Tag Archives: GDXJ



February was a very volatile month, most noticeably the last week of the month, apparently driven by the worldwide concern about the coronavirus. We say “apparently” because we view the coronavirus to be the catalyst for an overdue decline, rather than the real cause. The cause will prove to be the distortions (over the last forty years, even more the last twenty years, and especially the last ten years) of normal monetary supply and demand created by promiscuous central banks around the world.  In any event, the selling was emotional and indiscriminate, especially last week. Gold bullion and the gold miners were both doing nicely, up over 3% and 7% respectively until the panic selling of everything last week. Gold bullion closed the month down a fraction of one percent and the miners closed down more than 10%. This kind of price action in gold and the gold miners is disconcerting for sure but not surprising in a market panic almost unprecedented.

We wrote our normal month end letter to investors in our investment partnership the first day of the new month, and, at 2 pm yesterday, after talking about how bad February had been,  I wrote  “For better or worse, we report as of the month end, which in this case could be the low point. For what it’s worth, as I finish this letter, gold bullion is up 1.3% today and our portfolio is up almost 4%.”   If I were to write the letter right now I would say that gold bullion is up 6% we are up 12% for the first day  and a half of the month.

So much for short term trading commentary. More importantly:

All the fundamental developments in the worldwide economy point to much higher gold prices and much, much higher prices of the gold mining stocks. We look back, below, at the price action of the precious metals sector in the last crisis, that of ’08-’09.

The two charts below, that of “GLD”, the ETF that tracks gold bullion, and “GDX”, the ETF that tracks the gold mining sector. The chart shows the price performance from the middle of 2008, through the bottom of early ’09, and then the recovery through the end of ’11. You can see that GLD and GDX both declined, with the stock market, until the fall of ’08, started recovering before the general market bottomed in March ’09. From the bottom, over the next two years, GLD went from about 70 to 180, up 157%, and GDX went from 18 to 62, up 244%.

It is important to note that the monetary stimulus that supported the worldwide economy ten years ago, and drove the price of gold and the gold miners so much higher, will of necessity be dwarfed by today’s needs.

In the fall of ’08, the five year US treasury note was at about 3% and the two year was around 2%. The Fed drove them down to about 0.7% and close to ZERO, respectively, while printing about $3.5 trillion. The starting point today is about 0.7% for both the five year and two year treasury, interest rates can’t be lowered by much. It therefore falls to the printing press to provide the stimulus and it will likely be a lot more than the last $3.5 trillion. By the way, the Federal Reserve Assets in ’08 were only $1T, ending at $4.5 trillion which were supposed to be reduced in a stronger economy. The economy got just a bit stronger (averaging 2.3% GDP growth) but the Fed balance sheet only was reduced to about $3.7T. It then was expanded again, through bond purchases last fall (which coincided with a strong stock market), then stopped growing in January, which may have foreshadowed the stock market collapse in February.

Today’s starting point for the Fed balance sheet is just over $4T and the ending point could be $10T. It always takes more (financial) heroin to maintain the (monetary) high. The last installment of this unprecedented monetary adventure took gold and the gold miners up well over 100% (the miners more than the bullion). The next trip should be even more dramatic, especially for the gold miners. As we’ve said before, while gold is down about 18% from it’s high of 1900 in 2011, the gold miners are down well over 50%. At the same time, the gold mining companies are far better managed, strategically positioned, and with stronger balance sheets than ten years ago.

The US Fed Reserve’s aggressively lowered the Fed Funds Rate by 50 bp a couple of hours ago. It is an interesting commentary that the stock markets rallied, but have now given up their gains and are down for the day. Our conviction is that the Fed, and the other Central Banks around the world have become impotent. Each round of stimulus the last twenty years has been increasingly less effective in stimulating growth. It is called a “diminishing marginal return on investment”. Monetary stimulus has run its course. It then falls back to the need for more fiscal stimulus, in the form of tax cuts, etc. That will have a limited effect, also, but will explode the deficit.

All of the above is supportive of much higher gold prices, and much much higher prices for the gold mining stocks.

Stay tuned.

Roger Lipton




Gold bullion was firm in January, up 4.5%. The gold mining stocks were down modestly. This short term divergence only makes the gold mining stocks even more of a bargain. There are many gold mining companies with strong balance sheets, long term reserves, and improving production. There have been hardly any large discoveries in the last ten years and it takes something like ten years to get a new mine permitted. Sharply higher gold prices will not create a lot of new supply, so much higher prices can be sustained for a long time. The mining companies have reported excellent results from last year’s third quarter, the fourth quarter results will be no different, the bullion and the miners’ price charts still look good. Though gold bullion is approaching the $1600/oz. level, most analysts have built their earnings and cash flow models on lower prices and will be revising projections sharply higher as the new bullion price range becomes more established. As described below, gold related investments are starting to become mainstream, with the emphasis on starting.

A very small percentage, something like 1% of worldwide investable assets are allocated to gold related investments. All the gold related liquid assets (mining stocks, bullion ETFs, etc.) combined amount to something like $400 billion, compared to the trillion dollar valuations of one company like Apple or Microsoft. That 1% compares to over 20% in 1934 and 1982, when investor stress was extreme and gold was considered a safe haven.

In recent years, if a mutual fund manager invested in controversial  gold related securities, his/her job could be at risk, as opposed to buying Apple or Microsoft.

However, it is starting to become acceptable to own gold related securities, as quite a few investment legends endorse the holdings. (I’ll leave it to Google to provide you with their credentials).

Ray Dalio has said: “If you don’t have 10% of your assets in gold….you don’t know history”.

Jeffrey Gundlach has said: “I’m certainly long gold….it’s getting almost exciting. Something big is happening”.

Paul Singer has said: “It makes a great deal of sense to own gold. ….the world’s central bankers are completely focused on debasing their currencies”.

Kenneth Rogoff has said: “….a shift in emerging markets towards accumulating gold would help the international financial system..”

Paul Tudor Jones has said: “My favorite trade in the next 12 to 24 months is gold….it’s possible we go into a recession….rates in the US could go down to the zero bound; gold in that situation is going to scream.”

While his fiscal/monetary credentials are not quite as well known as the above investment professionals, Roger Lipton says: “My favorite investment in the next five years is gold mining stocks. To whatever extent gold “screams”, the miners should move by a multiple of that.”

Roger Lipton




The following is an excerpt from an excellent article published recently by Myrmikan Research. We warn you advance that it is more technical than most investors like to deal with, but nobody ever said it is easy to maintain wealth. The following provides a logical and compelling case why a much higher price for gold, and gold mining stocks, is inevitable. Enjoy !!

The following is republished with the permission of Myrmikan Research LLC

Gold Past $10,000

Gold in 2019 finally burst through the $1,350 ceiling that had been established during the crash of 2013. Gold’s current price of $1,550 may be materially higher than where it has traded over the past six years, and it has returned most gold miners to profitability, but it is nothing compared to where the price of gold is headed. For the benefit of new readers and to jog the memories of long-time followers, let us work through the admittedly circuitous but conceptually simple reasoning behind the reason why the dollar price of gold is heading well above $10,000 per ounce

In 1915, the Federal Reserve’s assets were 77% gold, 7% commercial bills, and 2% government bonds (the remainder a smattering of various “amounts due” from other institutions). By 1923, those figures had shifted to 61% gold, 22% commercial bills, and 3% government bonds. There was no possibility that the Federal Reserve’s liabilities (i.e., the dollar) could decline in value when they were so backed: the Federal Reserve’s assets had almost no credit risk nor interest rate risk. Those who held dollars could at any time demand that the Federal Reserve redeem their dollars into gold, but few would want to given that the dollar was more liquid than gold and so solidly backed.

During the credit collapse of the 1930s, asset prices crashed against real money (gold) as malinvestments liquidated. Roosevelt made holding gold a felony, but there was little need: the dollar, backed by gold and commercial bills, remained relatively constant. Gold, in fact, flooded into the central bank from Europe: by 1940, Federal Reserve assets were comprised of 85% gold, 0% commercial bills, and 9% government bonds.

Contemporaneous economists understood that the dollar had not become “too strong” in the 1930s; it was asset prices that had been too high in the 1920s. But then the age of Keynes arrived, and the Federal Reserve embarked its new mission of funding the government instead of liquefying trade. By 1971, the Federal Reserve had increased its assets and liabilities by five times and lost over half of its gold to European governments (which retained the right to redeem dollars into gold): its balance sheet shifted to 12% gold, 0% commercial bills, and 71% government bonds. The Federal Reserve was no longer a liquidity provider in the mold of the Bank of Amsterdam, but a credit creator for the state.

In 1971, Nixon closed the gold window, and U.S. physical gold reserves have remained nearly constant since. But the Federal Reserve bought enormous amounts of government bonds in the 1970s to keep interest rates low to prop up government spending and financial market excesses. By the end of 1980, the Federal Reserve had increased its liabilities (i.e., the number of raw dollars) by 76% by buying government bonds. The dollar’s value collapsed.’

Under the quantity theory, a 76% increase in the number of dollars should have produce a 44% declined in its value. Or, if we look at M2, which increased by 125%, the dollar should have fallen by 55%. Instead it fell against gold by 96%.

The chart below shows what happened: as the government printed more money, interest rates rose, and the bonds the Federal Reserve holds to back the currency fell in value. It wasn’t that there were too many dollars chasing too few goods—as the monetarists claim—it was that each dollar was stripped of that which gave it value. It would as if the Bank of Amsterdam had suddenly announced that half of its gold reserve had been stolen: the value of its paper currency would immediately fall in half.

The surging price of gold—really the devaluation of the dollar—exactly tracked the increase in nominal interest rates. Note that the first surge in rates occurred when the price of gold was still fixed—instead of the price of gold rising, the U.S. lost 15% of its gold reserves to European governments.

The next chart shows the Federal Reserve’s balance sheet in terms of its gold backing. It shows clearly what happened when the Keynesians took over economic power in the 1940s and stuffed the Federal Reserve full of Treasury bonds. Then, in 1971, the reaction set in: interest rates soared and as did the the price of gold until the Federal Reserve’s existing stock backed Federal Reserve liabilities by over 100%.

Then they did it again from 1981 to today (only this time they called themselves monetarists). The Federal Reserve bought government bonds to fund the growth of the state and keep interest rates low to stimulate industry artificially. Leading up to the 2008 panic, gold increased to a price that caused it to backed Federal Reserve liabilities by nearly 30%. But then the Federal Reserve issued dollars to buy Treasuries and mortgage-backed securities, massively expanding its balance sheet and saving the malinvestments.

By the time QEs were complete, the gold backing of the dollar had fallen to just 6% (as opposed to 12% in 1969). In other words: in 2016, with gold trading at $1,050 per ounce, the price of gold was half what it had been in 1969 in terms of the Federal Reserve’s balance sheet. And, as the chart below shows, the composition of that balance sheet in 2016 was much worse than it had been in 1969 (the dip in bond holdings in 2008 was due to temporary swap lines with other central banks and other short-term extraordinary bailout programs).

In the 1970s, the duration of the Treasury bonds on the Federal Reserve’s balance was only a few years—now it is over a decade. Plus, the duration of mortgage-backed securities is inverse to the movement in rates: few borrowers refinance in a rising interest rates environment. Unlike at the Federal Reserve’s founding, when its assets were virtually immune from interest rate risk, its assets now are highly sensitive.

At the moment, when the Federal Reserve prints money to buy bonds, the result is rising prices and falling interest rates, which keeps the government funded and financial markets aloft. The end of the dollar will begin when this dynamic flips, as it did in the 1970s. At some point, the market will demand a premium to protect against the weakening position of the Federal Reserve’s balance sheet. The more the monetary authorities print, the higher rates will go, the more money the government will need to print to cover its interest payments and deficit, the lower the dollar will sink, and the higher gold’s nominal price will be.

The question is when will the dynamic flip? The great economist Ludwig von Mises argued that psychological factors are determinative:

“Finally, the public becomes aware of what is happening. People realize that there will be no end to the issue of more and more money substitutes—that prices will consequently rise at an accelerated pace. They comprehend that under such a state of affairs it is detrimental to keep cash. In order to prevent being victimized by the progressing drop in money’s purchasing power, they rush to buy commodities, no matter what their prices may be and whether or not they need them. They prefer everything else to money. They arrange what in 1923 in Germany when the Reich set the classical example for the policy of endless credit expansion, was called die Flucht in die Sachwerte, the flight into real values.”

Mises’s description of what happens after the panic begins is undoubtedly accurate, but there is no need to rely on psychology to determine when panic sets in: the cause is the collapse of cash flows from business projects due to overcapacity, which is what ended the canal boom of the 1830s, the railroad boom of the 1850s and 1870s, the stock market and real estate booms of the 1920s, 1960s, and 2000s.

After the last panic, the Federal Reserve managed to lower structural interest rates by around 4%. Existing projects looked more valuable, and the lower rates stimulated industry to build all the marginal projects that suddenly appeared to be profitable. Instead of a thorough liquidation of the financial and economic systems, the Federal Reserve engineered a new boom.

The next panic will similarly require not just a bailout of the banks but also a structural lowering of rates in order to avoid complete liquidation. This is why Bernanke announced earlier this month from his perch at the Brookings Institute that “new policy tools can provide the equivalent of 3 percentage points of additional policy space.” These new tools include: “the future use of negative short-term rates, both because situations could arise in which negative short-term rates would provide useful policy space.”

Negative interest rates that (adding the commercial banks’ spread) result in near-zero rates for large industry might well serve to keep the economy and government from complete collapse for a time. The consequences, however, would include providing gold with a positive carry as against government bonds and further deterioration of the composition of the Federal Reserve’s balance sheet.

At some point, whether it is during the next panic or the following one, the market will discover that much of society’s wealth has become entrapped in non-cashflowing malinvestments. Tax revenues will plummet, and the assets that our central bank holds will be shown to be near worthless. That is when gold will shoot into the multi-thousands of dollars per ounce.

History allows us to make some projections: The average gold backing for Bank of England liabilities from 1720 to 1900 was 33%. Private banks in the U.K. maintained a similar percentage of gold backing during this time. This percentage was set more by the market than by policy-makers: until World War I, anyone could deposit gold and demand paper or vice-versa. The composition and size of the Federal Reserve’s balance sheet requires gold to trade above $5,000 to reach one-third backing.

Looking at American history, Federal Reserve notes were freely exchangeable for gold until 1933, and the average gold backing of the Federal Reserve through that time was 54%. To reach that level of backing would currently require a gold price above $8,500.

Recall, however, that the above figures occurred when the non-gold assets on central bank balance sheets were nearly all commercial bills. Given the current composition of the Federal Reserve’s balance sheet, the market will demand more backing than one third or even a half.

The panic in 1980, for example, sent gold to a price that caused Federal Reserve liabilities to be gold backed by an absurd 135%—to achieve the similar figure today would require gold to trade over $20,000 per ounce. That was the peak of a dollar panic, not an equilibrium price, but it shows how crazy the gold market can get.

The nominal figures above assume that the Federal Reserve will keep the size of its balance sheet constant. But, of course, as Bernanke has telegraphed, the central bank will start printing as soon as recession looms. The Federal Reserve has, in fact, already starting printing to support the repo market, the primary funding mechanism for both the state and real estate loans.

Bernanke claimed on 60 Minutes: “We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.” This is exactly what Federal Reserve governors thought would happen in 1979 when they boosted rates to 21%. Instead, the dollar went into it final swoon as the Federal Reserve’s bond portfolio collapsed in value.

The money to push gold over $10,000 per ounce has already been printed. And now they are going to print more. The bubble economy is already teetering. No doubt strong fiscal and monetary intervention may extend its life for a time, but then the ultimate price objective for gold will then be markedly higher. The gold miners will do even better.

The above article excerpt is republished with the permission of Myrmikan Capital LLC

Roger Lipton



November was a fairly quiet month in the capital markets, the general equity market up modestly, bonds little changed, gold and gold miners down slightly. Gold bullion was down 3.2%, the gold miners , as measured by the the mining ETFs (GDX and GDXJ) were down about the same. The three mining mutual funds we follow (Tocqueville, Oppenheimer, and Van Eck were down about 4.0% on average. For the year to date, gold bullion is up about 13.7%, and the miners are up better than 60% of that. Our partnership, almost entirely invested in gold minng issues, has performed similarly. Still, we feel this is just the beginning of a resumption in the long term bull market for gold (see the chart below) and the highly leveraged, and still relatively depressed gold miners.

The chart below shows the price of gold versus the S&P average, since 2000, clearly indicating the resumption of a long term uptrend. For those of you that want to look longer term, the S&P average was about 100 in August, 1971, when gold was $35.00/oz. and Richard Nixon eliminated the conversion of dollars into gold, so gold is up 42x since 1971 and the S&P is up 30x. A critic of this analysis might point out that from 1980 to 2000, gold bullion went from $850 to $250, but we believe that $850 was probably too high, and the 20 years that followed were an aberration after inflation was (temporarily) tamed.

If you want to look longer term, before 1971 and going back to 1934, after FDR devalued the dollar by raising the price of gold from $20 to $34, the S&P has gone from about 100 to 3000, up 30x, and gold is up about 44x. The long term return from stock ownership would include dividends, which gold does not provide, so this comparison is not quite fair, but the main point here is that it is not the dollar, or another paper currency that is the real money. Gold has been the only surviving currency over thousands of years. The appropriate view is that in 1913, when the US Fed was established, to control inflation,  a US dollar was worth 1/20 of an ounce of gold, and today a US dollar is worth only 1/1500th of an ounce of gold. The US Dollar has therefore lost over 98% of its value, not exactly a record to be proud of.

THE US ECONOMY – the best house in the worldwide bad neighborhood.

Though the yield curve is no longer inverted, aided by the fact that the FED has pumped almost $300B into short term paper in the last ninety days, there are tangible signs that the US economy is slowing, and is not far from rolling over into recession. After 2.1% real GDP growth in Q3’19, the New York Fed is now predicting Q4 GDP growth at just 0.4%, and the normally bullish Atlanta Fed is now down to 0.3%. Both estimates have been coming down week by week. In the public marketplace, with 65-70% of the US economy dependent on the consumer, reported results are mixed. Walmart and Target are doing relatively well, but Kohl’s (KSS) and Home Depot (HD) reported disappointing results, lowered guidance for the current quarter. It is noteworthy that Kohl’s is a discount retailer and Home Depot is dependent on new housing and renovation, both important portions of the consumer related economy.


We’ve written many times, relative to Central Banks’ attitude toward Gold, investors should do as they do, not as they say. They don’t like to confirm that gold is the ultimate store of value, as opposed to the fiat/cyber currencies that they produce with the stroke of a computer key, backed only “by the full faith and credit, yada, yada”. However, the chart below shows vividly that they switched from seller to buyer in 2010 and that continues to this day. They bought 374 tons in the first half of ’19, which would annualize to over 750 tons, a record. This represents about 20% of worldwide annual production of 3500 tons. The likelihood, also, is that China’s accumulation is substantially understated.


 JAPAN – three “lost decades” later – with Central Bank intervention

Japan’s experience since the peak of their GDP growth and stock market in 1989-1990 provides an insight into the power, or lack thereof, of a central bank to stimulate growth. The easy money strategy in Japan has been especially prevalent since prime Minister Shinzo Abe took office seven years ago. Interest rates in Japan have been below zero since 2015, and the Bank of Japan has printed money to buy bonds and equity ETFs to the point where the BoJ balance sheet is now 104% of 2018 GDP, up from 40% at the end of 2012. This compares to 20% and 39% of GDP in the US and Europe respectively. Japan has demonstrated that, while Central Banks may be able to paper over a pending financial collapse, stimulating economic growth is another story. GDP growth in Japan has averaged all of 0.49% from 1980 until 2019, with an all time high of 3.2% in 1990 and a low of -4.8% in Q1’19. Part and parcel of the Japanese situation is that their government debt is about 250% of GDP, much higher than the US situation, which is just above 100%. An optimist could conclude that the US has a long way to go before our Fed balance sheet or government debt becomes a problem. That might be true, and we might also be looking at GDP growth no higher, and perhaps a lot lower, than 1% for the next 20-30 years.

There are many other fiscal/monetary developments that should be supportive of higher gold prices, including the new surge in government deficits and accumulated debt, also the surge in low rated corporate debt that would be a huge burden in a weaker economy. It’s trite but true: you don’t get out of a hole by continuing to dig, and that, unfortunately, is the primarily strategy of worldwide fiscal/monetary policy makers. We are available, as always, to discuss your questions and concerns.

Roger Lipton



The equity averages were up modestly in October. Interest rates, intra-month, went down, then up, then down again after the Fed predictably lowered rates, ending the month where they began. Gold bullion was up 3.0%, and the gold miners were up closer to 5% For the year to date, gold bullion is up about 17% and the gold mining stocks are up about 30%. Still, this is just a beginning. The miners have just begun to outperform gold bullion on the upside. We expect gold bullion to go up by a multiple of its current price, and the gold miners by a multiple of that multiple. See point (4) below.

The most prominent recent short term developments that come to mind are as follows:

  • Whatever you call it, “QE4” or “whatever”, the latest monetary accommodation by our central bank has clearly begun. The Fed, as expected, lowered the fed funds rate by 25 bp last  Wednesday, and tried to make the case that rates are on hold, “pending the incoming data”. They should talk to the world class economist, David Rosenberg, who provides many indicators that point to consumers (who have been keeping the GDP positive) backing off. For the moment, in spite of the highly touted “greatest economy in US history”, GDP growth, in Q3 was all of 1.9%, and slowing. Furthermore, while the (disingenuous) Fed talked about buying treasuries starting October 15th at a rate of $60B per month, their balance sheet started expanding the week ending September 4th and is already up by $260B by the week ending 10/30. That’s a rate of $130B per month (started in early September, and double the stated $65B objective), and that’s in addition to the tens of billions they are adding to the repo market daily to add to short term marketplace “liquidity”. We don’t pretend to understand the daily repo market, but the need for Fed “intervention” on a daily basis cannot be a sign of financial strength within the capital marketplace.
  • We agree with David Rosenberg, who predicts that short term interest rates will move toward the zero bound as the Fed tries (in vain) to support the economy. There will be many painful unintended consequences from ten years of interest rate suppression. We can’t help to interject here, relative to gold: all the gold ever mined, about 160,000 tons,  is worth less than half of the current worldwide debt selling with a negative yield. The argument, therefore, that gold is “useless” because it earns nothing has become moot. Nothing is a better return than a negative yield.
  • The disillusionment, finally, with the ridiculous valuations of the money losing “unicorns” (i.e. WeWork, Uber, Grubhub, et.al.) indicate that the monetary debasement and credit bubble that has supported the last twenty years of (meager) economic expansion is finally winding down. In response, however, it is clear that the worldwide central banks will double down with their monetary heroin. It took more than $10 trillion of fresh paper to avoid economic disaster in 2008. It will take $20-30 trillion the next time. It always takes a bigger “hit” to stay “high”.
  • The gold miners have just begun to report their  third quarter, which is the first quarter in eight years that gold has been $200/oz. higher, YTY, and the operating leverage is asserting itself. The first group of mining companies that has reported so far has shown dramatically better results and those stocks have jumped 7-10% in days. With bullion down 20% from its high, but the miners down 50-75%, there us obviously the potential for a major upside move in the gold mining stocks.

Roger Lipton




Gold bullion is up about 14% for the year. The gold mining stocks, leveraged to the price of gold, are up more, as is our investment partnership, RHL Associates, LP, up about 20% for the year as of this morning. If ever the time was finally right for, what we consider to be, the single most undervalued asset class, it seems to be now. The gold miners will be reporting earnings for Q3 starting in early November, and it will be the first quarter in eight years where the average price of gold will be about 20% higher than a year earlier. Due to the leverage above break-even mining costs, earnings for the gold miners, depending on mining costs, could be from 40%-100% higher than a year ago.

While gold bullion is about 25% below its high, the mining stocks are trading at 50-75% below their highs of 2011-2012, so the upside price action could be dramatic. We believe that the “catch up” will be just a prelude to an even bigger move when the gold price breaks out above its $1900 high. If gold goes to a multiple of its current price over the next five years, the gold mining stocks could, and should, go to a multiple of that multiple.


For the first time since we transitioned our partnership, formed in 1993, from consumer stocks to gold related investments in 2011, we are formally opening to new investors. The last six years have not been pretty but 2019 is much better and we think it is just the beginning. Roger Lipton has always been, and will continue to be, the largest investor. The minimum investment is $500,000. The compensation arrangement is “1&10”, a 1% annual fee and 10% of profits, much lower than most investment partnerships. Funds can come in on the 1st of any month, starting November 1st, and can be redeemed at the end of any quarter, with 30 days written notice. There is no required minimum holding period. This is, obviously, a very brief description of RHL Associates, LP, should not be considered an “offering”, which can only be done by way of a formal offering circular. Contact us if you have a potential interest.


You don’t get out of a hole by continuing to dig. Central banks around the world kept their economies moving forward (modestly) by the creation of something like fifteen trillion dollars. Turns out that, predictably, the debt burden has limited the GDP growth to under 2.5% in the US and Japan, not much more than that in Europe, and China’s hyper growth of the last thirty years has steadily slowed to just over 6%, and that is doubtful. In the US, after growing the Fed balance sheet from $800 billion to $4.5 trillion, it was reduced only to $3.76 billion before they said “basta”. Ten days ago, Jerome Powell said they would start increasing the balance sheet by $60 billion per month. WHAT HE DIDN’T SAY WAS THAT, BY OCTOBER 2ND THE FED BALANCE SHEET HAD ALREADY INCREASED TO $3.946 TRILLION FROM $3.760 TRILLION FIVE WEEKS EARLIER, AN INCREASE OF $186 BILLION. Seems like a couple of hundred billion these days is hardly worth discussing.

Japan and Europe are doing the same, $16 trillion of sovereign debt with negative interest rates is likely to increase, and there is no graceful way out of the worldwide credit and debt pyramid. Gold related assets are, at the very least, a useful hedge against problems in other asset classes.


We try to read between the lines when monetary policy is discussed by our distinguished Fed governors. One of the principles underlying our ownership of gold related assets is that: the debt cannot be repaid. The numbers are too large. There will be a “default” but it will be in the form of inflation. An outright stated default, a blatant unwillingness to pay off interest or principal on the debt is politically unacceptable. We have all heard the commentary that the US will always make the necessary payments because we can just print the (unbacked) dollars. Of course this represents an abuse of our privileged position as the keeper of the world’s primary reserve currency, and for the time being that beat goes on. As a consequence, inflation is the likely solution. The public won’t blame the politicians for the continued “wealth gap”, and will continue to wonder why, though their wages are rising, their purchasing power never seems to keep up. Recall our article of August 14th, when we showed a chart of the wealth gap, starting in the early 1970s after Nixon closed the gold window and inflation took off. A 1971 dollar is worth about $0.15 today.

Almost everyone has forgotten that the Federal Reserve Bank was formed in 1913 to control inflation. In the new paradigm, the Fed has stated that 2% inflation is not only acceptable but is the stated goal, and other central bankers have followed along. Note however, that, EVERY TIME JEROME POWELL MENTIONS THE 2 PERCENT GOAL, HE SAYS “SYMMETRICAL 2 PERCENT”. You heard this here first ! This means that, because inflation has been running by less than 2% for some time, the Fed will not be disturbed if it runs above 2% for an extended period of time. Recall that inflation was 11-12% in 1974, 1975 and 1979 and north of 5% in almost all of the 1970s. Once the inflation genie is out of the bottle, it is folly to think the Fed will be able to control how high it goes, and they don’t really mind because the debt is easier to pay off. At 3-4%, it will be within their “symmetrical two percent” goal, and who knows how high it goes from there.

The price of gold went from $35 to $850 in the 1970s, the last time the world went through this type of situation, and gold is just as cheap today relative to the amount of currency and debt outstanding.

Roger Lipton



Gold bullion and the gold miners had a “consolidation” in September, though still up for the quarter and the year. Gold bullion was down 3.4% in September. The average of the two major ETFs, GDX and GDXJ, was down 11.1%.  It should be remembered that gold bullion is still up 14.5% for the year and the gold miners are up over 20%. This is  reasonably impressive performance of this presumably counter cyclical asset class,  considering that the US Dollar is at a high, as is the general equity market.

Virtually all of the decline in September was in the last week, which has been typical every year since 2013, prior to Golden Week in China (where a great deal of gold is bought, both by the government and the public). Golden Week is a 7-8 day semi-annual holiday. We’ve shown charts below of the gold price in the week before and after the start of this holiday, and you can see the decline and recovery which has been typical. For what it’s worth, gold is up 0.5% this morning at 11:00am as this is written, and the gold minering stocks are up over 2%. All the economic trends that we have long discussed are still in place, and accelerating.

There are a number of major current developments, all supportive of gold demand.

  • QE4, a new round of money creation is already taking shape. The Fed has been forced to insert $50-75B of funds daily in the form of “Repos” into the short term fixed income markets. While these funds roll over from day to day, supposedly don’t accumulate, this sort of intervention is a sign of unusual strain within capital markets. Supposedly short term intervention aside, the Fed Balance Sheet has started expanding once again. After bottoming at $3.76 trillion on 8/28, the latest total is $3.858 trillion, up $88 billion in the last two weeks. The Fed has publicized their “data dependence”, but balance sheet expansion so soon has not been implied.
  • The Japanese monetary authorities are newly committed to a new round of monetary stimulus, a continuation of the strategy that hasn’t worked for over twenty years. You don’t get out of a hole by continuing to dig.
  • WeWork’s rapid transition from (private) market darling to a bankruptcy risk is a powerful form of therapy for worldwide money managers. This kind of disillusionment can quickly undermine capital markets, both debt and equity, and is an example of how crises develop “very slowly, then very quickly”.

Roger Lipton



The capital markets were skittish in August, increasingly worried about an economy that is slowing under the influence, among other things, of trade tensions. Much of the news continues to be supportive of higher prices for gold related securities. and our portfolio benefitted accordingly. Gold bullion was up 7.9% in August and is up 18.6% for the year to date. The mining stocks were up slightly more than bullion in August, and are up approximately double the gain in bullion for the year.  While we are gratified with the gold miners’ relative performance to date, they are still down far more than bullion from the 2011 high. Gold bullion is down about 20% from the 2011 high of $1900/oz, while the two largest gold miner ETFs, GDX and GDXJ, are down 54% and 75% respectively. Putting it another way: If bullion goes up 25% from here, back to its high, GDX and GDXJ could go up 100% and 300% respectively and our broad portfolio of miners should mirror that order of magnitude. Since we anticipate that bullion has the potential to sell at a multiple of the $1900 previous high, the 100% and/or 300% move as described above could be just the beginning.

There has been an increasing amount of media attention relative to the appeal of gold related securities, not all of it especially well informed. We want our readers to be as well informed as possible, so we we reprint below our article from 8/14, “THE CASE FOR GOLD”. Most of it is not new to our readers over the last several years, but we have tried to pull it all together. It’s been said that: “In every crisis, you can either be a fool before or after”. If a crisis is indeed ahead of us, we clearly fall into the former camp with our writings over the last several years, but we like to think that our conviction is at least well founded.


Our conviction regarding gold, and gold related investments revolves around our conviction that gold is the real money, has been for thousands of years, and the reasons have not changed. Gold is limited in supply, durable, and accepted worldwide as a unit of exchange and a store of value. It is true that gold is useless in terms of being consumed or generating a return such as a dividend. However, it is the indestructibility and scarcity that have made it most useful in terms of backing paper currencies that could otherwise be diluted into oblivion by the politicians of the day. This has in fact been the consistent case throughout history and it is hard to conclude that today’s politicians, worldwide, will prove to be any more disciplined than those of the past.

A second part of our premise is that without a sound currency, there cannot be a sound economy. Unless the public has confidence in the buying power of the earnings that are received as a result of their effort, they will exert less effort in that pursuit. This has been reflected through the ages, before and including ancient Rome to the 21st century.

A corollary of the paper currency dilution is the inevitable higher price of goods and services. You don’t need a PHD in economics to understand that an increasing amount of currency chasing a fixed amount of product will result in higher prices. It so happens that this result is far more acceptable from a political point of view than the fiscal and monetary discipline necessary to avoid deficit spending. This predictable outcome produces a cruel tax on the working middle class (wealth gap?) that doesn’t understand why they are taking home a bigger paycheck but it just doesn’t seem to go as far as expected.

Another way to look at gold ownership as a long-term hedge against inflation: If we view gold as a currency/commodity, which competes with other similar “asset classes”. This includes the latest asset class which consists of over 2,000 cryptocurrencies led by the headline grabbing bitcoin. The amount of gold that is produced every year amounts to about $160 billion each year, and increases by about 2% annually (which happens to be approximately the rate of long-term real growth in the worldwide economy). Compare this production of gold, requiring substantial capital investment and risk, with the creation of trillions of dollars annually of unbacked (fiat) paper currencies that are produced with the click of a computer mouse. Which asset class do you think will hold its “value” better over the long term?


The “wealth gap” that is decried by politicians around the world began to rear its head in the 1970s. We believe it is no accident that August of 1971, when Richard Nixon closed the gold window, ushered in this unfortunate phenomenon. The chart below shows this clearly.


The following charts show how public and private debt has expanded since 1971 and how the US currency in circulation has expanded exponentially. It is interesting to observe how the US public and private total debt exploded in 1930 as the GDP sank 30%, fell back through the depression, stabilized through WWII and the post war industrial expansion, before taking off in the 1970s. As above, we believe it is no accident that a 1971 dollar has retained only about 15% of its purchasing power by 2019.

Some might argue that inflation has been subdued in recent years, running under the Fed target of 2%, even though deficits are rising. In fact, many PHDs are scratching their collective heads, wondering why this is so. However, while apparel and some consumer electronic products have not risen in price, the cost of large ticket items such as education, healthcare and rent have risen sharply during this period of monetary accommodation. The paper currency creation, worldwide, with the stated intention of a “wealth effect”, has inflated stock and bond prices. That wealth has predictably largely bypassed the middle class consumer, but allowed a Van Gogh painting to sell for $250 million and co-ops in New York City and London to trade for $100M or more. The suppression of interest rates has also affected the purchasing power of the upper class and fixed income dependent savers in that you need much more savings to maintain a previously enjoyed living standard.


Central bankers have no use for gold because gold, as a governing mechanism for the issuance of the paper currency, puts the central banker out of business. However, they know where the bodies are buried so let’s follow what they do, not what they say. The following charts show the consistent accumulation over the last ten years by the central banks, notably by Russia and China, two or our greatest adversaries. It is worth noting that reported Chinese gold holdings are assumed by many to be very much understated.


The following chart shows the value of the gold held by the United States, since 1918 (shortly after the Fed was established in 1913), relative to the adjusted monetary base. You can see that from 1913 until just before the end of WWII, the value of the gold was about 35% of the monetary base. After the Bretton Woods agreement in 1944 whereby the US Dollar was established as the reserve currency, the percentage drifted down. The monetary base was growing steadily, and the US gold backing was declining, but the world was relatively unconcerned during a postwar recovery period. In the late 1960s, however, as US spending for the Vietnam War and President Lyndon Johnson’s Great Society accelerated, US trade and operating deficits became widely anticipated. Over 50% of the US gold was exchanged for dollars within eighteen months prior to August, 1971, when Richard Nixon “closed the gold window”. At that point, our gold amounted to only 6-7 % of the US monetary base. This level is important because we are back to that same level today.

We are not suggesting that the US, or anyone else, will make their paper currency convertible into gold any time soon. It wouldn’t work for long, in any event, because deficits in all major trading countries are larger than ever, and paper currencies would once again be tendered for gold. No country could back their currency with gold, unless they were “balancing their books” or, at the least, that prospect was in sight. We do, however, feel that the value of the gold “in circulation” should have a relationship to the value of alternative currencies. You might be surprised to learn that the country most able to make their currency convertible into gold would be Russia, perhaps our most prominent political adversary and a consistently large buyer of gold.


We refer to a couple of charts to approximate a reasonable level for the price of gold, relative to (1) a percentage of foreign exchange reserves and (2) as a percentage of paper currency in circulation. The chart just above this section shows that the value of the gold relative to the paper currency in circulation has a history, during steady non-inflationary growth, of being in the range of 25-35 %. The chart below shows the value of central bank gold holdings as a % of total foreign exchange reserves.

The chart above indicates that 7% could be 35%, or five times the current price. The chart below indicates that 7% could be 45% or 6.4x the current price. These ballpark calculations indicate what we consider to be a rational value of 5-6x the current $1500/oz, or $7,500-9,000/oz. This ballpark price range objective is at the current time. Since the upward adjustment in the gold price will likely be over a number of years, the appropriate price would be even higher by then.


The following two charts provide insight into the possibility of an imminent major upward move. The first chart shows the high correlation of the gold price to the amount of worldwide sovereign negative yielding debt, now amounting to a cool $15 trillion. People, that’s a big number and even in Germany, the strongest European country, the entire yield curve is now negative. We believe that the amount of negative yielding debt will continue its upward march, and could even include some of the US debt. The continued upward trend of this indicator could be influential in breaking the gold price out above the previous all-time high of $1911. That, in turn, could ignite the price toward the price objectives noted above.

The second chart shows a nineteen-year price chart of gold. It shows the end of an 11-12-year bull market, ending in 2012, then a 6-7 year “consolidation”. The price has now clearly broken above $1400, the previous high. Chart technicians would say that the longer the base, the bigger the move. It is conceivable that a new bull market has begun that could last for quite a few years. This would tie in to our logic that the price of gold could be 5-6 times higher over a number of years.


You get the picture!!

Roger Lipton

P.S. We produced two YouTube videos back in 2012 relative to this subject matter, each of which remains completely relevant. They are each only three minutes long. We have provided those links below:






The general equity market was up just a little in July as the investing world waited to see how aggressive the Fed would be in terms of lowering rates. When the cut in rates yesterday afternoon was only 25 basis points, all capital markets sold off, with his remarks interpreted as if this cut would be “one and done”. This will not be the actuality, in our opinion, as extended monetary ease will be necessary to support the weakening worldwide economy. It is encouraging to us that, with gold bullion virtually flat for the month of July, based upon the prices of GDX and GDXJ, the two largest gold mining ETFs, and TGLDX, OPGSX, AND INIVX, the three precious metal mutual funds that we track,  the gold mining stocks were up about 5% for the month. This price performance is starting to reflect the inherent operating leverage within the miners vs. the price of gold bullion. For the year to date,  the gold mining stocks are up about 24.1%, nicely outperforming gold bullion which is up 9.9%.

The price action of gold bullion and the gold mining stocks is beginning to attract attention, but ownership is still almost non-existent among North American investors. Many of the reasons provided by observers have some validity, but are nothing new to all of us. The monetary stimulus, the deficit, the debts, the geo-political risks, the political dysfunction, the increasing social unrest and the wealth gap are all continuing worldwide trends that have long been in place but are suddenly become newsworthy. It’s been said, in response to how a crisis develops: “very slowly and then very suddenly”. The following are a few of the most important reasons that precious metal holdings are all of a sudden performing well.

FUNDAMENTALLY: David Rosenberg, one of the most highly regarded investment strategists, and not a perennial “gold bug” by any means, just a couple of weeks ago, wrote “WHY GOLD HAS ALLURE”.

(1) The Fed is set to cut rates (as discussed above), which will send the fed funds rate into negative territory in real terms.

(2) Geopolitical risks, including Iran’s behavior, are increasingly bothersome.

3) Trade talks with China do not seem to be making progress, and Beijing has “tools” to hit back, including the ability to weaken their currency and/or continue reducing their US Treasury holdings.

(4) The economic war between the US and France is heating up, as Emmanuel Macron imposes a tax on American large cap tech companies. At the same time, trade tensions increase between the US and Japan, as well as South Korea.

(5) The Chinese economy, as well as the entire Asian economy, is clearly in retreat, adding to the prospect of worldwide monetary ease.

TECHNICALLY: In terms of supply of demand for physical gold, and the price charts:

(1) Central Banks around the world have continued their massive accumulation, a total of 374 tons in the first half of calendar ’19. While the first half total was down around 5% from ’18, the annualized rate of 750 tons is far more than in prior years. Russian and Chinese Central Banks continue their steady accumulation.  India, between their central bank and their population, perennially the second largest accumulator of physical gold, imported 78 tons in May alone, running 49% ahead of a year earlier. Poland has now joined the other major buyers, buying a huge (for them) 100 tons in the second quarter alone. Sine the total annual worldwide production is about 3400 tons, these purchases are very meaningful.

(2) The price charts, for gold as well as gold mining shares, indicate much higher prices. Gold bullion has broken out to a five year high, though still 25% below the 2011 high. The gold mining shares are at three year highs but are still as much as 75% below their 2012 high.

The gold mining stocks are still substantially undervalued by many historical measures. Gold bullion, is down about 25% from its all time high of about 1900 in 2011, but GDX (the ETF with the larger miners) is down over 50% from its high and GDXJ (with the small to midsize miners) is down 75%. Our expectation is that gold bullion, will sell for a multiple of its current price and the mining stocks at a multiple of that. The timing, as always, is the big question, but the pieces seem to be falling into place, as outlined above.

In summary, there are never any certainties, especially in the short run, but it seems like both fundamental and technical considerations are in gear, and indicating much higher prices for precious metal securities.

Roger Lipton




David Rosenberg, one of the most highly regarded investment strategists, and not a perennial “gold bug” by any means, just this morning wrote “WHY GOLD HAS ALLURE”.

(1) The Fed is set to cut rates, which will send the fed funds rate into negative territory in real terms.

(2) Geopolitical risks, including Iran’s behavior, are increasingly bothersome.

(3) Trade talks with China do not seem to be making progress, and Beijing has “tools” to hit back, including the ability to weaken their currency and/or continue reducing their US Treasury holdings.

(4) The economic war between the US and France is heating up, as Emmanuel Macron imposes a tax on American large cap tech companies. At the same time, trade tensions increase between the US and Japan, as well as South Korea.

(5) The Chinese economy, as well as the entire Asian economy, as clearly in retreat, adding to the prospect of worldwide monetary ease.


In terms of supply of demand for physical gold:

(1) Russian and Chinese Central Banks continue their steady accumulation.

(2) India,  between their central bank and their population,  perennially the second largest accumulator of physical gold,  imported 78 tons in May alone, running 49% ahead of a year earlier.

(3) The price charts, for gold as well as gold mining shares, indicate much higher prices. Gold bullion has broken out to a five year high, though still 25% below the 2011 high. The gold mining shares are at three year highs, still 60% below the 2012 high.


There are never any certainties, especially in the short run, but it seems like both fundamental and technical considerations are in gear, and indicating much higher prices.

Roger Lipton