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The Last Five Times This Happened, Gold Outperformed Stocks by 20%

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Bloomberg and Goldman Sachs think gold could outperform the S&P 500 by 20%, a Friedman perspective on central banks’ inflation talks , and gold soars when inflation startles investors.

Analysts thinks gold could beat the S&P 500 (again)

As seen on Zero Hedge, after so much rotation among asset classes, investors might be taking a look at one asset that should have never went off their radar. Bloomberg recently opined that gold could beat the S&P 500 Index, as it habitually does, by 20% as stagflation can no longer be ignored.

The article notes that economic growth seems to be peaking around the time when high inflation is only starting to gain traction. One of the primary correlations is gold’s inverse relationship with real yields on Treasuries, the latter having sunk to all-time lows as of late. This has flared up gold’s 20-week moving averages and signals that a prolonged breakout could be in the works next year.

The signal is the sixth instance, still ongoing, of gold’s 20-week moving average crossing bandwidth below 6 in the last two decades. Each of the five instances resulted in gold outperforming the S&P 500 Index by an average of 19% over the following year.

While several analysts have upgraded their gold forecasts in line with cautious sentiment and inflation awareness, Goldman’s are among the more bullish ones.

The bank’s head of energy research Damien Courvalin said that gold is set to move far past its current price, bolstering previous calls for clients to consider the metal’s upside. Goldman set a -1.10% target for 30-year real yields which, if met, will bring gold to $2,300 territory. The metal should also benefit from relatively low weighing among investors right now, along with volatility still lingering close to 2-year lows.

Milton Friedman wouldn’t have bought temporary inflation, and neither should you

From the Federal Reserve to the European Central Bank, officials have done nothing but downplay the impact of an unprecedented expansion in the money supply. According to them, any spikes in inflation are, and will be, so brief that they might as well be ignored. But this has already proven untrue, and the most accurate inflation models tell us that inflation is yet to truly materialize.

Renowned economist Milton Friedman asserted that inflation is the result of a simple supply and demand dynamic, appearing when too much money is being printed and dumped into the economy. All other factors, from wages to prices, are a byproduct of inflation, not a cause.

The three stretches where consumer prices spiked above 10% annually, far and above the intended 2% rate, were precipitated by two instances of the money supply rising by nearly 14%. This monetary expansion started in the 1970s and the toxic combination of low growth and high inflation we call stagflation persisted until the early 1980s.

Last February, the monetary expansion hit 27.1%, and still lingers around 13%, a rate double that of 2019 and earlier, as well as double the long-term average for the 50-year period. (To put this into perspective, about 40% of the dollars in the world were printed in the last 18 months.) Déjà vu all over again?

It seems likely. In their Wall Street Journal piece, John Greenwood and Steve Hanke noted that asset-price inflation happens with a 1-9 month lag, economic activity picks up within 6-18 months, and only after 12-24 months does the generalized inflation kick in.

This suggests that inflation, along with the consequent gains in gold, won’t peak until Q1 2022. From there, both should soar until at least the middle of the year. Of course, this isn’t accounting for any subsequent monetary pumps, or a Federal Reserve tightening cycle that seems increasingly likely to never happen.

Have the markets finally come to terms with inflation sticking around?

Gold’s price action last week tells a tale of realistic inflation worries mixed with what looks to be some fairly unrealistic optimism. After a lengthy period of inaction, the metal spiked to $1,866 on Wednesday and finished the week lower at $1,845.

It did so even as the U.S. dollar climbed to its highest level since last July, riding on some better-than-expected data in the U.S. Considering that a strong dollar has always acted as gold’s biggest headwind, we see just how prevalent concerns over inflation are right now. And not without reason.

Besides the tripling of the Federal Reserve’s inflation target, Britain has also seen inflation hit a 10-year high, and Canada’s annual rate matched a February 2003 high this October. Even the Euro zone is seeing inflation twice as high as its 2% target. Meanwhile, we’ve seen silver, platinum and palladium all post smaller gains alongside gold’s. Experienced precious metals investors shouldn’t be too surprised by this divergence. After all, both platinum and palladium are primarily industrial metals and tend to move more like industrial commodities. In other words, bad economic news can drive their prices down. Silver’s demand base is nearly evenly split between industrial and investment buyers, so bad economic news might push silver’s price up or down.

David Meger, director of metals trading at High Ridge Futures, reiterated where our attention should be focused: “The underlying support for gold and silver remains the inflationary pressures we continue to see in the market,” he said.

A hawkish Fed sentiment may perhaps the main threat to prices, but, with Jerome Powell’s reappointment, that simply doesn’t seem to be in the cards. Kinesis Money’s Carlo Alberto De Casa thinks the next major benchmark for gold’s price is $1,875. He sees that as a launching pad to the next big leg up. Once again, only rate hikes stand in gold’s way.

So far, though, Fed-related pressures have mostly come in the form of markets anticipating hawkish plans or demonstrating naive optimism. It’s still a point of contention if, or how, the Fed can raise interest rates at all, or apply any sort of significant tightening. The tools may exist but the political will to use them seems as dead as Paul Volcker or fiscal restraint.

After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

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3 Reasons Why Being Reluctant to Retire Could Be the Right Call

Via Birch Gold

It’s a strange time to be saving, investing, and planning for retirement.

In just the last few years the repo markets went crazy, we lived through a pandemic-induced market crash, and now we’re experiencing out-of-control inflation.

Strange times like these can create doubt. When it comes to choosing the right time to retire, that doubt can become reluctance.

But being reluctant to retire right now could actually be the right call, and here are three reasons why…

First: The personal reasons

Even if you’re financially prepared to retire, there are personal reasons why you might not want to. Aside from the obvious uncertainty in the markets right now, according to a MyJournalCourier:

Some love what they do and never want to retire. Others are paralyzed by fear of the unknown, financial planners say. They may worry about living without a paycheck, spending down the money they worked so hard to save or figuring out how to structure their days in the absence of a job.

These are certainly valid concerns for retirement savers who are planning their exit from the workforce. Especially once you consider that consumer purchasing power keeps draining like water from a bucket full of holes.

The list of personal reasons to hesitate includes:

Rising healthcare costs
Providing financial support for family members
Longer lifespans that might outlast retirement savings

As Cathy Gearig, a certified financial planner, explains, “A lot of the people I see are financially ready before they’re emotionally ready.”

Personal reasons are just that. Each of our individual situations is different, so no one can fault you for feeling retirement reluctance over such concerns.

There are, however, bigger-picture forces at play here. The decision to retire gets even more interesting as we move away from personal, individual concerns and into concerns about the market itself…

Second: Classic retirement rules of thumb are broken

In the mainstream media, the “experts” like to offer up “rules” for retirement. For decades, financial planners and investment experts spoke of the “4% rule.” Basically, retirees should expect to withdraw 4% of their total assets in the first year of retirement. This amount, along with pensions or Social Security or other benefits, would pay the bills. Next year, Withdraw the same amount adjusted for inflation, and so on.

Here’s an example from CNBC:

For example, using the 4% rule, an investor would be able to withdraw $40,000 from a $1 million portfolio in the first year of retirement.

But like most rules, thanks to the strange times we live in, that now needs to be reduced by 17.5 percent:

What’s a safe withdrawal rate for retirees? We estimate 3.3%. However, there are various factors that could affect this percentage, resulting in the retiree withdrawing a significantly higher amount.

The experts recommending this “rule-change” blame a variety of factors: Negative after-inflation long-term bond yields, the likelihood of below-historical-average stock market returns, and out-of-control inflation as the culprits.

In fact, Schwab published a highly critical takedown of the 4% rule.

Here are the highlights:

It’s a rigid rule. The 4% rule assumes you increase your spending every year by the rate of inflation—not on how your portfolio performed…
It applies to a specific portfolio composition. The rule applies to a hypothetical portfolio invested 50% in stocks and 50% in bonds.
It uses historical market returns. Analysis by Charles Schwab Investment Advisory, Inc. (CSIA) projects that market returns for stocks and bonds over the next decade are likely to be below historical averages.
It assumes a 30-year time horizon.
It includes a very high level of confidence that your portfolio will last for a 30-year period. [In other words, you’ll need exactly 30 years of retirement savings, no more, no less.]

Even at this reduced withdrawal rate, experts still predict a reduction in purchasing power, especially later in retirement, “when accounting for inflation.”

Which is a huge mistake many people make! It’s hard to grasp just how inflation can drain away the purchasing power of your money without changing the balance in your bank account.

Here’s an example, assuming a retiree withdraws $40,000 in the first year of retirement. This chart shows the spending power of that same $40,000 in later years at different levels of inflation:

Note that even at the Fed’s targeted rate of 2%, even modest inflation has wiped out 25% of your purchasing power in 15 years. At over 2% inflation, the numbers get truly grim. (I didn’t continue this projection beyond 15 years because it’s simply too depressing.)

Which brings us to the third and most important reason that reluctance to retire could be the right call…

Third: Inflation and your “magic number”

Kiplinger’s Kelly LaVigne summarized why any saver might consider putting off retirement for a bit:

In addition to concerns about the impact of market volatility on retirement security, worries over inflation are also high – with many believing it will get worse and affect retirement plans. The study found that 78% of Americans expect inflation to get worse over the next year, and 69% say it will negatively impact their purchasing power over the coming months.

No surprise there… Those who believe inflation will “negatively impact their purchasing power over the coming months” don’t seem to realize that’s already happened. And it will keep happening, month after month, year after year.

Aside from the well-known but rarely-appreciated fact that inflation robs savers of their wealth, there’s another reason inflation factors into the decision to retire…

Inflation changes your “magic number.” For example, let’s say you saved $1 million for retirement because you thought that was your magic number. Thanks to inflation, that amount of savings isn’t going to stretch as far as you might think. Take another look at the chart above: How inflation rips away the value of your 4% annual withdrawal from your $1 million in savings.

We’ve heard financial planners joke, “Three million is the new one million.” It would be funny if it wasn’t true.

The bottom line is, thanks to inflation and the volatility in the markets, your “magic number” is a moving goal post that is very hard to pin down.

Who in their right minds would want to start living on a fixed income when so much, like inflation, market volatility and market valuation are so unfixed and uncertain?.

We’re not saying you should give up and resign yourself to dying at your desk. No, what we’re saying instead is, if you want certainty, you’ll have to create it for yourself…

Ensuring you’re ready to retire when the time is right

Whenever you choose to leave the workforce to start enjoying your “golden years,” make sure your savings are prepared for the journey. Honest examination with an eye toward risk profile and diversification are key steps you can take right now so you can retire with confidence.

Knowing what you own, and the level of risk it carries, seems smart.

When it comes to certainty, there’s one huge advantage you can give yourself. Precious metals like physical gold and silver have had inherent value for thousands of years because they are valuable, tangible and finite resources. They aren’t controlled by any central bank or any government. You can’t inflate a gold bar. You can’t default on a silver eagle. Furthermore, gold is an internationally-recognized store of value. It can help to provide stability during an uncertain market, like the one the U.S. is in right now.

Physical gold and silver also have a unique advantage of being a hedge against inflation. That gives you a better chance of side-stepping the dilemma of planning for tomorrow’s retirement while thinking in today’s dollars.

With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.