Precious Metals Underperform in 2021
What to Expect ?
By David Mitchell
2nd September 2021
Disclaimer : The information contained in this article should be used as general information only. It does not take into account the particular circumstances, investment objectives and needs for investment of any investor, or purport to be comprehensive or constitute investment advice and should not be relied upon as such. This article is our opinion and analysis.
Year 2021 has most certainly been an extremely disappointing year in precious metals to date (this has to be put into context as silver rallied by 2.6X, Platinum by 2.4X from March 2020 to Feb 2021), every other asset class has risen in price in 2021 to date, from property, stocks and crypto but especially the whole commodity sector (oil, gas, copper, grains etc..) has risen in price, commodities have effectively entered into the early stages of a new commodity super-cycle bull market (as we predicted through many articles several years ago that 2020-2021 was going to be the start of the new super-cycle).
Alongside rising prices we have enormous bottlenecks in supply of manufactured products, shipping container shortages, major chip shortages globally etc.. which helps support the enormous surge in inflation over the last 12 months, more importantly on the back of the huge monetary aggregate expansion (see further down in this article).
This inflation is not transitory, it's deep rooted and over the next few Qtr’s we expect the data to become ever more evident, we are heading towards Stagflation.
The USA Consumer Price Inflation
So why have precious metals (monetary metals) in particular have either fallen in price or incredibly stagnant? Especially considering the dramatic macro fundamentals for the likes of platinum for example, huge and growing long-term supply issues alongside rapidly rising demand curves (simple price discovery cannot ignore this for much longer, including silver).
Globally they are still printing money like crazy in support of government largesse deficit spending and enormous global infrastructure plans, in fact it seems only the mad Zimbabweans have beaten them in the money printing lunacy.
This can be clearly seen through Central Bank balance sheet expansion who are printing money and buying government debt and market assets.
This supposed emergency short term policy instigated in the Global Financial Crisis has now been running for over 10 years and counting.
Total global debt is expected to hit US$ 277 Trillion by year-end 2021. That’s according to the Institute of International Finance (IIF), but does not include unfunded liabilities or shadow banking debt leverage (which are truly enormous), this debt pile globally has actually grown approximately +6% for the last 8 months of this year, debt growth is clearly outpacing economic growth even with zero percent interest rates. Debt in developed markets is set to hit 432% of gross domestic product (GDP) by the end of 2021.
This calamitous global debt crisis (largest in history) will have terrible consequences for the global economy over the medium term horizon (thinking otherwise is simply naive), this is mathematically impossible to avoid. Markets are ignoring this presently leveraging their positioning and debt growth into giant housing and stock markets bubbles, as long as the central banks do not lose control of the whole ‘house of cards’ and continue to print then no problems apparently.
People have very short memory spans, they forget the various market crisis years of 97-98, 2000, 2007-2009 and 2012, but now of course they believe we are all good and the house of cards is solid!
AUCTUS Portfolio Performance
We have experienced and achieved amazing returns for our clients since the start of 2016 (which we targeted as the start of next major 8.6-year cycle in monetary metals), every year beating out pretty much all asset classes in price appreciation performance, but nothing 'ever' travels in a straight line and indeed Year 2021 has proven that the monetary metal prices require themselves to back-fill and consolidate after big price rises.
Now you could argue this actually makes no sense whatsoever and seems to depart completely from real world fundamentals when looking at inflation data, monetary aggregate expansion, monetary debasement and tensions around the world. The market could also argue that price manipulation has been apparent, or the fact we have had capitulation of precious metal longs to invest elsewhere.
To help explain more accurately why the poor performance of precious metals (monetary metals) in 2021 we have to first understand how they move ? I wrote this a few weeks ago about the king of the monetary metals ………
Gold has historically been an incredible holder of purchasing power versus currencies which consistently lose value over time. The market will highlight that Gold is a reliable hedge against inflation but actually this is not entirely accurate. Between the years 1980 and 2002 we had high compound rates of headline inflation and yet Gold fell in value against currencies for over 20 years, again this can be seen during this year 2021 with extreme inflation pickup globally and yet gold has fallen in price. Gold is more accurately a “crisis hedge” and a fantastic holder of purchasing power over very long periods of time. Gold price tends to rise very dramatically and corrects its under-priced situation in times of crisis and hence recognizing where we are within the larger macroeconomic cycle is of paramount importance.
Globally the world believes we have entered a new growth stage of the overall economic cycle, ignoring the plain facts we are at the end of a major economic cycle which is a blow off top based on the worlds massive money printing and aggregate expansion with enormous debt leverage and hence they believe they do not need the safety of precious metals when the world looks so rosy and bright.
So they are simply ignoring the extreme and unsupportable valuation metrics of stocks and housing, although Buffett, Dalio, Paul Tudor Jones, Kyle Bass, Sam Zell, Mark Mobius etc, etc .. are warning these markets are perilous and moving themselves into portfolio diversification of metals and commodities.
My role is to examine the cycles and hard fundamentals, and if these factors change then a rebalancing of my own portfolio and my clients needs to be made or advised, even out of metals altogether if neccesary. But the fundamentals are becoming ever more extreme for a massive revaluation in metals by several multiples at least, this is a big statement, but I stand by it ....... this trend higher in precious metals is simply irreversible.
Diversification across your total portfolio is essential in our view, and based on significant supply-demand issues, absolute valuation metrics and diversification metrics, this clearly points towards the commodity complex led by the monetary metals using varying and multiple market analysis.
Definition: Asset market diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset class sector or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets and sectors.
Many institutions are now diversifying their balance sheets, while at the same time we hear of many individuals moving in the opposite direction and leveraging into housing and the stock markets at these elevated and extreme levels.
Palantir Technologies for example as the latest company diversifying said it’s preparing for another “black swan event” by stockpiling gold bars. The company spent $50.7 million this month on gold.
This being a widely recognised fact that 80 to 90 % of market investors either lose or underperform the standard indices because…
1. They do not understand the enveloping macro-economic fundamentals in the larger framework,
2. They only buy when its rising and invariably when it’s risen a great deal and ignore valuation metrics
3. They never buy when an asset is on sale and a screaming buy, as they perceive value with rising prices only.
The likes of Buffett and Dalio get rich by buying on sale and sell when expensive, recognising valuations and understand the macro case inside-out
Towards the end of this year 2021 and into Year 2022 is when we start to enter the last 30% of the cycle in monetary precious metals of which historically 80 to 90% of the whole overall price revaluation is experienced. I believe it’s a good, accurate report and worth reading again.
Metals are on sale here now and I am personally buying more on any significant dips, this is not a sales pitch but an honest review and analysis of where we are in the bigger picture looking out over the next 3 years.
2nd September 2021 Update : Job numbers this Friday (3rd September) in the USA are going to be important for markets due to the statement from Fed chairman Powell last Friday out of the jackson Hole Symposium.
Good job numbers means asset markets will very likely be sold really quite hard as they believe the Fed (as they stated last Friday) will start Tapering on good job numbers (reducing their money printing velocity) and hence markets get hit as they are only up here in the first place with the enormous monetary aggregate expansion / debasement and highly negative real nominal interest rates.
Metals may well get hit in price initially, but selling is pretty much exhausted and all the financial institutions (banks particularly) are sitting short and hence buying and prices moving higher is the weaker side of this equation.
Hence any major dips are an enormous opportunity, as they cannot stop money printing in the face of massive global government deficit spending under the new MMT policy framework, government bond issuance without a guaranteed buyer will force debt markets to sell off (tsunami energies of new debt supply meeting exhausted debt buying) this in turn forces interest rates higher which crashes the whole house of cards.
Policy leaders will react and increase aggregate expansion by means of outright money printing yet again.
This is why the diversification into the commodity complex is so essential, led by monetary metals.
Protect your wealth; invest in physical gold, silver or other precious metals at best prices from Indigo Precious Metals. Physical delivery across the world.
Consider the safest option of segregated, allocated vault storage at Le Freeport Singapore with IPM Group.
Disclaimer : The information contained in this website should be used as general information only. It does not take into account the particular circumstances, investment objectives and needs for investment of any investor, or purport to be comprehensive or constitute investment advice and should not be relied upon as such. You should consult a financial adviser to help you form your own opinion of the information, and on whether the information is suitable for your individual needs and aims as an investor. You should consult appropriate professional advisers on any legal, taxation and accounting implications before making an investment.