Buffett Bets on Reset, Will You?


You have to have gold,’ he said. ‘The system’s too discordant not to have gold.

So says billionaire investor Kerr Neilson in today’s Australian Financial Review.

Buffett’s Berkshire Hathaway has a stake in US gold

How interesting this endorsement comes hot on the news that Warren Buffett’s Berkshire Hathaway now has a stake in US gold miner Barrick Gold.

The Twitterati and ardent gold bugs are in a froth because Buffett has been notoriously dismissive of the yellow metal in the past.

I saw a suggestion that Berkshire’s position probably came from a Buffett lieutenant rather than the great man himself.

He is slowly handing the business over to his heirs. And no wonder. He is 90. His sidekick Charlie Munger is 96. How amazing they’re still at it as they are.

Nonetheless, Berkshire’s new dalliance in a gold stock can’t be anything but a bet on higher gold prices.

My colleague Shae Russell launched her service in 2018 to bring gold investing to Aussie investors.

Even giants of the field like Buffett and Neilson are thinking along similar lines.

The glowing mail she receives from her happy subscribers is testament to how accurate her forecast has been here.

And how big the returns have been for some of her positions.

One of them is up nearly 500% in just over a year. Another is just under 300% in the same time frame.

That’s for her exclusive Hard Money Trader service.

But Shae also offers a service called Rock Stock Insider.

This is where you can get the deep, macro view of what’s driving the gold price from her wide network of contacts.

For example, nothing in the market moves in isolation.

Cleary there is a significant correlation between the amount of negative yielding debt in the world and the gold price.

See for yourself…

Profit watch

Source: Stansberry Research

[Click to open in a new window]

There is now US$14 trillion worth of negative yielding debt in the world. And the gold market is responding.

There’s little opportunity cost in holding gold (in terms of yield) if bonds don’t pay an income.

That’s not to say there isn’t capital risk. You can still lose money in gold if the price retreats.

Buying physical gold is best thought of as a long-term hold against the depreciation of paper money over time.

Australian market expert, Callum Newman, reveals the unexpected impact of the lockdown he sees on the property market — where real estate prices could take a short-term hit before quickly rising to new heights. Click here to learn more.

Gold is fixed in supply

Paper money can be created at will two ways. One is with a general credit expansion via the private banking system.

The second is via the central banks.

It’s, usually, actually the private banking system that creates the most money.

The hardcore gold bugs tend to focus on the central banks, however. They like to get steamed up about this centralisation.

Getting hot and bothered about this was probably a waste of time for the last 30 years.

However, I’m not so sanguine anymore.

The current financial system has become so unjust, and inequitable, that it’s becoming a political problem as well as an economic one.

A harmonious economy begins to break down when the distribution of wealth is too polarised.

The mainstream media like to describe this in dry terms of a ‘return to capital’ or ‘return to enterprise’ while the ‘returns to labour’ stagnate.

This description has some truth. Jeff Bezos is proof of this.

However, it conveniently promotes a fiction that all economic activity is productive and in the service of the consumer.

People are not idiots. It’s blindingly obvious that staggering wealth can be leeched from the system using what the classic economics called ‘rent extraction’.

This can be done using government privileges such as casinos, patents, resource leases and other business licenses that block competition.

But the major one rent extraction is capturing land rents in the real estate market.

The idea that there’s free and fair access to opportunity here is absurd.

The aggregation of wealth in the US and now the UK and Australia, to the top 10% shows that there’s no automatic stabilising force to stop this.

This society will continue to polarise before the financial system breaks down further and needs to be reset.

Gold is signalling this. The current monetary regime is unlikely to survive the next decade.

Gold is a market we must watch for further signs of breakdown.

Callum Newman Signature

Callum Newman,
Editor, Profit Watch