Buy Gold Or Bitcoin? This “Liquidity Party Is Ending”

Goldnomics Podcast (Ep. 5) Key Quotes and Transcript

– “This liquidity party is ending. They’re implementing quantitative tightening”

– “If quantitative easing had positive effects, why shouldn’t quantitative tightening have negative effects for the valuation of those asset classes?”

– “When the tide goes out, as Warren Buffett says, you find out who’s been swimming naked. I think a lot of people will be standing naked in the coming months”

– “Most of the emerging market countries are constantly buying gold; it’s not only Russia or China of course, it’s also India, it’s Turkey, its Kazakhstan and so on”

– “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down…”

– “95 percent or more of all those crypto currencies in the market at the moment are bogus and will be wiped out in in the next couple of years”

– “As soon as we see theses financial head winds becoming tailwinds we’re going to see big moves in the gold market”


DAVE RUSSELL: Hello and welcome to episode 5 of the Goldnomics Podcast where we’re looking at developments in global financial markets through the lens of precious metals.

And I’d just like to remind you before we start that to stay up-to-date with all of our monthly podcasts, you can subscribe to us on YouTube, on iTunes and on SoundCloud as well.

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Now I’m Dave Russell and I’m joined as usual by our world-renowned precious metals expert Mark O’Byrne.


DAVE RUSSEL: …and CEO of GoldCore Stephen Flood…

STEPHEN FLOOD: Hi everybody!

DAVE: and our topic for discussion this month is In Gold and Bitcoin We Trust?

And to help us to discuss this we have a very special guest with us this podcast and it’s Ronald Peter Stoeferle. Ronnie is the managing partner of a fund manager called Incrementum, based in Liechtenstein.

Incrementum is a fund and wealth manager and Ronnie manager one of the funds there and they  are managed based on the principle of the Austrian School of Economics. Ronnie’s research, his comprehensive In Gold We Trust Report is respected internationally and a must read for all gold investors.

So, welcome Ronnie!

RONALD-PETER STOFERLE: Thanks for having me gentlemen. It’s a great pleasure!

DAVE: Great, great! Ronnie we’ve published and we’ve shared your report the; “In Gold We Trust” report which has been going for… you’ve been doing this for how many years?

RONNIE: 12 years already!

MARK:  I thought it was 9 years! Well done!

DAVE: The most recent one has been published within the last month or so.

And bringing it around to our topic of conversation for the day: In Gold Silver and Bitcoin We Trust?, you particularly looked at three key findings and you refer to them as your ‘three tides of change’ when it comes to the financial markets and their effect predominantly on the precious metals markets. What are those three tides specifically?

RONNIE: As you know the 2018 edition of the “In Gold We Trust” report is quite a brick again, it’s 230 pages. The light motif of the report is “The Turning of The Tides”, so the three tides that are turning are: first of all, in monetary policy. We are seeing that this liquidity party that we’re having for ten years now, those 15 trillion that were printed out of thin air by central banks, this liquidity party is ending. So, what we’re seeing is that the Federal Reserve is implementing quantitative tightening. For this year it’s going to be 420 billion but next year it will already be 600 billion. So, starting in October 2018, every month US$ 50 billion will be reduced from the monetary base. This is per definition deflationary and it’s not only the Federal Reserve that is tightening. It is also kind of, although with quite some time lag, the European Central Bank, it’s also the Japanese that might become hawkish etc.

So, the thing is most people underestimated the consequences of quantitative easing. It had tremendous effects on valuation of asset prices, stocks, bonds, and real estate all over the world, creating this everything bubble. The thing is, if quantitative easing had positive effects, why shouldn’t quantitative tightening have negative effects for the valuation and prices of those asset classes? I think that that’s something that the market is completely under-estimating at the moment.

The second thing which is a bit more longer-term I would say, is the de-dollarization. We’re seeing that this de-dollarization is getting stronger. We’re seeing that geopolitical tensions are also getting strong and from my point of view they’re often based on economic problems that we’re facing due to our monetary system that was basically implemented in 1971, when we changed to a complete fiat money system. I think this system is at the verge of ending and this de-dollarization is a long process. We’re seeing that most of the emerging market countries are constantly buying gold; it’s not only Russia or China of course, it’s also India, it’s Turkey, its Kazakhstan and so on. Those countries are diversifying out of the US dollar into gold, and the third thing is of course, about cryptocurrencies.

Cryptos have been stealing the show from gold and many people in the gold industry do regard cryptos and especially Bitcoins as an enemy for gold. From my point of view there’s many applications being introduced at the moment that show that they should both be viewed as more complementary rather than incompatible assets. So, I think that’s a very important point that we’re making here. Millennials that are very interested in technology but probably wouldn’t go to a bank and buy physical gold because some of them obviously have never entered a bank in their lifetimes. I think for them it’s extremely important to get an alternative way to buy physical gold and I think the combination of crypto and blockchain technology and gold totally makes sense.

DAVE: Right, okay! So, we got our three tides, as you say. Let’s have a look at a bit more detail at the monetary policy one for a couple of minutes and I’ll bring you in on this Mark. You’ve read the report, the full report. What’s your take on the monetary policy tide change?

MARK: First of all, I’d like say congratulations to Ronnie on another excellent report. It really is a must-read as we said, because it ties together so many things going on in the wider markets but also in the gold market.

And Ronnie and his partner Mark do a great job at just joining the dots and bringing it all together. It’s a great report, it’s the must-read every year as you said and it really is comprehensive and I think anybody even the most sceptical person, anti-gold person in the world would read a report and say ‘you know the guys have made a great analytical database, very empirical, all fact-based very little opinion actually,’ because it’s all data, it’s all the facts and they’ve done a really, really great job.

You know we first published the Ronnie’s report in 2009 because it was  so comprehensive. Ronnie was at Erste Bank and I met Ronnie in 2011 or 2012. And every year I think it’s actually getting better you know.

This year what I love about it is the three themes and the tides.

We know in our own small little island nation we know the power of the sea. When the tide comes in, when the tide goes out, it’s a very, very powerful dynamic. And when the tide goes out, as Warren Buffett says, you find out who’s been swimming naked. You know I think a lot of people will be standing naked in the coming months.

To get into the monetary policy, what I thought was great about the report is he focused on the monetary policy and then the monetary order. In today’s media coverage of the gold market and indeed the wider financial markets, focus is solely on the monetary policy. These days it is actually solely on what the Fed will do and to less extent what the ECB and the Bank of England and the Bank of Japan will do in terms of their monthly interest rate meetings. And all the media gets worked up if the Fed is going to increase by 25 basis points or 50 basis points or whatever it is you know. But they’re completely ignoring the elephant in the room, and Ronnie’s report just showed very clearly the powerful effects the quantitative easing has on all our economies and indeed all the various asset classes creating this everything bubble that we’ve covered before in the podcast and…

DAVE: We covered that in episode 2 I think, didn’t we?

MARK: Exactly and then we’re going to see the flip side of that, I mean it’s amazing people, as Ronnie said, are realizing the massive positive effect on one hand and also there is going to be a negative effect when this stimulus is withdrawn, if they managed to withdraw. Because I think they’ll struggle to do it. I think it will lead to deflation in the short term potentially and then they may need to go back to quantitative easing, I think, that’s a fundamental thing. Ronnie had a great chart actually showing exactly what he spoke about there and in it you see the combined increase in the balance sheet of all the central bank’s rising, rising, rising and then it’s the top of the curve. As we’re beginning to come down the other side, it’s quite precipitous actually you know.

I think it’s going to have a quite significant impact on all the markets and particularly I would think the bond markets. The monetary order is something that people don’t cover at all in terms of the dollar as a reserve currency of the world and Bretton Woods and that every day you see a new headline comes across the wires showing how we’re moving to a multipolar world of many currencies.

DAVE: Before we move on to that, I’ll just bring Steve in on this because Steve this is something you have talked about quite eloquently over the last number of podcasts, which is just the vast amount of liquidity that we have seen in the world, particularly over the last 10 years, and how that fact’s going to factor into the gold price going forward. How do you see that at this stage?

STEVE: Congratulations on the report Ronnie it’s an amazing achievement…

RONNIE: Thanks a lot!

STEVE: …You’re a credit to your industry and to everyone else.

You know if we’re ever going to get ourselves out of this this problem, this man-made problem it’s through knowledge, you know, insights. It’s through research and fact-based decisions, evidence-based decisions. And this report is something that’s now on everyone’s desk and everyone’s looking at it. It’s helping to focus people more than ever.

I thought what was fascinating in terms of your question there Dave, it’s a Pandora’s box you know, they’ve opened it up. They solved a problem many years ago, a debt-based problem and they basically created an enormous amount of liquidity, it’s washed its way into every major market. It’s an everything-bubble and now the problem is how do you take that, how do you deflate that bubble and not blow up the system?

You know they’re looking at a double-edged sword. They’re looking at a massive inflation threat and all of the problems that brings and yet they