Stansberry Research

Why Gold's 'Winter' Is Over – Really

Corey McLaughlinStansberry Digest

It's been said before... Why gold's 'winter' is over – really... It's all about the U.S. dollar and inflation... History is on gold's side this year... Gold may end up being the best-performing asset in 2023...


Many fans of gold have been dumbfounded over the past year or so...

After all, isn't one of the big selling points of a millennia-old "store of value" that it rises when inflation is high enough to eat away at the value of paper currency? Well, yes.

But inflation has been at 40-year highs throughout the past two years... So why hasn't the price of gold soared to new highs in that span?

As I (Corey McLaughlin) will highlight today, the biggest factors holding gold's price down have been twofold. And, importantly, these trends are reversing. So today, I'm making the case for why it's wise to consider that this is the year for gold.

I know it's been said before, but the stars are really aligning for the metal...

Finally. Really.

First, we need to consider what the metal is priced in. Since we're writing from the U.S., that's dollars. And dollars don't exist in a vacuum...

If you know inflation, you know the value of dollars is (or should be) gauged against itself over time... and the dollar has deteriorated over the past several decades, which is why you always want at least some inflation protection in your portfolio – like gold and silver. But dollars are also exchanged relative to other currencies in the global markets.

Gold initially spiked during the global money dump of 2020 amid the pandemic and ensuing response. Then it pulled back some and largely traded sideways in 2021 and into the start of 2022.

But just like it was at that time, the global economy is still feeling the consequences of all that stimulus (i.e., inflation), and central banks are scrambling to address them. This is the second part of what had, until recently, been holding gold back...

For much of 2022, as we reported, the dollar was getting stronger relative to other major currencies – mainly as a result of the Federal Reserve's massive rate hikes to fight inflation, which were faster and stronger than other central banks like the European Central Bank.

This dynamic was a big driver of market action last year...

In 2022, there was a rising dollar and rising inflation...

Everything priced in dollars faced an enormous headwind. The dollar was one of the few things that rose in value – as measured by the U.S. Dollar Index ("DXY") – last year as stocks, bonds, and bitcoin endured a bear market.

Gold – priced in dollars – was down overall, too. This was not unusual, contrary to popular belief. As our colleague and True Wealth Systems editor Brett Eversole shared earlier this month, inflation and the dollar rose for only the 12th year since 1972. And in eight out of those 12 cases, gold prices fell...

After spiking to a nearly two-year high in March 2022, when Russian forces invaded Ukraine, gold was looking like the "chaos hedge" several of our editors think it to be. But then gold's price fell all the way to two-year lows this past fall.

Again, the stronger dollar weighed on everything priced in dollars, including gold, and sentiment has turned sour on it. As our colleague Dr. David "Doc" Eifrig wrote in Friday's edition of his Retirement Trader advisory...

Folks have given up on gold because it hasn't lived up to the hype as inflation protection. The price of gold is roughly the same today as it was when inflation first topped 5% in mid-2021.

Plus, rising rates have pushed many investors out of gold. Since gold doesn't have any yield, and all asset classes compete with each other, the yields on other investments matter.

But now the 'stronger dollar' trend is breaking down...

Inflation has been a global problem... Central banks all over the world have been raising interest rates to fight inflation by stomping out demand and slowing the economy. The Fed led the way among major economies...

But now, the U.S. central bank has indicated it's going to slow rate hikes sometime this year, probably starting in a few weeks at its next policy meeting. It intends to pause hikes after that.

Plus, other central banks dealing with higher inflation are still hiking rates... After decades of steady low-rate policy, the Bank of Japan has recently started to make yen more expensive...

Last month, we called this a "tidal shift" in Japanese monetary policy and said gold and silver would be big winners, with U.S. stocks taking off later. The yen is up 14% against the dollar in the past three months.

DXY, which compares the dollar to major currencies like the yen and euro, is down 10% since its most recent high in September. Meanwhile, gold's price action has reflected this lately. Since its most recent low on November 3, gold is up 17% in dollar terms...

The long-term outlook for gold looks good, too...

Check out the chart below that legendary Gold Stock Analyst editor John Doody shared in his December issue. It shows the relationship between the U.S. dollar and gold since 1971, when President Richard Nixon removed the dollar from the gold standard...

The gold-hued areas denote the periods gold was besting the dollar (labeled as "Au>$"). The green areas reflect when the dollar was beating gold's return (labeled as "$>Au"). As John said...

Of course, nothing goes straight up or down. Gold and the U.S. dollar have a zero-sum relationship. They are effectively substitutes for each other in the minimum-risk investment arena. When one is up, the other is down... Currently, gold is on top... And we believe it will be for a long time...

The U.S. Dollar Index ("DXY") peaked on September 26, 2022, at 114.11. That's its highest value since 2002, 20 years ago. Five weeks later, gold bottomed on November 3 at $1,629 an ounce. Since peaking, the DXY has slid as low as 104.55, and gold has closed at a high of $1,803 an ounce.

Both have clearly reversed direction, and their new trends will continue for a long time, if economic history repeats.

We know it might feel like a long time coming for gold fans, but John has been making the case for higher prices in 2023 – and several of our editors have recently joined him in his optimism.

Inflation could stay high as well...

We've covered this story enough times. Yes, the consumer price index ("CPI") has been coming down since June, but there are many reasons to believe that it won't get back to the Fed's 2% target anytime soon...

Much like the story has been since 1971 – when the dollar lost its peg at $35 per ounce – this is corrosive for the overall value of dollars. This stinks in many ways, but it means more tailwinds for gold over the long run.

As John shared in the December issue of Gold Stock Analyst, an analysis from investment firm Research Affiliates found that in 14 developed economies that saw higher than 8% inflation over the 50-plus years from January 1970 to September 2022, it took a lot of time for that inflation to wane to the Fed's 2% target.

As John explained, citing a paper published in November by Research Affiliates...

In the extreme case, when former Fed Chairman Paul Volcker jacked the fed-funds rate to 20% in the early 1980s, it took two years to cut inflation in half, from 14% to 7%. It took another four years to bring inflation down to 2%.

We are not yet at a late-1970s inflation extreme, but the U.S. is currently running between 7% to 9% inflation. Even if this is a short-term peak, the article suggests that "once the 8% threshold is surpassed, as happened this year in the United States and much of Europe, inflation marched to the next threshold [i.e. 10%], and often well beyond, more than 70% of the time."

The takeaway in John's estimation is this... Even after it has passed its peak, inflation will still run higher than average in the U.S. and Europe and continue to boost gold higher. In his December issue, he shared three more reasons why gold's "winter" is over.

Existing subscribers and Stansberry Alliance members can find the entire issue here, which includes much more detail and several updates on the top 10 gold-related stocks John is recommending right now.

The time to get ready for gold's next long-term march higher is now... not after it happens. Even better, sentiment around gold has become so sour in the past year or so that it's a great contrarian play at this point. As Doc wrote Friday in Retirement Trader...

As an asset class, it's hated.

Global gold exchange-traded funds ("ETFs") saw a net outflow of $5 billion in September, another $3 billion in October, $1.8 billion in November, and $534 million in December.

This marks eight straight months of outflows.

In total, global gold funds registered net outflows of $3 billion last year. Demand for gold surged in the first four months of 2022 as folks wanted protection from geopolitical risks, but the trend reversed. Investors ran from gold all summer.

On the other hand, because the pace of outflows has slowed every month since September, bearish sentiment may have peaked.

Many of our editors suggest owning physical gold and always having some exposure to this chaos hedge as an inflation-fighting asset.

Another way to add exposure to the metal is through the SPDR Gold Shares (GLD) – a tradable stock market fund that tracks the price of gold and holds physical gold rather than just futures contracts.

A few other ideas for gold bulls...

As I mentioned, John's not the only one of our editors that has made the bullish case for gold lately. Doc wrote on Friday that...

Gold may end up being the best-performing asset in 2023.

His reasoning is simple, and it's something we've referenced here before. Gold is "cheap, hated, and in an uptrend," Doc said, quoting True Wealth editor Dr. Steve Sjuggerud. He showed a few simple reasons why and recommended a few options trades on GLD.

Existing Retirement Trader subscribers can find the trade details here.

Plus, in True Wealth Systems, Brett detailed why more history suggests a bullish year for gold as well...

He found that since 1973, there have been 20 years in which the U.S. dollar was down... Gold rose in 17 of those years, or 85% of the time, and was only down 5%, 2%, and 0.3% in the three years the metal fell alongside the dollar.

In other words, a down dollar in the past 50 years has almost always been good for gold. He also shared much more data and a deeper analysis for this year being a big rebound year for the metal. And best of all, he offered a one-click buying opportunity to profit from it.

Subscribers to True Wealth Systems and Alliance members can find all the details here. And, if now is finally, really, the time for gold's price to take off as many of our editors expect, we'll share more trading and investment ideas with you as the year goes on.

Raising Rates Is a Fed 'Farce'

The Federal Reserve raising rates is "meant to kill demand and crush the consumer, it's not meant to curtail inflation," Greg Mannarino, founder of traderschoice.net, tells our editor-at-large Daniela Cambone. Plus, he warns that inflation is still going to rise regardless...

Click here to watch to this episode of The Daniela Cambone Show right now. And to catch all of the podcasts and videos from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 1/13/23): Aehr Test Systems (AEHR), Alamos Gold (AGI), Atkore (ATKR), CTS (CTS), iShares MSCI Mexico Fund (EWW), inTEST (INTT), MasTec (MTZ), VanEck Oil Services Fund (OIH), RenaissanceRe (RNR), Starbucks (SBUX), SLB (SLB), Torex Gold Resources (TORXF), Travelers (TRV), and Trane Technologies (TT).

In today's mailbag, feedback on Dan's Friday essay... Do you have a comment or question? As always, e-mail us at [email protected].

"Dan, Just read your Jan. 13 Digest...

"Your point is a strong one. The bubble is still intact and a multitude of players still haven't learned their lesson. It's the most perfect bull market top, just sucking in the last true believers with media still beating the dead horse and the true believers just can't see reality... Thanks for your gutsy fortitude. I'm betting along with you." – Paid-up subscriber Al M.

"Thank you Dan for your excellent translation of Fed Chairman Jerome Powell's newspeak!!" – Paid-up subscriber Larry N.

All the best,

Corey McLaughlin
Baltimore, Maryland
January 17, 2023