Brace Yourself.

Key Concepts

• Currency Repricing: The process where a currency's value is significantly adjusted relative to other assets, particularly precious metals.
• Gold as a Store of Value: Gold's historical role as an asset that maintains purchasing power, especially during economic instability, due to its limited supply.
• US Dollar Collapse Against Gold: A significant depreciation of the US dollar's value when measured in terms of gold.
• Secular Gold Price Rises: Long-term, sustained increases in the price of gold, often correlated with systemic economic issues.
• Unemployment Rate as an Economic Indicator: A key metric reflecting the health of the labor market and broader economic conditions.
• Government Spending and Deficits: Increased government expenditure, leading to wider budget deficits, which can devalue currency.
• Central Bank Monetary Policy: Actions taken by central banks, such as lowering interest rates, to stimulate the economy, which can impact currency value.
• Safe Haven Assets: Assets like gold that investors flock to during times of economic or geopolitical uncertainty.
• Consumer Confidence: A measure of how optimistic consumers are about the economy and their personal financial situation.
• S&P 500 to Gold Ratio: A metric comparing the performance of the US stock market (S&P 500) against the price of gold.
• Geopolitical Stability: The state of international relations and the absence of major conflicts, influencing economic confidence.
• International Reserves: Assets held by central banks to back their liabilities and influence monetary policy, with gold being a component.

Historical Context of US Dollar Repricing Against Gold

The transcript highlights a significant and recurring trend of the US dollar losing purchasing power against gold.

• 1999-2011: The US dollar lost 90% of its purchasing power against gold.
• 1970-1980: The US dollar again lost 90% of its purchasing power against gold.
• Since the 1960s: The US dollar has lost a cumulative 99% of its purchasing power against gold.

Correlation Between Gold Prices and Economic Issues

Historically, periods of secular rises in gold prices have been strongly associated with systemic economic problems.

• 1970s: Marked by multiple severe economic crises and double-digit inflation.
• Early 2000s: The secular rise in gold prices coincided with the dot-com bust, the Great Financial Crisis, and the European debt crisis.

The Unemployment Rate as a Leading Indicator for Gold Prices

A key argument presented is the strong correlation between the US unemployment rate and the price of gold, with rising unemployment often preceding gold price appreciation.

• 1969-1982: The unemployment rate increased from 3.5% to 10% (highest since the Great Depression), while gold prices rose by a factor of 20.
• 1982-1999: As the unemployment rate dropped from 10% to 4%, gold prices experienced a structural decline.
• 2000-2011: A renewed rise in unemployment from 2000 to 2011 was accompanied by another significant increase in gold prices.
• Leading Indicator Observation: The transcript suggests that a rising unemployment rate actually leads a rise in the price of gold, citing the 1970s and the 1930s (Great Depression) as examples where unemployment rose before gold prices. During the Great Depression (1930-1932), unemployment surged from 2% to 25%, and gold was repriced a few years later.

The Mechanism Behind the Correlation

The observed correlation is explained by a predictable economic timeline:

1. Economic Weakening and Job Losses: The economy deteriorates, leading to job losses.
2. Government and Central Bank Response: To mitigate recessionary pain and societal issues, the central bank lowers interest rates to stimulate the economy, and the government increases spending, widening the budget deficit.
3. Devaluation of Currency and Bonds:
   • Increased government spending leads to a higher supply of cash and bonds, reducing their scarcity and thus their value.
   • Lower interest rates reduce the return on investment for cash and bonds, making them less attractive.
4. Flight to Gold: Investors move away from devalued cash and bonds towards assets like gold, which cannot be artificially increased by the government and is therefore more likely to retain its purchasing power.

Current Economic Landscape and Gold's Rise

Despite a historically low unemployment rate (4.3%), gold prices are rising parabolically. Three factors are identified to explain this divergence from the typical timeline:

1. Global Geopolitical Uncertainty:

   • Observation: Increased military conflicts and isolationist policies have made international relations and trade more fragile.
   • Impact: Governments and central banks are diversifying into safe haven assets like gold, which are less susceptible to manipulation, seizure, or freezing by foreign governments.
   • Data: The percentage of gold in global international reserves has begun to increase over the last decade, reversing a post-WWII trend of decline. Inflows into Chinese gold ETFs have reached record highs.

2. Proactive Currency Devaluation Policies:

   • Observation: The US government has been running larger budget deficits over the last 5 years than at any other point in history. Simultaneously, the Federal Reserve has been cutting interest rates and is projected to continue doing so.
   • Impact: These are the same policies typically implemented in response to economic weakness, which historically drive investors to gold. However, they are being enacted now despite low unemployment.
   • Reasoning: Even with low unemployment, the average American is struggling, as indicated by the University of Michigan's consumer confidence survey, which has been at very low levels for three years, comparable to the Great Financial Crisis. High cost of living, housing unaffordability, wealth inequality, and political polarization contribute to low consumer confidence. In this environment, deficit spending is seen as the politically viable path to avoid further consumer pain and political disaster. Both the Biden and Trump administrations have adopted deficit spending strategies, pushing investors to gold without waiting for unemployment to rise.

3. Anticipation of Future Economic Deterioration (S&P 500 to Gold Ratio Analysis):

   • Observation: The S&P 500 to gold ratio, which typically moves with consumer confidence, is still surprisingly high (near pre-pandemic levels) despite consumer confidence being at Great Financial Crisis lows.
   • Implication: Investors have not fully priced in the current consumer weakness.
   • Historical Parallel: Major declines in the S&P 500 to gold ratio have coincided with official economic recessions (periods of rising unemployment).
   • Current Situation: While most people have jobs, they are struggling. The concern is what will happen when these individuals lose their jobs during a recession, and what level of government and Federal Reserve intervention will be required.
   • Anticipation: Gold's rise reflects current favorable macroeconomic conditions and an anticipation of even more favorable conditions for gold in the future.
   • 2005-2008 Analogy: In the three years leading up to the Great Financial Crisis, gold investors may have anticipated a severe recession due to the housing bubble. During this period, stocks rose alongside gold, and investors only sold stocks when the job market began to break.
   • Current Trend: Stocks are currently rising alongside gold, with no immediate end in sight. While stocks may have further upside, gold is expected to continue outperforming stocks, leading to a divergence.

Investment Strategy and Conclusion

• Braavos Research's Position: The firm has been "long on gold" throughout the current bull market, executing numerous profitable trades on precious metals and miners. They initiated a leveraged long trade on gold on August 25th, which is currently up almost 20%.
• Future Outlook: The transcript suggests that while stocks may continue to rise in the short term, gold is expected to outperform stocks, and a divergence will eventually occur.
• Call to Action: The video promotes Bravos Research's service for those interested in learning their trading strategies and thought processes for making profitable trades.

Synthesis/Conclusion

The US dollar is undergoing a significant repricing against gold, a phenomenon historically linked to systemic economic issues. While current low unemployment might suggest economic health, several factors are driving gold's ascent: increasing global geopolitical uncertainty, proactive government and Federal Reserve policies aimed at devaluing the currency (despite low unemployment), and a potential anticipation of future economic downturns. The current disconnect between low consumer confidence and a high S&P 500 to gold ratio suggests that investors may not have fully priced in the economic weakness, and a future recession could trigger a more significant response from authorities, further benefiting gold. Bravos Research has capitalized on this trend, positioning themselves to profit from the ongoing gold bull market and anticipating a future divergence where gold outperforms stocks.