The Gold in the Volcano

Mount Vesuvius, possibly the world’s best known volcano has erupted at least three dozen times since 79 A.D. (Oregon State University : Volcano World) [1]

Lava lies inside dormant yet festering under a seemingly unmoving platform until often without warning, when optimal conditions present themselves, it spews up with a mighty force making its’ presence known. The lava creates a random path like a President who cannot be accused of lying when he himself probably doesn’t even understand what fire is spewing from his mouth. When the lava has finished its’ run, it returns to the dormant stage and the mouth retreats having done its’ damage.

It’s a cyclical thing - just like the gold market that see-saws from bull to bear to bull dependent on factors that drive the force.

And on the other end of that see-saw are stocks. It’s no secret that historically when stock markets have increased, usually gold has decreased and visa versa.

Right now we are in the longest bull market for stocks in history. Since March 2009, the bulls have been rallying presenting record gains. https://www.cnbc.com/2018/08/22/longest-bull-market-since-world-war-ii-likely-to-go-on-because-us-is-best-game-in-town.html

Following tradition, gold has been in a bear market. However, if current economic predictions come to fruition in the next couple of years, the weight of the see-saw could shift and we could see an end to the bear’s hibernation season as it comes roaring out of its’ cave, ready once again to take on the world.

It’s no secret that governments use many means to ‘manipulate’ the economy. In theory, they are supposed to do it for the good of the general public. Unfortunately, theory is seemingly not always put into practice.

With the US $700+ billion bank bailout of 2008, it was supposedly done for the overall good of the economy. Ironically, millions of people who had lost their homes and savings in the crash, now had their tax money used to bailout the very people who had apparently caused or contributed greatly their ruin. With the economy in such a horrible state and again following a traditional path, gold started to rise taking the heavier weight of the see-saw as prices gained 25% from 2008 ($869.75) to 2009 ($1,087.50)[2] OnlyGold.com.

You can only imagine people desperately looking for some form of stability as the economy systematically spewed out one dangerous burning lava spill after another and politicians and bankers shut themselves up in their wood-grained offices nodding their heads in unison while looking after their own interests first.

Gold, a rock-solid glittering asset that is understood amidst all the turmoil, should seem like a logical place to turn. Hence, the significant increase in price between 2009 and 2010.

Over the next few years, gold decreased as the economy slowly emerged from the recession. As economic conditions improved, gold followed the pattern of hibernating back into a bear market.

The current bull market in stocks has had a long run. I believe that the end of the marathon is coming, like the last runner panting to the finish line, striving to make it just a little bit further in shoes now worn down, having seen better days.

The massive world debt points strongly to a weaker economy coming into play. If/when that happens, gold should once again rise from its’ submerged depths at the bottom of the market volcano providing some kind of security against being burned by the smoldering market.

In my recent talk at the Sprott Inc. sponsored Newsletters Writer Presentation speech at PDAC 2019, I outlined reasons as to why I believe we are soon to be entering into a world-wide crisis including economic and geopolitical. Both of these are boon for the price of gold. My interview outlining this with INN can be found here: https://www.youtube.com/watch?v=ic5gh103gqQ

Unlike 2008 when we experienced a big spike down in the economy/real estate market and stock market, I believe the next downturn will consist of smaller bubble bursts from geopolitical to many down days in the global stock market to real estate value downturns. When the carnage is over, the price of gold should benefit. Looking back at 2008, it only took less than two years for the price of gold to reach new highs of over US$1900/ounce.

The up and coming crisis I believe will mimic that of a 1937 downturn that was seen as a recession within the depression. The big downturn happened in 1929. Fast forward to modern day, 1929 can be compared to 2008, and the possible upcoming crisis may be seen like the 1937-1938 downturn. Not as sharp as the 1929 downturn but still significant.

And like Mount Vesuvius, once the lava has spewed out burning those who are ill-prepared to deal with the crisis, investors may be well-advised to put safety precautions in check as the economy slowly festers and a molten lava economy is spewed out that runs downhill without control burning stocks and other investments in its’ wake. In this case, you might want to consider ways to turn that molten lava into gold.

Happy Investing!

Dr. Kal Kotecha

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[1]Oregon State University : Volcano World : What’ the most recent eruption of Vesuvius and will it erupt again?https://volcano.oregonstate.edu/what%E2%80%99s-most-recent-eruption-vesuvius-and-will-it-erupt-again