Let's bury a little gold in the garden

Gold price has been slowly inching its way up; now, with geopolitical uncertainty on horizon, is gold a good investment? North of 60 Mining News – February 2, 2024

 

Last updated 2/1/2024 at 12:49pm

A gardener digs a shovel of soil in a garden.

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Given the economic and geopolitical uncertainty, it may be wise to bury a little gold in the garden.

Each year, I enjoy traveling to Vancouver, B.C., to attend what used to be called the Cordilleran Roundup, sponsored by the Association for Mineral Exploration of British Columbia. It is always a worthwhile exercise if, for no other reason than on the Wednesday night during the convention, the Alaska Miners Association sponsors "Alaska Night," which is a foodfest without peer (and with lots of beer) for all registered comers.

Generally, Alaska Night is an opportunity to rub elbows with Alaskan miners who are interested in doing business with Canadians and Canadians who want to do business in Alaska. The convention also features high-level presentations on geology as well as economics and finance, and the associated trade show is always very impressive.

This year, I attended a couple of presentations about economics and had some interesting takeaways.

First, (not surprisingly) the prognosticators were bullish on the price of gold. Among the reasons stated was the observation that the central banks were accumulating and essentially hoarding in-kind gold, presumably against the possibility that the U.S. Dollar was eroding in value.

That implication was coupled with the concomitant observation that a number of countries around the world, especially the BRICS countries (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates), are working very hard to find ways to de-dollarize international trade.

Second was the concern that the American national debt has increased to over $38 trillion, approximately 120% of the gross domestic product and that the debt service on that obligation is currently about $1.8 billion per day.

Put differently, our taxes are generating less than our spending, and in due course, the shortfall is going to have to be made up by the taxpayers.

Another thought that was shared was that the Canadian Critical Minerals Tax Credit system has stimulated the development of critical minerals in Canada. The U.S. does have a critical minerals tax credit program; however, as I understand it, it is underused and too modest to stimulate significant new critical mineral production.

The Finance Keynote lunch address was given by Peter Grosskopf, who, among other things, is a Director of the World Gold Council (WGC). Mr. Grosskopf, as part of his talk, raised the idea of block-chaining gold similar to emulating exchange-traded fund transfers, in which case people would be able to buy and sell serially-numbered gold bars directly without having to take possession of and securely store them, á la Bitcoins.

The fun part of listening to economists prognosticate is that they cannot see any further into the future than geologists can see into the ground. If one were to lay all the economists in the world end-to-end, one would never reach a conclusion.

Whether we will have a recession in 2024 or not is an open question. We shall know in a year or so. Whether the U.S. economy will somehow fail or we will all have to pay more taxes to reduce the national debt is an open question. The WGC says that gold may reach $2,200 an ounce by the end of the year – or maybe it won't.

The WGC's analysis is driven by an evaluation of geopolitical risks, including several major elections globally, as well as the Middle East conflict and central bank demands. In 2023, excess central bank demand added an estimated 10% to gold's performance.

Of course, all eyes are on inflation and Federal Reserve rates. J. P. Morgan, for instance, takes the position that the expectation of federal reserve rate cuts in 2023 boosted bullion prices and additional cuts in 2024 may prompt another bullish run. Gold historically has been a safehaven insurance during times of geopolitical stress.

With two codgers vying to be the next leader of the free world, especially a world on the brink of open warfare, it will be hard to get their attention over a trivial thing like the national debt-to-GDP ratio.

If we are in a time of unusual economic uncertainty, we can take comfort in the knowledge that both of the leading candidates for the White House have a track record of dumping lots of cash into the economy. During Trump's presidency, the national debt increased by $8.18 trillion, and during Biden's presidency, so far, the national debt has increased by $6.4 trillion.

To paraphrase the late Senator Everett Dirkson, "A trillion here, a trillion there, and pretty soon you're talking about real money." One thing is certain, however: the wise placer miner always buries a little gold in the garden.

 

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