FEB 5, 2018
The 1966 movie ‘The Endless Summer’ saw two surf bums travel the world, endlessly searching for the perfect wave. The larger thematic idea is that if you had the time and money, you could essentially follow summer forever, and bask in its warmth and ease without ever having to deal with cyclical seasons again.
The Fed, again and again, behaves as if this is possible in risk assets. As if ever-more-extreme policymaking and manipulation will allow a never-ending bull market in stocks.
In being able to rig the game for the past 10 years or so, they’ve lulled a lot of investors to sleep, made a lot of them think this is possible. Why hold any gold, or any hedge at all, against a stock market that will go up and up and up forever and never lose 50% again?
Guess what. Winter’s coming.
The bottom line is global investors are radically underinvested in gold today. Years of relentless stock-market rallying to endless new record highs has left prudent portfolio diversification with counter-moving gold deeply out of favor. But the same central banks that fueled this extraordinary stock bull are now reversing to massive and unprecedented tightening this year, which will inevitably force stock markets to roll over.
As stocks sell off in what is almost certain to become the long-overdue next major bear, gold investment demand will make a glorious renaissance. Investors will flock back to gold to stabilize their bleeding stock-heavy portfolios, catapulting its price much higher. It will likely take years of gold investment buying to restore overall gold portfolio allocations to reasonable historic norms. That’s super-bullish for gold!