Cautions from the past most investors are not paying attention to a new opportunity.
As an analogy, ‘coming down from the top of the hill is often more dangerous than climbing up it’. When laying out a foundation of what to do while also revealing the biggest fear, investors know that past performance is not a reliable indicator of future results. They know that they are always on a learning curve each time they venture out to invest. They know that there is always the possibility of an obstacle on the way that change things.
It is a good thing to have awareness of possible obstacles that may be on the way. Hence, investors must carefully plan, organise and control their investments. The strategy must be backed by a contingency plan before they venture out to invest.
You may be wondering where I am going with this!
Let’s take the COVID-19 pandemic as an example. There are three variables here:
- Household confidence
Of the three variables, let’s take unemployment.
Unemployment is the trap after it all. It has a negative twist between the three variables. People are going to be in fear of their jobs and consequently will save. This will result in less spending which will bring less profits to businesses. This will – in turn – force businesses to cut back on staff. This is what many will call unemployment trap.
In fact, the employment trap is opening the pathway for a new opportunity that most investors are not paying attention to.
The BoE (Bank of England) for example, expects unemployment to double in the next few months… and there is that possibility of a flood of businesses filing for bankruptcy. Common-sense tells us it is the case… it has always been the case when our political and economy systems are tested in this way by unforeseen events.
However, there are always new opportunities to explore. There is one sector that always survives because of a simple pattern that always delivers mind-bending gains during crisis. The Great depression, the 1970 recession and the 2008 financial crisis are just the few to mention.
Gold is already at all-time highs with pounds, euros and Australian dollars… and there is a high probability that Covid-19 is sowing the seed of the biggest gold bull market of all time.
“Something dangerous and exciting is happening in the gold market – and if you don’t understand it, you may be in grave danger…”
Something strange seems to be happening to the price of gold, even though it felt alongside the wider market in the mid-March sell-off.
Conceivably, the past suggests that once this Covid-19 pandemic is over, the financial world will become even more fragile and unstable than ever before. Not necessarily because of pandemic itself, but it will be because of the steps various governments around the world took to fight it.
There is no hiding that rapid change is coming, therefore we all must prepare ourselves while we can.
For knowledge and understanding sake, let’s investigate some warnings from the past… three majors ones include: the 2008 financial crisis, the chaos of the 1970s following the Vietnam war, and the great depression. Each one had an immediate effect after, and each panic varied. However, all three were met with the same response.
There was huge stimulus, money printing, and large-scale bailouts intervention in the economy, and as a result of all these, governments were forced to rewrite the rules of the financial system in order to adjust to the new reality.
Ultimately, this sent the price of gold and other critical commodities through the roof.
Let’s review three cautions from the past. This will give us a clear picture of what happens with the price of gold each time there is a crisis.
#1 Cautionary from the past
Britain’s secret bank run (London, September 1931.).
This was nothing in comparison to the bank runs which saw more than 10,000 American banks fail, forcing desperate queues of desperate savers to queue and wait in vain to get their money out before the doors close for good. The same was true in France, China, Chili… where governments intervened by devaluing their currencies to fight the crisis.
Consequently, a new currency emerged, and gold soared, and certain gold stocks went to the moon – even as other stocks crashed.
#2 Cautionary from the past:
“Them was rotten days…” (“To create a new prosperity without war…”)
Now known as the Nixon Shock, Richard Nixon then, described his decision to take the US dollar off the gold standard in 1971. It was the same story as the 1930s…
Put under huge financial strain by the Vietnam War having, Nixon was forced to take the global financial system off the dollar which unleashed a huge binge of government spending… borrowing… and money printing. This all it led to a wave of instability… volatility… social disorder… and inflation.
Wharton professor Jeremy Siegel called it "the greatest failure of American macroeconomic policy in the post-war period."
It wasn’t just the USA, though. Britain and other countries played out too.
The consequence? Runaway inflation… the emergence of a new monetary system… and an epic bull market in gold.
As a Business Insider piece put it:
“The world didn’t end in the 1970s, but double-digit inflation, oil price shocks, a weak dollar, and political instability made investors fearful and nervous. With rising fear and uncertainly investors bought more gold, since it is a tangible store of wealth. As the ‘70s drew to a close, people stampeded to own it.”
It happened before – and it could happen again. Between 1971 and 1980 gold prices soared by 1939%.
#3 Cautionary from past:
Banks crash, gold soars
Let’s keep this short. If you can remember the Lehman Brothers, in 2008 they went to the wall. The authorities responded with a monetary bazooka… the biggest round of bailouts in history. In the space of a few short months, central banks pumped trillions into the financial system.
Just as in the 1930s and 1970s, that sent gold and other commodities on a tear. Some gold stocks shot up even quicker. For example, take Royal Gold which soared 4 times in a few short years.
In consideration of all three cautions from the past, what do you think is happening in the financial system right now when the:
- US has slashed interest rates from 2,25% to 0.25%.
- Interest rates in Britain are 0.25% too
- UK government’s commitment to pump £330 billion taxpayer money into the economy.
- Federal Reserve print of $700 billion in a new QE (quantitative easing) program and $1 trillion commitment every day in emergency ‘repo’ funding.
- Etc, etc…
The simple truth is that all of this has happened within the last few month – then consider what is likely to come next.
It looks inevitably conceivable some companies are likely to need a bailout… or outright nationalisation if this crisis continues. The three industries this could happen are the following:
- Airline Operators
- Small Business
- Higher Education
Let’s ask ourselves: if even HALF of those industries need state funding… or all out nationalization… where is all that money going to come from?
Certainly, it won’t come from tax receipts only.
However, there is little consolation, thanks to the policies implemented after the financial crisis. The world is already overflowing in debt anyway – just create some more…and the probability is that the global bill will run to the tens of trillions of dollars.
Funnily, only a liar or a madman, can tell us this won’t have any consequences.
As the days go by, it is beginning to become clearer, the old monetary system will be pushed over the cliff and will be replaced with the rapid emergence of something new and dangerous.
To conclude, let’s ask ourselves these questions:
- Can things really go back to “normal” after this?
- Can things really go back to the way they were?
- Can we really expect no consequences of what we’re seeing?
Deep down, we know… nothing will be the same after this, especially with the enormous amounts of money printing, borrowing and state action in the markets. History suggests it is highly unlikely the current financial system as we know it will survive.
As a recommendation – at the very least – buy gold today.
That might sound strange, given gold fell during the epic crashes we saw at the start of March - but we’ve seen that before. Yes! Gold fell in 2008. And it fell in March 2020.
But it’s what happens once the printing presses start running in earnest that makes gold a must-own asset today, especially since we can buy it now for $200 per ounce cheaper than at the start of March 2020.
The recommendation is simple:
Buy it. Hold it. Protect it. That alone will put you ahead of most people going into this.
Why? Because you can’t print gold. In a world of funny money, cheap credit and unpayable debts, it’s the last man standing. It always has been.
But if you want to really learn from the past, the recommendation is that, you start accumulating a specific set of gold stocks and most importantly, seek professional advice from top analysts, for example a well know top analysts - Eoin Treacy.
Right now, gold seems like the perfect choice for conservative investors and speculators alike.
Before you take the decision to invest in buying gold consider it as the trade of the decade, as a play on a possible explosion in demand for physical gold, and as a hedge against a financial or stock market crash.
That is, it. There we have it. The call is ours.