Metal Mania Starts Soon

I’ve had at least a dozen Uber drivers pitch me on suspect investments. For a while, it seemed like every trip came with free, and invariably horrible, picks.

Interestingly, I’ve never had a driver, or a barber for that matter, pitch me on gold and silver. Despite gold regularly breaking out to new highs, we really haven’t yet seen any signs of a typical retail mania.

Looking at Google trends, there are no signs of increased investor interest in precious metals. Here’s a chart showing Google search volume for “gold price” over the last year.

Barely any movement. Other search terms such as “buy gold online”, “gold etf”, which would indicate growing interest, are similarly flat.

Despite solid performance, gold and silver are not yet hot commodities. A 2023 survey by Bank of America showed that 71% of financial advisors had a 0-1% allocation to gold. Only 27% had a 1-5% exposure rate.

Perhaps even worse, only 2% of advisors report a 5-10% allocation to gold. Madness.

So if investors aren’t snatching up all the gold, what’s driving the price up?

Central bankers are buying in droves. The chart below shows purchases by country in 2024 through July.

According to the World Gold Council, central banks added 37 tons in July alone. That’s up 206% month-over-month.

There’s no sign of central banks slowing their buying anytime soon. It’s also important to note that we don’t have great data on Russia or China, which could both be buying substantially more bullion than reported.

There’s rich irony in the fact that the primary gold bulls today aren’t individual investors, it’s the guys running the fiat printers. This is an insider buy signal at a global scale. And these aren’t fickle day traders in for a quick flip. These central banks have a new reserve policy, and it appears to heavily favor gold.

Gold Re-Emerges as a Reserve Asset

Over the past 75 years, the U.S. dollar emerged as the world’s leading international reserve asset. It eclipsed gold in the early 1990’s and remains dominant to this day. But the trend has finally flipped. Today, gold as a percent of international reserves is climbing, and the dollar is falling.

This is a monumentally important trend. De-dollarization is actually beginning to happen. But central banks aren’t switching to the Chinese renminbi or the euro, they’re reverting to classic hard currency: gold. It’s re-goldification on a massive scale.

The era of fiat dominance may well be in its twilight years. And good riddance. Being home to the world’s reserve currency has hollowed out the U.S. manufacturing base and caused spending to spiral out of control.

Metals Mania Starts at $3k Gold

All of this helps confirm my view that we are still very early on precious metals. Fed printing operations are just now about to start back up. QE will eventually reignite, and the scale will likely dwarf previous episodes within a few years. Depending on who wins the White House, a stimulus program may be in the works as well.

Gold and silver are absolutely crucial aspects of a modern portfolio, and are still wildly under-owned by investors. In the next 5 years, we will likely see a number of sovereign debt crises, and/or sustained inflation above 10% in a number of countries. The piles of government debt have simply grown out of control.

Lower interest rates will help cut the debt servicing costs (interest expenses). But there’s a good chance it will also reaccelerate inflation. No matter which path we choose, the piper will be paid for past excesses.

Eventually, we will experience a true precious metal mania. I suspect it will begin when gold hits $3,000 and silver breaks out above $49.45, its 1980 all-time high. Everyone will be buzzing about gold and silver. Your neighbors, friends, and colleagues. And it will be glorious.

Fortunately, we’re not there yet and still have time to prepare. We may even get a pullback after gold’s impressive run from $2,000 in Feb 2024 to $2,569 as I write this on Sept 17 2024. But then again, we may not…