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Buy Gold To Hedge Dollar Debasement

July 17, 2016

Inflation is already here.

It is in the form of assets the Fed has wanted to inflate. It has not yet shown up in assets the Fed does not want to inflate. The Austrians were right.

Gold is not a Risk Off asset. It is ridiculous to say that a market so tiny by comparison to the cash sloshing around out there, can accommodate people looking to reduce risk. The force of that money in and out of the market is enough to CAUSE risk: Entrance risk, Exit risk, liquidity risk, etc.

Gold should sell off more to shake out these types of hot money players. A person buys gold for one reason: as a hedge against paper money being debased. It is a hedge against domestic inflation.

Right now there is no BAD inflation, but there is currency debasement going on. And for every person who bought gold last week from inflationary fears, three were selling to pile money into equities because it was time for them to put Risk On. The financial world is a bunch of people front-running central banks now. So what is the End game for Gold if you own it? What it always has been: Inflation.

If you are over 25 years old and not getting hit by a car chasing pokemon in the street, then you will see what we mean clearly just by looking at this chart

What is the End Game for Bond Yields? That is the end game for Gold.

The Fed has No end Game

“The market can stay irrational longer than you can stay solvent”, is a phrase every trader knows to remind him to respect the market and not to impose time limits on irrational market behavior. But when there is a player in the market who dominates, that player BECOMES the market for a while. It rotates from player to player. Now that player is the Global Printing Press AKA the Fed. So let’s restate the axiom with a tweak:

The Fed can stay irrational longer than you can stay solvent. Your money market rate should tell you that is true.

Central bankers ARE the market now. They were supposed to be a backstop in crisis. Leaning on the backstop is now the Norm. So the end game is inflation. You do not want to make money from a financial catastrophe. Because then they will not let you keep it.  Taxes will be raised, futures will be forced to settle cash and not physical, stocks will not permitted to be sold. Your house will go up in value but you won’t be able to take money out of it…let alone sell it. You must have a portion of your wealth in physical unleveraged, non-pooled allocated Gold.

Look at the chart above and ask yourself what Gold, the price of bread, a new car, steel, all do when the white line goes back up? Then be thankful you have a 401k with some money in it now, but be ready for the next 10 years of inflation. The Fed has no end game. But the markets do. And every biggest player gets taken down eventually. All of them in war, markets and life. Central Bankers had a long run pretending to be the market. But they are not.

For Inflation - when it comes, not if.

  • Be Long  certain types of Stocks
  • Be Long Gold
  • Be long Cadillacs, California wine and anything else built domestically
  • Short  Bonds (buy TiPs)

Final Thought

The stock market is pricing the future behavior of the Fed. What will happen if the Fed does not follow through or they raise rates?  It isn't like the USA hasn't asked the Saudis to pump oil before we invaded Iraq (twice) to keep price shock low. Just saying, 500 points off all-time highs isn't as bad as 500 points off unchanged YTD. The ultimate pump and dump.

(Article originally posted at http://www.marketslant.com/articles/buy-gold-hedge-dollar-debasement-vince-lanci )

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Mr. Lanci is owner of Echobay Partners, LLC, a Private Equity and consulting firm in the commodity space. He is a derivatives trader with 25 years experience in Precious Metals, Energy and Agricultural Commodities. He is quoted on these markets by Kitco, Reuters, Bloomberg. He also has written on background for major blogs on Market Manipulation.

[email protected]


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