CAMS View from the Corner
November 4, 2024
On a personal note I seen a mainstream business outlet offer “People are chasing gold” as they offered it was a sign that people are operating on the ole “FOMO” approach which stands for “Fear of Missing Out.”
After an involuntary chuckle I had an involuntary mental thought offering, “Well, there’s our next edition.”
In the most literal sense are there people out there in the investment landscape that are “chasing gold” to use the phrase? Absolutely.
They see something trending upward when priced in U.S. dollars and when it occurs long enough they do begin the chase.
If the chase builds in numbers it does devolve into a collective, “fear of missing out.” This is a collective psychological state where the masses are convinced X cannot possibly go lower and is viewed as a guarantee to only go higher and higher as time unfolds.
When this process unfolds long enough it devolves further into collective “Bubble Psychology” and the various stages of such unfold with predictability. As the stages of bubble psychology unfold they are ignored by the growing masses that are immersed in it.
History has displayed the above process – initial chase leading to FOMO leading to full-on bubble psychology – time and again. Importantly, initial chase does not assure follow-on FOMO and FOMO does not assure full-on bubble psychology.
Current day, relative to gold, we are far from FOMO and even further from a collective bubble psychological state.
Keeping it very simple, how many people do you know that have made a comment, no matter how insignificant in their offering of it that their gold holdings are doing incredibly well?
In FOMO times you hear such comments somewhat consistently. In bubble psychology times you cannot get away from such comments.
In true bubble psychology times the comments then turn into near dissertations on how long they have owned it, when they continued to buy more and how they are working on increasing their current holdings in a tremendous fashion.
This oftentimes then morphs into an inclusion of how they are working on pooling funds of X people together so they can then participate on a larger scale usually centered on some form of new exotic approach to maximize leverage to the underlying asset class.
The process goes on and on always under the umbrella of belief that X can only go higher – it is a guarantee – get yours while you can!
As offered, current day relative to gold we are far from the above collective descriptions of general behavior. As citizens let’s hope we do not get to that collective state relative to the gold price when quoted in U.S. dollars. Why?
Local Currencies
Just above we offered: “When quoted in U.S. dollars?”
This is because gold is gold; it is not a monetary unit of X country/government sponsor. An ounce of gold is ubiquitous – the ounce in your proverbial pocket is viewed the same whether you are in the U.S. or on the other side of the planet.
It is not a question of whether it has value as it is recognized as an ounce of gold everywhere. The only question is what is its value when priced in X local currency depending on where you find yourself on planet earth.
For example, you may find yourself in country A – a country who has displayed very bad long-running fiscal and monetary policies and as a result, you note, when priced in country A’s local currency it has never seen such a high price level.
Conversely, country B may be the direct opposite in that they have enacted very sound and disciplined fiscal and monetary policies within their country.
With this, you note your ounce of gold, when quoted in country B’s local currency, is near historic lows. Simply, country B’s local currency, as a result of said disciplined fiscal and monetary policies has maintained its purchasing power strength and is “As good as gold” as is often stated in such scenarios.
Obviously the U.S. fits squarely into country A’s backdrop and the price of gold reflects this fact in light of when quoted in local currency, i.e. U.S. dollars, it has never been at a higher price.
Interestingly, in this 21st century most countries around the globe align with country A rather than B’s disciplined approach. Hence, the price of gold when quoted in local currencies around the globe are printing at or near all time high levels current day.
Importantly: So if you have noted it is not about gold when talking about gold it is always about the currency of the country you are pricing your gold in.
Underneath the currency, as is always the case, is the quality of the fiscal and monetary policies enacted and through them whether their local currency has maintained strength in its underlying value.
So gold offers a reflection if you will of the quality of said policies. (We must add, this is not a day-by-day or even month-by-month tally, rather the big picture tells the story, the overall trend of gold is where the message is offered.)
The story rests squarely on the lack of quality and soundness of the underlying fiscal and monetary policies with the downstream debasement of the currency as concluded by market, general economic and citizenry participants of the country in question.
If they are saying, “Give me gold you can have this paper currency” by bidding gold ever higher when priced in said currency that is their way of offering the fiscal and monetary policies of the nation are notably lacking in quality and hence they want little to do with the underlying paper currency of the nation in question.
They know the currency will take the hit in its reduction in value and strength as money and certainly as a store of value.
This answer’s our aforementioned “why?” when we offered as citizens let’s hope we do not get to entrenched FOMO relative to gold and let’s triple hope we do not get any hint of bubble psychology toward its price. This would reflect deeper issues for our currency which would offer much more socioeconomic pain/challenges for us as citizens.
The Bottom Line Essence of Gold (A True Contender for the most Misunderstood Asset)
Gold has been both money and a store of value for thousands of years the globe over. Its “store of value” aspect is our focus and is what is underneath gold’s performance when priced in U.S. dollars over recent time. To be fair we can walk this performance back decades and even much longer in performing as a store of value.
As a reference point many can recollect back to the beginning of this 21st century, circa year 2000. At that time it was valued at a mere 250 U.S. when quoted in dollars. If you had an ounce of gold you had $250 of value in your pocket.
Current day if you have an ounce of gold you have $2750 of value in your pocket when quoting that ounce in dollars. The same one ounce of gold in your pocket became valued at 11X the level it was in year 2000 when quoted in dollars.
As shared above, this says nothing about gold but it says everything about the currency it is quoted in.
There is a simple old adage about gold that offers: “An ounce of gold 100 years ago would have bought you a very nice suit. Today, an ounce of gold will still buy you a very nice suit.” You could apply this adage anywhere on a timeline and it holds true as an easy phrase to emphasize its store of value aspect.
Simply, it maintains its purchasing power and in so doing protects citizenry wealth the globe over, throughout time, from government officialdom’s fiscal and monetary policy shenanigans with follow-on destruction of their currencies.
As citizen’s let’s place hope on top of hope we do not see gold skyrocket from here into bubble psychology lest we have increased collective misery to experience from here on the socioeconomic front.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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