New Bull Market for Precious Metals – Crescat Capita

Any talk of gold having had its run looks to be missing the fact that the fundamental drivers for its rally are still firmly in play and in most cases increasing.  Crescat Capital’s Kevin Smith and Tavi Costa have just released their latest investor update titled “A New Bull Market for Precious Metals”.  They are forthrightly now saying sell ‘richly valued’ shares and buy ‘undervalued’ gold and silver. Below are their 14 key reasons for this call:

  • The economy is now reaching credit exhaustion with record amounts of government and corporate debt relative to GDP worldwide.
  • The debt burden ensures weak future real economic growth.
  • Monetary debasement is the only way to reduce the debt burden. Fiat currencies are now engaged in a race to the bottom.

Crescat Fiat Chart

  • Global monetary base expansion to suppress interest rates creates a supercharged environment for gold and silver.
  • The global economy is in a severe recession with structural underpinnings beyond Covid-19.
  • Unemployment has spiked an historic 6.7% in just five months from 3.5% to 10.2% even after settling back from temporary 14.7% Covid-19 lockdown levels.
  • US equities today trade at truly record valuations, a full-blown mania. Ongoing policy rescue has perverted both free market accountability and price discovery creating a simultaneous zombie economy and stock market bubble which is unsustainable. Speculative asset bubbles are ripe for bursting.

Dow Jones Chart

  • During the 1970s precious metals bull market, 10-year real yields got as low as -4.9%. We strongly believe we are headed in that direction and again with a long runway, especially with Jay Powell’s new signaling from Jackson Hole.

US Yield Graph

  • A colossal $8.5 trillion of US Treasuries will mature by the end of 2021 and will need to be refinanced. Our government’s own central bank, the Fed, is the only entity capable of swallowing its debt guaranteeing new record levels of money printing to top today’s already historic levels.

US Treasury Bills Chart

  • Precious metals became a forgotten class among large allocators of capital in the extended expansion phase of the last business cycle.
  • With $15 trillion of negative yielding bonds, equities’ earnings real yields at a decade low, and corporate bonds near record prices, gold and silver are being rediscovered for their tactical as well as strategic risk reducing and return generating properties in prudently balanced portfolios.

S&P 500 Yield Chart

  • Precious metals are now trading at historically depressed levels relative to money supply; overall stocks, on the other hand, are the complete opposite.

S&P 500 Money Chart

Silver to Money Chart

  • The lack of investment in exploration and new gold and silver discoveries is setting up an incredibly bullish scenario for metals as supply is likely to remain constrained for an extended period at the same time while demand is poised to explode.
  • The year-over-year change in gold prices just broke out from a decade-long resistance. Last time we saw such strong appreciation was at the early stages of the 1970s gold bull market.

Gold Price YOY Chart