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Ask The Expert

Ask The Expert - Ronald Stöferle - October 2021

ATE with Ronald Stöferle


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Ronald-Peter Stöferle is Managing Partner and Fund Manager at Incrementum AG, where he manages a fund that invests based on the principles of the Austrian School of Economics. A lecturer at the academy of the Vienna Stock Exchange as well as at the Institute for Value Based Economics, he is co-author of a book on investing titled Austrian School for Investors – Austrian Investing between Inflation and Deflation

Since 2007, Ronald has written the annual In Gold We Trust report, now considered the industry standard publication on gold, money, and inflation. It provides a “holistic” assessment of the gold sector and the most important factors influencing it, including real interest rates, opportunity costs, debt, central bank policy, etc. Since 2013 it has been co-authored by his partner Mark Valek. 

The latest report can be found here: https://ingoldwetrust.report

In another value-packed edition of Ask the Expert, Ronnie answers six of your burning questions, including:

  • Will the Fed be able to fully taper their current QE program in 2022?
  • With real interest rates sharply negative, why are gold prices falling?
  • Plus: Are central bank digital currencies the next phase in the war on cash?

For the answers to these questions and more, listen here:

Voiceover: You're listening to "Ask the Expert" on Sprott Money News.

Craig: Welcome back to "Ask the Expert," our monthly series here at Sprott Money News. I'm your host, Craig Hemke. And of course, it is now October of 2021. And this month's special podcast is with Ronni Stoeferle. Ronni, of course, is an old friend, who's a managing partner at Incrementum in Liechtenstein, but also the principal author of something called "In Gold We Trust." And man, that baby comes out every springtime in May. And if you are interested in the precious metals, I'm sure you know. I mean, you look forward to it every year. It's a special report, gosh, Ronni, with at least 100 pages, it seems, every year, full of all kinds of good information. And so it's a real treat to get to visit with Ronni for "Ask the Expert." Ronni, thank you so much. I appreciate it.

Ronald: Thanks for having me. How are you, my friend?

Craig: Just doing great. Just doing great. And with that "In Gold We Trust," like it's sometimes more than 100 pages. Isn't it, Ronni?

Ronald: Well, actually, the compact version sometimes is 100 pages. The extended version, or, as I call it, the triple X version, last year, it was 350 pages.

Craig: Oh gosh.

Ronald: So you really have to take some time off, you know, and dive into the topic. But I think it's worth. And, you know, if there's only one thing that you read about gold once a year, it should be "In Gold We Trust."

Craig: Most everybody feels that way. I mean, you know, doing what I do every day and being involved in the sector, I don't know anyone that doesn't look forward to it every May. And here we are in October, and I suppose you're probably already starting on next year.

Ronald: I have to tell you, I think my wife looks forward to the release date most because I look like a zombie in the month before because it's just so much work. And, you know, we are really working, like, almost 24/7. So it's good to hit the send button end of May and to publish it because there's lots of love, devotion, and energy that goes into this report. But I appreciate that it's really, you know, so widely followed and well regarded all over the globe nowadays.

Craig: Yep. Yep. It's one of those things everybody looks forward to every May. No doubt about it. And hey, if you look forward to these "Ask the Expert" segments or anything else that the nice folks at Sprott Money put out, please be sure to like, subscribe on whatever channel you're listening this to, or go by sprottmoney.com and click on the free new newsletter so that anytime new information gets put up by Sprott Money, you're notified right away and give it a listen. And again, thanks Sprott Money for this. And, of course, it's free. And that's about the easiest thing you can do. Give 'em a like or a subscribe. Ronni, we've been soliciting questions on the internet and from Sprott Money customers for about the past three weeks since we announced that you'd be the guest. I've got six questions for you that I think are probably, all right in your wheelhouse. Should we get started?

Ronald: Absolutely.

Craig: All right, my friend, we will dive right in. Man, this is the topic on everyone's mind. We record this here in the middle of October, October the 18th. The next FOMC meeting is due in a little over two weeks. Everyone wants to know if the Feds are gonna announce a taper, how quickly they're gonna taper. What do you think, Ronni? Do you think that the Fed will be able to fully taper their current QE program here in 2022?

Ronald: Well, if we take a step back, I would say the fact that the market seems to care only about this tapering discussion anymore, and that there is basically nothing else to discuss, that already shows you how dependent markets are on liquidity and dovish Fed policy. From my point of view, if you have a look, for example, at the bond market at Eurodollar futures market, it's clear that the market is expecting more hikes and it's expecting sooner hikes. So, actually, you know, the curve has flattened significantly. So the market participants now really believe that central banks will react with higher rates sooner, which will then slow the economy and need fewer hikes later. So I think, you know, Powell made it clear that first, there comes the tapering and then the rate hikes. And the reaction that I see in markets now is that they will start tapering very soon. I think there is more and more pressure on the federal reserve regarding inflation. We heard some representatives now saying, "Well, perhaps it's not only transitory, perhaps it's also structurally."

So from my point of view, yield curves are currently giving us a very clear signal that the chances of a policy mistake are increasing. So yes, they will start tapering very soon. They will try to appear more hawkish than the market perhaps expects, but they will start tapering in a dramatically weakening economic environment. If you have a look at GDP now, for example, it has cooled off dramatically. So I think this is the recipe for some turmoil in markets. And I think the whole tapering discussion is probably meaning some headwinds for the price of gold. I think once we have the decision, I think this could actually be the point in time when gold really starts going higher. Like we saw it with rate hikes, for example, where everybody expected that gold will sell off dramatically, and then actually the first rate hike happened, and gold made its low and started to rise.

Craig: Almost as if gold has been anticipating all of this all year long and selling the rumor, but maybe eventually the news.

Ronald: Absolutely. Absolutely.

Craig: Yeah. We'll wait and see. I think we're gonna find out soon enough, and it certainly appears they're headed that way. Okay, Ron, let's go on to number two. You alluded to this a little bit when you were talking about policy mistakes and the fed being a little bit behind the curve. No pun intended I guess. The second question just has to deal with a term that's getting kicked around. I've used it now for the last 12 months at my site, and I know you've looked at this too. The word is stagflation, a combination of slow or stagnant economic growth with inflation. So do you believe not only the U.S. economy but also the global economy could be headed toward a stagflationary environment?

Ronald: Yeah. Well, I think, you know, we already are in a stagflationary environment. And this is something actually that, for mainstream economists, is just impossible to happen. But we saw it in the 1970s. And actually, then everybody says, "Well, it was just because, you know, of energy markets and the price of crude all going crazy." Well, you know, if you have a look at energy markets at the moment, and it's not only crude oil, it's also net gas, it's coal, and so on. Well, you know, I think it would be naïve to think that that won't affect the economy and this is already starting. So I think for consumer discretionary, it will become quite interesting going forward because people, consumers really start feeling the surge in energy prices. And, you know, over here in Europe, you know, I think people really start fearing some sort of a blackout. They start fearing significantly higher energy bills coming in. They start fearing that we're running out of natural gas.

So this will definitely affect consumer behavior. Now, I think we are already in a sort of stagflationary environment. I, today, read about and tweeted about the so-called slowflation environment. This was coined by Cornerstone Macro. And I think this is the way, going forward. A pretty lack last week economic performance with structurally higher inflation rates. So 2% used to be the ceiling, but for now, I think this is really gonna be the floor. This is what my great friend Kevin Mueller said. And I think that even though perhaps inflation numbers will come down slightly over the next couple of months, I think that we should expect, going forward, inflation rates between 3% and 4%. And this, in combination with weak economic growth because of structural issues, that's basically stagflation.

Craig: Yeah, no doubt. And I think that's a good segue to the third question I have for you. Gold price, historically, has probably had its tightest correlation with real interest rates, inflation-adjusted interest rates, where you subtract the rate of inflation from your nominal yield. And if you get sharply negative, real interest rates where you're losing money every year on some type of fixed investment like that, that's, like I said, historically about a 95% correlation to rising gold prices. But here we are, Ronni, in 2021 with some of the most sharp, negative real yields we've seen in decades, and yet gold prices are falling. What gives?

Ronald: Well, actually, that's really the big question. From my point of view... I said in an interview recently on Kitco News. And I was referring to a conversation that I had at the Beaver Creek Precious Metals Summit. And I talked to a really die-hard gold back friend of mine. And I don't use the term gold back lightly because, normally, it's meant in a very negative way. But for him, I mean it in a really positive way, a man who really understands gold, who understands history, monetary history, and a well-read guy. So he asked me, you know, "Ronni, where do you see gold going forward?" And I said, "Well, you know, I can see gold going to all-time highs in the next couple of months." And he replied, "No way, gold is dead."

So if a guy who really knows this stuff, you know, at a time when gold is trading 300 bucks below its all-time highs is telling you gold is dead, I think that tells you already quite a lot. And I think that many, many diehard gold bulls have thrown in the tower. I think we are seeing very, very negative sentiment. And nobody really knows what happens because you mentioned this divergence between the price of gold and real rates. And I have to say, I don't understand gold all the time. And I think at the moment, it's really tough to explain the movements. But I think, first of all, it is definitely the crypto market stealing attention from the gold market. I don't think it's really investment flows, it's primarily really attention coming from the media because gold, at the moment, is the most boring thing. So it's, of course, more exciting for a journalist to write about Bitcoin and cryptos in general.

Then I think, as I've said previously, the whole tapering discussion, I think it means some headwind for gold. I think gold hates this discussion. And the third thing probably is that equity markets are still doing pretty well, although there was some volatility in markets recently. But still, we are only, you know, slightly below all-time high. So I think that's really what's putting pressure on the price of gold. But, you know, we saw this rising yield recently. And from my point of view, you know, now selling gold because U.S. treasury yields are rising sharply is perhaps 100% right in the short term. But it is 100% wrong in the intermediate-term.

So we all know that the government's true interest expense is, I think as my friend, Luke Roman said, it's 115% of tax receipts and rising rates drive interest expense up and tax receipts down. So, you know, going forward, I think we simply cannot afford higher and we cannot afford positive real rates. And we are really crunching the numbers, Craig, negative, real rates. This is really the foundation of every gold bull market. And that makes me actually pretty relaxed. So I think, you know, we should really see it as a buying opportunity. And I can tell you the sentiment in the market. I told you about my friends saying gold is dead. I think the sentiment is a great entry point.

Craig: Yeah. You know, a lot of folks have pointed out similarities between this current period and the decade of the '70s where the shackles came off in '71. And you had that rally into '75, from $35 to $200. But then the pullback to $100 that preceded the move to $900. And it was that pullback from $200 to $100 that really shook a lot of people out.

Ronald: Absolutely, Absolutely.

Craig: All right, Ronni, we are halfway done. So we're gonna round the turn and head toward home now. A lot of folks think of... I mean, you and I know gold as a monetary metal and actually a currency, you know, in part of the forex markets. But a lot of folks think of it as a commodity. Certainly, very few people think of silver as a monetary metal anymore. They think of it as a commodity. So now here we stand the Bloomberg spot commodity index, making new all-time highs exceeding 2008 and 2011. So we're new all-time highs. Is this either the start or an extension of a new bull market in commodities in general?

Ronald: Well, you know, it's a question of at what index you are actually looking at. If you look at the Bloomberg commodity index, the BCOM, for example, it has made its all-time highs at $230, I think, in 2008, and now we are trading at $103. So it really depends on the index that you're following. From my point of view, on an inflation-adjusted basis, commodities are dirt cheap. I know that, you know, recent market moves were spectacular. I mean, not only in the energy market but also obviously in some agricultural commodities. Copper is still looking very strong, nickel. We're seeing uranium finally moving. We're really happy as we are running one uranium fund.

So yeah, that's very exciting, what's going on in this market. But I think it is really a bull market that nobody is really participating in. And if I talk to institutional players, well, most of them are not really able or are not really allowed to invest in commodities at all. And, you know, I don't know what's the situation in the U.S., but over here in Europe, everybody's going crazy about ESG. And it seems that there's no other topic nowadays than climate change. And commodities are by most of the institutional players over here, I have say, I think there's definitely less history and affinity for investing in the commodity space over here compared to Australia and Northern America.

So if you mention commodities, that's, most of the time, something negative, something dirty. And most of those people that have got such a negative opinion on commodity markets, I just ask 'em, "Well, did you ever visit a gold mine? Did you ever go underground in the silver mine? Did you ever visit a copper project?" No, you didn't. Well, I did. I saw plenty of projects. And I have to tell you, well, those are pretty clean industrial businesses. And actually, everything that is around us, that's a commodity, and we will need it if we want to progress. So of course there was quite some stellar markets movements, but I think that the big institutional money has not participated at all in this move. So I think, you know, we should buy the dips in this bull market that is starting now. I think it is a move from financial assets into real asset. We don't see it only in the commodity space, we also see it obviously in real estate markets going crazy. We're seeing it in the art market. We're also seeing it in the cryptocurrency space. So it is, as my countryman, Ludwig von Mises, called it, it is the beginning of a crack-up boom that we are experiencing now.

Craig: All right, that's a good segue to question five. Because as you talk about, within the commodity sector, the industrial metals, Ronni, oh my goodness, whether or it's zinc or aluminum, we've seen some crazy action, iron ore, and steel earlier this year. Now, copper is on the verge of a move to new all-time highs, very close. So the question is, with many industrial metals having rallied, and some rallied substantially, will silver be next?

Ronald: Well, hopefully. Well, I mean the gold-silver ratio... Actually, I think it's pretty interesting because, for our investment process, we use the gold-silver ratio as some sort of inflation-deflation indicator quite a lot. And, you know, the gold-silver ratio was already telling us, well you know, we are kind of in a cool off phase. And we always said that the strong bull market in gold needs outperformance by the price of silver. So it needs a fall in gold-silver ratio. Which we haven't had in the last couple of months. So I think now, over the last couple of weeks, we already saw some kind of bottoming process. We saw that gold didn't really react to rising yields anymore. Gold didn't really react to a stronger dollar anymore. So I think the worst is over in the gold space.

Which also means as soon as the price of gold starts rising again, I think that silver should continue or should start outperforming gold. I don't really see a big divergence between those two metals. But as we've seen it already last year, I mean, gold was up last year. I think it was up 24% in dollar terms. In Euro terms, it was a little bit less. But on the other hand, we had a significant performance in 2019. Well, silver was up 47% in dollar terms last year and only 35% in Euro terms. So pretty stellar performance. And since the beginning of the year, in dollar terms, silver is down 11%.

So, well, you know, if you take a step back and say, well, in U.S. dollar terms, silver was up 15% in 2019, it was up 48% in 2020, now it's down 11% since the beginning of the year, that's kind of okay, I would say, it's taking a breeder. But I think, you know, with the supply-demand picture that is emerging... And we described these long-term developments in our last "In Gold We Trust" report where we, again, had a special chapter on silver. I think this could really become the decade of silver. And you can make a fundamental case for silver also because of the whole demand coming from I would say the green industries. But I also think, you know, as a level play on gold, I think, you know, there's plenty of reasons to buy silver at the moment. And chart-wise, I think we have seen the lows now trading at around 23. I think that's a pretty nice setup. It's not 100% convincing yet, but I think if gold does what I expect over the next couple of weeks, I think that silver should, again, start outperforming gold.

Craig: All right. And Ronni, just one last question. This one has to do with central bank digital currencies. Man, this is becoming all the rage. It seems like there's more headlines by the week. You've got the People's Bank of China working on theirs. The Bank for International Settlements is always talking about this. Even the fed now has got kind of a research paper that we're expecting any time. What do you think of central bank digital currencies? And what are they, the next phase of the war on cash? What do you think about it?

Ronald: Well, I have to use proper language. But I think, you know, it's got nothing to do with Bitcoin, obviously. Which is, you know, people always try to frame gold and Bitcoin as enemies. And I say, well, they're both answers and solutions against problems. And those problems arise from our fiat money system. So CBDCs definitely used this whole momentum that we are seeing in the cryptocurrency space. I would say it's right the opposite of what the inventors of Bitcoin had in mind. And I think, you know, going forward, they would probably bring an end to physical cash. They would eliminate all monetary privacy. They won't probably destroy the traditional banking system. They would enable central banks to really push their policy rates deeply negative and probably also allow the monetary authorities, the central banks, whoever, to set multiple interest rates.

And, you know, it could be used, you know, for the means of helicopter transfers. So as soon as the economy is doing worse, well, I put some money on the fed wallet of Ronni or of Craig, and he has to spend this money in the next couple of weeks, otherwise, it will be worthless. So I think they're really try to fine tune the economic cycle to prevent any recession. Well, from my point of view, recession is something normal, something healthy in an economic cycle. But we all know that that bureaucrats, as central banks and politicians, want to avoid the next recession, whatever it takes.

So I think, long story short, it will be used. I think this is a very, very strong trend. We are seeing that central banks all over the globe are putting out research papers in favor of CBDCs. And they come up with kind of weird reasoning, from my point of view. But it's gonna happen. It's gonna happen. And I think the last year definitely, yeah, basically made an even stronger case for central banks to introduce CBDCs. And as I've said, I think they will use it primarily to really fine tune the economy and to avoid even the slightest downturn of economic growth.

Craig: You would think unlimited fiat creation that way. Well, that's kind of, I guess, almost like an oxymoron, fiat digital currency. But if they're gonna go that route, you sure would think that would make your physical gold and your physical silver more valuable.

Ronald: Absolutely. Absolutely. I think we should not underestimate the creativity of central bankers and bureaucrats when the, you know, watch hits the fan. So I think this might be another way to even prolong this whole monetary mess that we are in. It's a pretty desperate move already. If George Orwell would still be alive, he would probably be shocked. But yeah, it is what it is, and we have to make the best out of It. Yeah.

Craig: Maybe he wouldn't be so shocked, he'd just go, "Oh, okay. This time"

Ronald: You're following the playbook.

Craig: Right. Exactly. Hey, and, and again, let's follow the Sprott Money playbook for a second. Everybody here, if you've enjoyed this content, if you enjoy all the other content that Sprott Money puts out, please be sure to keep them in mind. The next time you're looking to buy some physical metal, maybe looking for a place to store physical metal, sprottmoney.com is where you wanna go. And if you wanna actually talk to a helpful person on the other end of a phone line, you can pick up the phone as well, 888-861-0775 and give them a call. They'll be happy to help you with all of your precious metal needs. Again, we were just speaking with Ronni Stoeferle, managing partner Incrementum AG in Liechtenstein, also the principal author of the "In Gold We Trust" report. The report for 2021 was, again, a fantastic work of art. And we look forward to the one in 2022, Ronni. So you go keep your nose to grindstone and get working on it.

Ronald: Absolutely. Will do so, sir. Thank you very much for having me again. Thank you. All the best.

Craig: And thank you for your time. It's always great to visit with you. And thank you all for listening. We'll have another "Ask the Expert" segment next month.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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