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@IGWTreport “Preview-Chartbook” of the In Gold We Trust Report 2019 Ronald-Peter Stoeferle Mark J. Valek March, 2019

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Page 1: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

“Preview-Chartbook” of the

In Gold We Trust Report 2019

Ronald-Peter Stoeferle

Mark J. Valek

March, 2019

Page 3: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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.

Page 4: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

1. The monetary tide has turned.The question is, for how long?

“What’s past is prologue.”

Shakespeare

Page 5: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

5

@IGWTreport

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

Page 6: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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)

Page 7: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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?

Page 8: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 9: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 10: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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%

Page 11: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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)

Page 12: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 13: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 14: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 15: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 16: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 17: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 18: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

18

@IGWTreport

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

Page 19: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 20: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

20

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

Page 21: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 22: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 23: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 24: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 25: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 26: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 27: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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%

Page 28: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

28

Source: Investing.com

Technical Setup:Higher Lows, but Now Massive Resistance Ahead at ~ 1,360-1,380

Page 29: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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.

Page 30: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

Page 31: “Preview Chartbook” of the In Gold We Trust Report 2019 · the last couple of years now offers investors a very skewed risk/reward-profile. ... Jamie Dimon Sources: Bloomberg,

@IGWTreport

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

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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

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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

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41

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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

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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

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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%

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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

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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

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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

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Addendum

Because we care…

About our Clients. About the Society. About the Future.

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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

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49

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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

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50

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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.

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51

Rob McEwenFounder of Goldcorp, CEO of McEwen

Mining

“Thorough, comprehensive, must-have

analysis of the gold market and factors

driving its price!”

Testimonials

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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

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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

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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

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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

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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.