Bill Gross just called out Janet Yellen as the penultimate market manipulator. 

Gross, former head of PIMCO and current manager of Janus funds, recently echoed Rick Rule, assigning blame to the Fed for deferring short-term pain at the expense of long time gain.  Mr. Gross’s comments are timed as the Fed continues to debate whether to raise interest rates after years of keeping them anchored in an effort to stimulate the economy and generate inflation. Instead, Gross said, the Fed has merely inflated asset prices while actually harming the economy. 

His solution for investors? Avoid stock and bonds, move toward gold and tangible assets. 

We’re glad Mr. Gross has finally caught up. 

But as this has been an ongoing narrative for gold investors since 2011, we asked Rick Rule what has changed in the gold story. 

Rick explains, “In 2011 there was an entire narrative around the gold market, when gold was at $1,900, and that narrative was partly about U.S. markets; that is, higher incomes in places like India and China that had historic cultural affinity to gold.  But, the other part of the discussion was really about the ability of U.S. Treasury securities and the U.S. dollar to retain the degree of hegemony as savings instruments that they had always enjoyed. The narrative in 2011 was that U.S. Federal Government on-balance sheet liabilities, at $16 trillion, were unsustainable, and worse, the off-balance sheet liabilities of $55 trillion were similarly unsustainable (and those numbers didn’t include state and local debt or pension obligations or stressed individual corporate balance sheets).” 

Today, on-balance sheet liabilities are no longer $16 trillion. They are estimated at $19 trillion. 

And investors somehow seem more sanguine at that higher level. Off-balance sheet liabilities, similarly, have moved from $55 trillion to $90 trillion. 

The perception of sustainability is partly explained by the ongoing strength of the US dollar, which was all too uncertain in 2011. Rick explains, “I would suggest to you that is not a consequence of the strength of the U.S. economy or our collective balance sheet, but rather the weakness of the competition.  I don’t think I have to recount the difficulties that emerging and frontier markets have faced, or the difficulties that Japan and Euro-zone face.”  

In terms of the macro case for gold, its market dominance has eroded. In the 1980s, at the peak of that manic bull market, gold and gold related equities enjoyed an 8% market share of investable assets among U.S. savers and investors. The median and mean converge over the last three decades at about 1.5%. The current percentage is 0.33%.  

And with national mouth-pieces like Bill Gross suddenly remembering the benefits of gold and other tangible investments, will we see a reversion to the mean?  According to Rick, “I’m not suggesting that it will immediately get back to 1.5%, but even if we got back to half of mean, that would double demand for gold and gold related equities in a market where the U.S. still counts for 24% of the world’s investable assets.” 

[Editor’s Note—If you were unable to join us at the Sprott Natural Resource Symposium—please consider our Sprott Conference MP3 Package—which includes presentations by Rick Rule, Ross Beaty, Robert Friedland, Bob Quartermain, Rob McEwen, and many others.]

This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested. Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment.  Because of significant volatility,  large dealer spreads and very limited market liquidity, typically you will  not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally  associated with  domestic markets, such as political,  currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.


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