Buy the Dip & Buy Real

Last night was a repeat of what we have seen before when markets panic, volatility spikes, shares crash, margin calls occur and everyone liquidates EVERYTHING.  Wall Street fell 3.5% across all indices last night, silver was down 6% (3.5% in AUD), gold 2% (0.6% in AUD) and Bitcoin 3%.  The only thing with green was of course the USD as everyone went to cash.  That pushed our AUD down to 70.4c and cushioned the bullion blow.  Whilst gold, silver and Bitcoin are clearly in secular bull markets, we are reminded that they are called bulls and not caterpillars for a reason… they buck.  Just remind yourself of the reason you own real money as everyone piled (for the time being) into Fiat money or currency.

It was timely therefore to come across a very recent interview with the legendary Kiril Sokoloff, founder of 13D Global Strategy & Research.  Sokoloff is an investment strategist who made his name by cannily calling the big shifts in the world over several decades, from the growth of post-Tiananmen China to the rise of the tech sector in the mid-1990s. Sokoloff advises some of the world’s richest including  Mukesh Ambani, Sam Zell and Raymond Kwok.  In the recent interview with Real Vision he talks at length to investment in gold as a protection against the inevitable failing of this credit cycle amid rampant money printing and stimulus which he posits is about to rise very significantly as the effects of COVID hit home next year and a new US administration will be faced with ‘fixing it’.

In a nutshell he says:

“Ludwig von Mises explained it very well. He said there are only two ways to end a credit filled room. One is you withdraw the credit. The Fed tried that with QT, but there was not the stomach or the tenacity to hold. He said the other is the full-fledged and utter debasement of currency. We have the combination of highest debt levels in history. America's debt to GDP this year, by the end of the year, certainly will be highest in history, exceeding that of World War II. Of course, it is going to get worse and worse, these deficits are not going to go away. There is no other way to deal with the problem other than inflating it away.

The world certainly is not going to embrace or allow a debt deflation and we certainly are not going to grow our way out of it with this debt burden, COVID hanging on our necks and also horrible demographics, which we have this decade, which is the worst, certainly in 500 years, when the adult working population in the developed world is retiring between 7% and 12%. You just got a horrible demographic picture, horrible transfer payment picture, massive burden of debt. As Lacy Hunt has articulated so well, the more debt you add, the less productive the debt is, and the less productive the debt is, the money velocity then is unstable, and it declines. It just feeds on itself, that the productivity of more borrowing, and the productivity of more monetary easing is getting less and less effective.”

It is a long interview that is incredibly bullish on gold going forward with many of the themes we talk to daily.  What is topical today is the dip presented by last night’s liquidation event and a good reminder of the merits of buying physical over ETF gold.  First when asked if he hold physical or ETF’s he responds:

“Well, I have this physical bullion. One of the reasons to own gold is because it is outside of the financial system. We saw what happened in 2008. We saw what happened in March. The systemic risks of algos and all the other new products has not really been tested in a financial crisis. The odds of something becoming very ugly at some point is very high. That is how I like to have money out of the banking system.

There are other reasons too because there is going to be a search for wealth around the world. With FATCA [the US act requiring foreign financial institutions to report the holdings of US citizens] and all the other things, the governments know where the wealth is, but I think that it is important to have the physical bullion. Some people may choose not to do that, and I would take ETF over not having any gold. If you can have the physical bullion, I would have that.

I also was with this guy who is with Edmund Rothschild, he ran their investment business. He told me that during the war, Second World War, after the war, the gold coins sold with a 40% or 50% premium. I had never bought the gold coins at that point because it is at 3% or 4% surplus premium. I went out and bought a whole bunch of gold coins. I cannot say I am thrilled with owning them, but I could understand the rationale.”

And in terms of the sorts of action we saw last night?

“One last comment I would make is coming back to my friend David Bostian, he was given $5 million in 1982 by a very great value investor to invest. It is a really sad story, but a very important story. This guy is very bullish for all the right reasons. He lost the entire thing trying to short into corrections. When I watched a lot of people in this gold space, they are trading, they are in and out, this is a bull market.

When you are in a bull market, you buy and hold. If you are given another opportunity, as we have been down to the 1850s, buy some more, this is the mindset that has to change. One of these days, it will. This is a buy and hold. Remember how for years, Wall Street kept saying buy the dip, buy the dip, buy the dip, and so retail is now totally enamoured to buy the dip, whether that will turn out to be correct remains to be seen but in terms of gold, buy and hold.”