining
“Thorough, comprehensive, must-have
analysis of the gold market and factors
driving its price!”
Testimonials
@IGWTreport
52
Rick RulePresident & CEO at Sprott U.S. Holdings,
Inc.
“A must-read for people who invest in
precious metals and precious metals
equities. A pleasant read, too – well-
researched, and well-written.”
Testimonials
@IGWTreport
53
Simon MikhailovichFounder of the Tocqueville Bullion
Reserve
“When it comes to finding the most
insightful and comprehensive annual
gold report, in Incrementum I trust.”
Testimonials
@IGWTreport
54
John Hathaway Chairman, Tocqueville Asset Management
“The annual ‘In Gold We Trust’ report is
the most widely forwarded research
piece in the gold scene.”
Testimonials
@IGWTreport
55
Marcus GrubbFormer CEO World Gold Council
“I think it is the most comprehensive
report produced on the gold market. To
me it is like the Barclays Gilts Study in
the UK: a must-read to understand the
medium-term market view and
direction.”
Testimonials
@IGWTreport
56
Incrementum AGIm alten Riet 102
9494 – Schaan/Liechtensteinwww.incrementum.liwww.ingoldwetrust.li
Email: [email protected]
Contact Us
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57Disclaimer
This publication is for information purposes only and represents neither investment advice nor an investment analysis or an
invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual
investment or other advice. The statements contained in this publication are based on knowledge as of the time of preparation
and are subject to change at any time without further notice.
The authors have exercised the greatest possible care in the selection of the information sources employed; however, they do
not accept any responsibility (and neither does Incrementum AG) for the correctness, completeness, or timeliness of the
information: respectively, the information sources made available, as well as any liabilities or damages, irrespective of their
nature, that may result therefrom (including consequential or indirect damages, loss of prospective profits, or the accuracy of
prepared forecasts).
Copyright: 2019 Incrementum AG. All rights reserved.