Gold: “The Incubation Period, Has It Just Begun?"

[Teach]

This post is a sequel to my recent commentary: “Is It Too Late To Buy Gold?” Let me state at the outset that I’ve bought and sold gold and silver stocks for the better part of four decades. I’ve always considered gold as an “insurance policy.” Just in case… This current period may just be one of those “just in case” times. Safe-haven.

Before I get to the crux of my message, next week, events in the financial markets should be very interesting. The question: “What does the Fed do?” Too put it mildly, a lot hinges on what Chairman Powell and the Board of Governors decide upon.

Furthermore, it wasn’t that long ago, before the Silicon Valley banking debacle, i.e., SVB, that 25 points was a given. There were those who were saying it could even be 50. But then came the banking “crisis”. Now we’re hearing that “standing pat” is a distinct possibility. But what about inflation? It has, at least from recent data, appeared to mitigate. Maybe “ease” is a better word. Yet it lurks, metaphorically speaking, “in the shadows.” No, inflation has most definitely not gone away.

As for my “incubation” phraseology in the title of this post, I’ll begin by saying that my training and subsequent teaching was in the field of history, not economics. Yet those two disciplines are interrelated.

In this vein, I turn the clock back nearly 100 years to the 1930’s, the “Great Depression” decade. Both historically and economically, there was an event that occurred in the late-1920’s that triggered the financial woes of the subsequent decade. That was the stock market “crash” that occurred in the fall of 1929. Yet it wasn’t until the winter of 1932-33 that the economy hit “rock bottom.” When President Franklin D. Roosevelt was inaugurated on March 4, 1933, our country was in very bad place. F.D.R. believed in government intervention to get us out of the throes of the “Great Depression.” His predecessor. President Herbert Hoover, believed in “rugged individualism.” Hoover believed in minimal government involvement, at least when contrasted with F.D.R.'s “New Deal.”

That brings me to the present. Let me preface my remarks by saying I don’t believe we’re on the precipice of a “Great Depression.” Yet I worry about what we, the public, don’t know. How bad is this banking crisis? That’s where the Fed comes in, and for that matter, the Biden administration. What they both do, or don't do, in the coming days and weeks can have potentially history-making consequences.

As for my “incubation” comment, as cited, it took three years between the 1929 stock market "crash" and the nadir months of the Great Depression to “play out." That is the reason that gold, as an investment, is a most viable option. I personally can’t see this current economic situation disappearing anytime soon. You just can t say "abracadabra" and put the genie back in the bottle.

So, in conclusion, I’m staying “long” gold until I see otherwise. In many respects, I see, heretofore, the events of the 2020’s very much like the "heyday years" of the 1920’s.

In fact, it took the entire decade of the 1930’s to get back to an more even economic footing. There was, in 1937, a “Roosevelt recession,” just about the time he was being inaugurated for his second term. Some books I've read say it was the beginning of WW2 and our involvement in those hostilities that really served as “the engine” that allowed us to extricate ourselves from the Great Depression.

In concluding, yes, I for one, am sticking with gold. I still don’t think it’s too late to “put your feet in the water.” Yet I’ll leave you with one caution: Gold can, metaphorically, be a lot like ascending a high peak, i.e., Mt. Everest. You can certainly reach that top (if you’re an experienced climber). but you can descend, once having reaching the summit, very rapidly. That’s why, although I believe we are nowhere "climbing" toward the summit, I believe that you should remain "cautious." Nimble. There are likely going to be times where you might consider “taking something off the table.”

Finally, yes I believe there’s still time to profit from investing in gold. I see the current situation as harking back to that three-year period of time that it took from the days of the fall of the 1929 when the stock market crashed to when the Great Depression, three years later, reached its full-blown depths. You could call that time-period "an incubation period."

[Bustin Stones]

I think that's a very interesting way of viewing history.
My way of thinking is that money you don't need at this moment can be sunk into various assets for future use. And your choice is to invest in frozen assets or productive assets. Frozen assets are like gold or real estate. They rise and fall without contributing to food, shelter, etc. Then, you have assets that fund the start ups or ongoing running of businesses that provide food, shelter, etc. During times of inflation, monies leave productive assets and pour into frozen assets so that investors who fear their saving won't keep up with inflation, will keep pace. And then, as inflation subsides those funds move back into productive assets. Because if, during low inflation, your real estate is profiting at 2% a year but you can get 9% in stocks, you should have stocks. In the short term inflation can hurt profits and lower company stocks, but in the long run those companies won't be selling at a discount to the new value of money. They'll also rise to the new value. So, in the long run, companies do protect you from inflation as well. I'm not sure what world exists where we won't need companies that make food, shelter, transportation or loan money.