Commodity Trade Mantra

Buy Gold for What It Does, Not for Its Price

Buy Gold for What It Does, Not for Its Price

Buy Gold for What It Does, Not for Its Price

Will the Fed raise rates? Will it hold steady? What will the next move mean for gold?

Investor and creator of Things that Make You Go Hmmm Grant Williams doesn’t really care. He’s going to buy gold regardless. In fact, during an interview at the Mauldin Strategic Investment Conference, Williams said he doesn’t really pay attention to the price of the yellow metal:

I think what the Fed does could have short-term impact, but I don’t buy gold around it. I don’t buy gold at $1,100 because I think it’s going to $1,200, I buy it for what it does, not what the price is, the price is the last consideration for me.”

Williams went on to say as the economic picture comes into sharper focus, people will realize that “gold is the answer.”

Williams said investors should focus on owning physical gold, not paper promises:

When we get to that point that people want to own gold, ETFs won’t suffice any more. A promise to deliver three months hence is not going to be sufficient any more. People will want to own the asset. At that point, you realize that there are multiple hundreds of claims per registered ounce, and those claims won’t be worth anything anymore.”

The discussion then turned to the “war on cash.” Williams said it is a carefully orchestrated and logical move for politicians and central bankers, because ultimately they are going to have to take money from the people who have it.

Highlights from the interview:

“I think what the Fed does could have short-term impact, but I don’t buy gold around it. I don’t buy gold at $1,100 because I think it’s going to $1,200, I buy it for what it does, not what the price is, the price is the last consideration for me.”

“We’re watching this picture slowly develop, and we’re getting to the point the picture is discernable. It’s not quite clear yet, but the picture is discernable. Every day, it fixes a little bit more, and I think we’re getting to the point where people are going to be able to see the picture. At that point, gold is the answer. So, it’s not just an asset any more, it is the answer to a lot of people’s questions.”

“When we get to that point that people want to own gold, ETFs won’t suffice any more. A promise to deliver three months hence is not going to be sufficient any more. People will want to own the asset. At that point, you realize that there are multiple hundreds of claims per registered ounce, and those claims won’t be worth anything anymore.”

“You’re going to see it [gold] react again as this credibility is slowly fading away around what central bankers are capable of. Not just the outcome of their policies decisions, but in terms of the broadness of their thinking, which is getting narrower by the day. That’s when you’re going to see gold react again and that to me only resolves in much higher prices.”

“The thing you’re being discouraged most of is cash…If people hoard cash, it negates what the Fed are trying to do – lower interest rates, get people spending, bring the velocity of money up. You can see the results are all in the opposite direction…The trend is now such that the savings rate is tripled. That is not something you would expect as a Federal Reserve governor to be the outcome of taking rates to zero. The idea it to make it unattractive to hold cash.”

“Holding cash – the optionality that you have inherent in owning cash now has certainly not been higher since going into 2008, and you’ve now got this tailwind of people saying we don’t want you to hold cash. We are going to actively discourage you from holding cash.”

[Eliminating physical cash] is a perfectly logical next step. If you look at the narrative around it, it begins with having to report any transaction over $10,000. It carries on with no cash transactions over 500 euros in places like Italy. You then get the narrative that the 500 eruo-note is exclusively used by drug dealers and money launderers, likewise the $100 bill. And it was interesting to watch the length of time that story was played out in the media. There were countless articles about how bad cash was, how the move to ban these higher denomination bills was, and very quietly a couple of weeks ago, the Germans signed into law they were going to ban them. That was come and gone in a day.”

“Having the ability, through digital cash, for a government to reach into your bank account and take 10%, 20%, whatever it may be is what they need. They can see this coming. At some point they are going to have to take money from the people who have it to fill the hole in the people who spent it.”

 

 

Courtesy: Samuel Bryan

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