Von Greyerz: Why Buy Gold When There’s Bitcoin & Tesla

Instant gratification is what drives the world and especially investment markets.

I often hear complaints that gold is a useless investment since it doesn’t go up fast enough.

We have invested heavily into gold for ourselves and our investors since 2002 when the price was $300.  Since then gold is up just under 6X.

Sure it has not been a straight line and there have been major corrections on the way.

STOCKS ARE TODAY A GARGANTUAN RISK

But Bitcoin and Tesla are much more exciting so why should an investor hold gold – an incredibly dull investment for the majority of people.

If I tell investors that it is absolutely critical to hold gold for wealth preservation purposes as the world financial system is the biggest bubble in history, most would ignore or ridicule me.

And if I tell them that the dollar and most currencies are down 97-99% since 1971 against gold and down 85% since 2000, they would yawn. They are only interested in their nominal stock market gains not understanding that they have gained nothing in real terms.

But if I proclaim that gold in 2021 could reach $3,000 some will prick their ears. (More about gold reaching that level, and higher, later in the article.)

Still most people prefer to stay in stocks totally unaware that the majority of stock investors are going to ride the stock market all the way to the bottom. And this time it won’t be a V bottom like March 23, 2020 but an L bottom lasting at least a decade or longer.

Both fundamentally and technically a stock market crash of massive proportions is guaranteed. Whether it starts tomorrow or we first see a final meltup is unimportant. Regardlessly, THE RISK IS GARGANTUAN!

CASSANDRA WAS ALWAYS RIGHT BUT ……

I can hear voices calling me a Cassandra and a doom sayer. For the ones who don’t remember Greek mythology, Cassandra was the daughter of king Priam and was given the gift of prophecy by Apollo. But as Cassandra did not respond to Apollo’s approaches, he gave her a curse that although all her “dark” prophecies were accurate, nobody would believe her.

I am not a Cassandra predicting doom and gloom but just someone who has spent his life analysing and understanding risk.

That’s why for example in 1999 I told my partner in an e-commerce business that we must sell the company at the then ridiculous valuation of 10X sales with no profit. The buyer was a Nasdaq company which went bankrupt a few years later after an acquisition spree paying grossly inflated prices.

WHY BUY GOLD WHEN THERE IS BITCOIN AND TESLA

Most of the expert tech investors in the late 1990s rode the market all the way down by 80% with many companies going bust.

Risk analysis is also why I wouldn’t buy Bitcoin. Yes, I am aware that a speculative mania could drive it to $1 million. But I am also aware that governments could ban Bitcoin, making it worthless.

So not a good risk in my view.

An equally terrible risk is Tesla.

To buy Tesla at a P/E of over 1,000 and a pie in the sky market cap of $650 billion is as risky as jumping out of the Empire State Building.

If Tesla doesn’t fall by at least 80% in real terms over the next few years, I will eat my hat. Not that I expect to lose that bet, but to get some enjoyment out of the minuscule chance of being wrong, the hat would of course be made of the finest Swiss chocolate!

Remember that an investment can become more overbought than anyone can imagine just like the Nasdaq in 1999-2000. But the subsequent fall is inevitable.

REAL STOCK MARKET GAINS ARE 85% LOWER

Most people still measure their assets in currencies like dollars, pounds, euros, that are dropping faster than the Niagara Falls.

If you want to know your real stock market gains since 2000, you should deduct 85% since that is the loss of the dollar’s purchasing power in real terms since then.

More than 99% of investors will have lost money on that basis. So maybe they are not so clever after all.

Oh, how wonderful stock market gains are until you realise that it was all an illusion due to governments’ and central banks’ complete screwup of the economy and the currency.

Governments have learnt from master manipulators like Goebbels that you can fool all of the people all of the time. And this is simply because greed and the need for instant gratification stop people looking for the truth.

GOLD – $3,000 NEXT

I have recently received more emails than usual from people that are totally disillusioned with gold. I hasten to add that they are not from our clients who master the art of wealth preservation. This is normally a very good sign that a turn of the gold price is near.

These emails are from investors who are buying gold for instant gratification. Anyone who bought gold in 2000 at $290 is not concerned. But the ones who bought near the top in 2011 around $1,900 have obviously had a long wait.

What makes them more frustrated is seeing stocks going to ridiculous heights whilst they are missing out.

TWO DOZEN REASONS WHY OWNING PHYSICAL GOLD IS IMPERATIVE

Let me give people who are frustrated with the gold price the reasons why they shouldn’t be:

  1. Firstly, physical gold is not bought for instant gains but as insurance and protection against a rotten financial system and constantly depreciating currencies.
  2. If you buy gold for the right reason, you are buying ounces or kilos of real wealth that should not be measured on a regular basis in a currency which is being debased on a daily basis with unlimited printing of worthless paper money.
  3. Your best friend when it comes to supporting the value of gold is your central banker. Remember that throughout history he has without fail worked diligently to destroy the currency.
  4. Right now we are in the midst of the biggest global money printing exercise in history. Gold has not even started to reflect the total annihilation of paper money.
  5. In relation to US money supply, gold is today at the same level as in 1970 when the gold price was $35 or in 2000 when gold was $290.
  6. Just reflect on the statement in the chart below. In real times gold is now as cheap as in 1970 just before it started to climb 24X from $35 to $850 !!!

  7. And it is as cheap as it was in 2000 before gold climbed almost 7X from $290 to $1,920.
  8. Like most commodities, gold moves in waves or cycles. It is no use worrying about if gold at certain times is manipulated by the BIS (Bank of International Settlement), central banks and bullion banks.
  9. Yes of course there is intervention, these banks admit it themselves. Even Alan Greenspan, Federal Reserve chairman at the time, testifying before the U.S. Congress in 1998 admitted, “central banks stand ready to lease gold in increasing quantities should the price rise.”
  10. We see regular flash crashes in gold at nighttime when the market is dead with the price dropping $30-50 in a few seconds. This is blatant manipulation as nobody would sell big quantities of gold in a market where the buyers are asleep.
  11. As has been reported by many market observers like Alasdair Macleod, there are major shortages of gold and silver on the London market.
  12. To alleviate this the BIS is issuing gold swaps to the bullion banks so that they with paper gold can make up the major physical short falls. I have regularly reported the massive turnover of paper gold on the London market. The daily LBMA trading is 2X the S&P trading.

  13. This frenetic juggling of paper gold by the BIS is clearly a desperate attempt to cover up major shortages in the physical market. Why else would gross trading volumes be 2X greater than the S&P 500 which is a much bigger investment market.
  14. Like all manipulation the chicanery in the paper gold and silver markets will eventually fail spectacularly.
  15. As Matt Piepenburg and I have covered in many articles, inflation is likely to surge in coming years and so will interest rates. But just like in the 1970s, real inflation will be running ahead of interest rates, creating negative real yields which is very beneficial for gold. As I mentioned above, it was in that climate that gold went up 24X.
  16. The correction we have just seen in gold was a natural part of the cyclical move of any commodity. For the last few weeks, I pointed out that gold would go down to the low $1,700s and probably overshoot on the downside as is often the case. Well, that is exactly what happened and the correction is now over. Still, it is important to understand that an unlikely attempt at around $1,670 again would not change the very bullish picture for gold.
  17. The coming upmove in gold will be extremely strong and take everyone by surprise. There will be no reason for a major correction before the $3,000 level.
  18. Whether gold will go to my long standing target of $10,000 IN TODAY’S MONEY or reach Jim Sinclair’s target of $50,000, we will see in the next 5 years. Also likely are probably hyperinflationary levels of $100 million or $100 trillion.
  19. The levels above are neither forecasts nor meant to be sensational projections for attention seeking. No, they are likely consequences of all the factors that I have outlined above.
  20. Exponential deficit and debt growth combined with galloping money printing will inevitably destroy most paper currencies in coming years.
  21. The major structural shortages of physical gold and a failure of the gold paper markets could make physical gold unavailable at any price.
  22. What I say about gold above will be even more relevant for silver which is likely to go up 3-5X as fast as gold. But remember that silver is not for the fainthearted since it is considerably more volatile than gold.
  23. In the coming bear market for currencies and bull market for precious metals, gold and silver will not just maintain purchasing power but massively outperform and become the must have investment.
  24. But above all, do not buy gold and silver for speculative purposes. Gold and silver is your insurance against the coming end of a monetary era when all currencies and bubble assets will implode.

You can today buy this insurance of gold and silver at a ridiculously low price. Don’t wait. Soon this insurance might not be available at any price.

Authored by Egon von Greyerz via GoldSwitzerland.com