A Very Strange Thing is Happening in Gold Right Now, Tsunami About to Hit Says Market Insider
“We have this really strange mix of buying coming into gold that I’ve never seen in many years,” reveals Brien Lundin, editor of Jefferson Financial. In an exclusive interview with Daniela Cambone, he discusses some fascinating dynamics propelling gold’s ascent. From soaring demands in China to a notable uptick in Western interest, Lundin believes this trend “bodes well for a continuation, if not an acceleration, of this rally.” However, he also expresses concerns over the mounting national debt. As he aptly puts it, “government management of monetary policy always overshoots one direction or the other.” This, he warns, leads to the creation of bubbles and volatile situations that inevitably erupt down the road. In a bold prediction, Lundin forecasts a mid-summer move by the Fed, anticipating interest rate cuts as early as July. Don’t miss out on this eye-opening discussion!
CHAPTERS:
00:00 Fed interest rate cuts
4:40 Gold buying
7:20 North American buying gold
9:00 Debt
11:50 Commercial corporate debt
17:17 Fed’s pivot
20:16 Concluding words
TRANSCRIPT FROM VIDEO:
00:00
The federal debt is out of control. The U.S. government is in the very definition of a debt spiral. Yeah, it’s not looking good.
00:07
got this really strange mix of buying coming into gold that I’ve never seen in my decades of history of watching this market. It is quite compelling what we’re seeing happening right now. How does that play out? I mean, it’s an election year, Brian. How will the elections impact the gold market? We can be very confident that we’ll want to earn gold and associated investments going forward. The next crisis that comes up, I liken it to a tsunami that’s off the coast and then coming and will eventually hit.
00:37
telling me that’s what you think will happen. The question remaining is…
00:50
This is Daniela Cambone and welcome back to the Daniela Cambone show here on ITM Trading. Well, we are talking with someone today that loves to talk about what the Federal Reserve will do next. And, of course, gold and silver, please welcome to the show Brien Lundin. He serves as the publisher and editor of Gold Newsletter. He’s also the producer of one of the most popular conferences out there, the New Orleans Investment Conference, which is taking place this November, which he will tell us about.
01:20
First and foremost, so nice to see you. Great to see you, Daniela. It’s been far too long. It has been far too long. I know I ran into you in Toronto for the PDAC, but we didn’t have enough of an opportunity to really sit down and talk. And I always really enjoy getting your thoughts since you’ve been covering this market for so long of what you see coming. I know you’ve been doing a lot of…
01:49
talking about the debt and how you just think it can’t be sustainable anymore. But anyways, I’ll save that. First and foremost, let’s start with the Fed because we’re talking ahead of the next FOMC. They’ve held rates steady at the last one, but you know, they may start cutting. That’s what Powell says at least. What are your thoughts on what the Fed may do next here, Brian?
02:18
Yeah, you know, up to I guess now as we speak three or four weeks ago, we were in kind of a holding pattern for gold. It wouldn’t drop below 2000, but it couldn’t get any upward momentum either because the markets were trying to reprice in a new understanding of the Fed’s timing toward rate cuts. And back then I was arguing that this is, you know, it’s kind of ridiculous that we’re arguing over how many cuts or when they’re going to begin the big picture.
02:47
The most important thing was that the Fed was going to go from perhaps the harshest rate hiking environment in history to rate cutting, the other side of the cycle. And during that harsh rate hiking cycle, gold had added about $400 an ounce. So it stood to do very good once the cycle turned back toward rate cuts. And that was where we were about.
03:13
three or four weeks ago, and it was only a matter of time, in my view, until the likelihood or the proximity of a pivot would start to have an effect on the gold price. Well, right after I was saying a lot of that about three or four weeks ago, gold just started taking off in a tear upwards. And as it turns out, none of the factors behind that
03:40
this big rally that we’ve been enjoying. We’re the ones we were talking about three or four weeks ago about the proximity of a pivot. And yeah, I think that everybody’s kind of calmed down, both the Fed and the markets, and everybody’s realized that we’re probably gonna have two or three cuts this year. They’re likely going to start in June, if not then almost assuredly by July. And you know, that’s gonna be a tremendous tailwind.
04:08
for gold, but really all commodities and even equities and everything else. But in the meantime, we’ve got this really strange mix of buying coming into gold. Really a unique mix of buying a unique mix of factors for gold that I’ve never seen in my many years, even decades of history of watching this market. It’s really unusual and it is, you know, quite compelling what we’re seeing happening right now in gold.
04:38
Well, let’s, I mean, I want to get your insights, I mean, into the buying. Is it, what, what, what about it do you find different than other bull runs? Well, you know, historically when the price of gold is rising, we see Asian buying a slack off, uh, Asian buyers typically and historically have been bargain hunters. They kind of support the price of gold on declines.
05:06
But when the price drops, they are culturally prone to buy gold as a means of savings. And that’s a real, obviously there are a lot of different cultures and it’s a real generalization. But historically you don’t see buying ramping up or following the price trend upward coming from Asia. What we’re seeing now is central bank buying, which is price insensitive.
05:33
But we’re also seeing, and a lot of that central bank buying coming from China, and we’re also seeing a lot of domestic buying coming from China, even as the price of gold, at least in dollars, has broken record after record after record. The cause of that buying, the precipitating factors seem to be that the Chinese typically protect their wealth or invest in the local stock market.
06:00
the local real estate market or gold and the real estate market in the stock market aren’t are actually falling in China. So there one alternative left to preserve their purchasing power is gold and they’re actually following that price trend upward for really the first time I’ve ever seen it in decades of watching this market. Now, what’s been notable as well is that the Western investors have been absent from this. They hadn’t been chasing the price higher.
06:30
And we can tell that by the holdings in the GLD ETF, the biggest ETF in the West. And even as the price of gold has been rising strongly, those holdings in GLD have been falling precipitously, only to be kind of arrested, that fall was only arrested over the last week or so, and now they’ve started to turn up. So I think that’s really important that we’ve had.
06:56
really price insensitive buying, strong buying coming from the central banks and the Chinese central bank, the PBOC, and we’re seeing Chinese domestic demand. And now we’re just starting to see Western demand coming in to chase this trend higher. The combination of those three, I think, bodes well for a continuation, if not an acceleration of this rally. Let’s talk a little bit more about North American buying and
07:26
European buying. Why do you think they were hesitant or late to the game? Did it have to do with the rally in Bitcoin that gold lost some influence there? What do you think it was? Yeah, I think it’s a number of things. It’s not a simple answer. I think the competition for gold or the competition for any speculative market, I mean, we’ve had the gold price rise
07:55
speculative demand, but that demand for gold or gold has had some real competition in terms of anything associated with artificial intelligence, crypto, the magnificent seven stocks and tech stocks in general. So that’s part of it. There has been some speculation as well that the holdings in GLD have
08:23
not so much been sold out because of a lack of demand, but it’s served as a source of the gold that’s flowing from west to east and has been flowing from west to east. That’s possible. I don’t think we can really pin that down yet, but I think, as you mentioned, I think the competition from other sectors has had a lot to do with that, but the gains have been so exceptional and
08:50
Again, the Fed pivot is drawing ever closer. So I think we’re starting to see that Western demand really kick in the way it has historically. You know, it’s interesting, Brian, when I speak to some investors who maybe have not added gold to their portfolio, and then they see all the benefits of gold, but they’re wary about gold at all time highs. They’re afraid to get in, you know, at these levels. What would you tell those folks?
09:21
Well, kind of what I just told you that we gained $400, you know, in a period that was extremely bearish for gold. And so we should be doing much better once we go to that cutting cycle. You mentioned before that the debt, I think that’s a big issue coming up. I think we are, my big thesis is that we are at the end of a four decade plus trend of ever easier money.
09:50
and we’re actually in the end game of that trend. There’s not much more the Fed can do that it hasn’t already done in crisis after crisis. And, you know, they constantly and consistently lowered interest rates over decades until they got to the great financial crisis in 2008. Then they went directly to zero and came up with quantitative easing and all these other programs, both monetary and fiscal.
10:17
When COVID hit, they did all of that, but they did it to a much greater degree and much more quickly. The next crisis that comes up, and we know there is one coming up, because that’s just the way it happens. We’ve had these bubbles build up over all this period of easy and accommodating money. So the next crisis is going to happen, probably from some sector we’re not really considering much.
10:44
But it’s going to happen and when it does, the Fed’s reaction is going to have to be what it did post-COVID, but many times more and much more quickly to get the same effect from the markets because the markets have grown tolerant of this monetary drug, this monetary adrenaline that the Fed keeps coming up with. So as we keep going through successive crises, the currency gets cheaper and cheaper. And I think that kind of seeps into the public consciousness.
11:13
What we’re seeing now, in other words, is a new environment for gold. We’re getting we’re going to see a shifting toward tangibles toward commodities from financials. But most importantly, we’re seeing these monetary trends over decades come to a head that I think signal a new era for gold as we see currencies, not just a dollar, but fiat currencies around around the world depreciated.
11:42
because of the enormous debt loads that had been built up over those decades. And, you know, if I could just quote you, you say, we just passed a trillion dollars a year in annual interest costs on the federal debt. We’re going to have close to a trillion dollars of commercial real estate. We didn’t even talk about commercial real estate crisis here in the US yet. That will get repriced this year at higher interest rates. We have a much larger debt tsunami out there that’s about to hit the shores of the global economy as commercial corporate debt resets occur.
12:12
Throughout the world, Brian. Yeah, kind of doom and gloom, huh? Yeah. Yeah, it’s not looking good, right? No, no, it isn’t. Again, these debts of, you know, ever easier money, one of the repercussions of that is that it encourages debt creation. So as we see, and I show a chart of this, showing the Fed funds rate, you know, with decades you see it progressively going lower and lower, at the same time you see the federal debt going.
12:42
higher and higher. And that’s what happens. Federal debt is out of control. The US government is in the very definition of a debt spiral in that we’re paying a trillion dollars a year just to service the federal debt. And where are we getting that money to pay the trillion dollars a year? Well, we’re borrowing it. So we’re borrowing money to pay the interest on the debt of the money that we have already borrowed. So it is a debt spiral.
13:10
The question, of course, in that situation is how bad does it have to get for before it really affects the the issue of the world’s global, you know, the global reserve currency. And so that’s kind of insulated the U.S. to some degree, but it’s getting to the point now where something’s going to happen and it’s going to start accelerating as we go forward. In addition, you know, the commercial real estate, if you look at the fact that.
13:39
The US economy, the global economy, has been built upon a foundation of zero interest rates over the last 15 years or so. So they become used to accustomed to really addicted to that kind of an environment. Before the Fed began hiking rates, we had about 20% of US companies that were considered zombie companies, barely able to make enough in earnings to pay the interest on their debt.
14:09
Assumed in a zero interest rate environment. So that debt is resetting as we speak If they could barely afford to pay it at their old interest rates They are not only not going to be able to be able to pay it at current interest rates But the banks are going to look at their collateral Backing those loans, which has also suffered tremendously and and may not be able they may not be able to get debt at virtually any price so
14:38
That is a situation that’s coming. As you said, I liken it to a tsunami that’s off the coast and then coming and will eventually hit. Now, that alone or the federal debt alone are reasons why the Fed has to pivot that interest rates at these levels are unsustainable, they’re unmanageable. So they will have to pivot. The question remaining is how quickly will they have to cut rates?
15:08
Will there be some kind of an emergency or crisis that will force them to to to go to zero very quickly and again, go into a crisis mode again? That’s possible. When someone’s even probable. I was going to say when when you’re saying that statement, I feel like my hunch is telling me. That’s what you think will happen. Yeah. The the the list of.
15:38
potential crises is as long as your arm right now, probably as long as it has ever been. And that said, whatever really sparks the next crisis, history tells us it’s probably gonna come out of left field, probably be something that we haven’t really been considering over much beforehand. But the possibilities are a recession that accelerates all of these debt issues. We could have…
16:06
the commercial real estate debt, we could have a bank run, which would be very easy to see accelerating in the kind of false start on a bank run that we saw last year. We saw Yellen and Powell virtually admit that they were going to back 100% every deposit in the country.
16:31
which is, you know, that’s an enormous amount of liquidity that has to be brought to bear. So, so yeah, something is going to happen. That’s the lesson we have of recent crises. You know, we didn’t anticipate COVID. Very few people, a notable few, but very few people anticipated the real estate crisis that caused the great financial crisis of 2008.
16:59
So we’ll see what happens, but something is likely to happen because this government management of monetary policy always overshoots one direction or the other. And that creates bubbles, that creates situations that then erupt at some point down the road. I guess my final point, and it kind of ties back to the Fed, when you’re saying they’re gonna be forced to pivot.
17:26
How does that play out? I mean, it’s an election year, Brian, and I bring this up because, like I said, you organized the New Orleans Investment Conference that always attracts such notable and popular politicians. Given how long you’ve been covering all this, what have you seen that typically happens in election years and is the Fed’s hand gonna be forced? Yeah, from a timing standpoint,
17:54
they really have to cut rates in the midsummer period, by July at the latest. Otherwise, they’re going to appear political to some degree. They’re impartiality will start to be questioned. And it is perceived to be a big issue. How will the elections impact the gold market? And I’ve talked a number of times to audiences and groups about this who are curious and my
18:24
Basic view is that the macro picture right now will overwhelm any political influences. If you drill down and look at it, Biden and his administration, the Democrats, certainly don’t seem to have any problem with spending more and more. So I think that debt situation would get greater under them. By the same token, the Republican administrations haven’t shown much more restraint in debt creation.
18:53
And Trump is kind of an easy money guy, a low interest rate guy. So I think that he would probably fire Powell and get somebody in who’s going to be much more accommodative. Either way, I think it helps the story, the macro picture for gold and monetary metals and exacerbates and accelerates those trends I’ve been talking about.
19:20
But those trends will be in place. Those factors will be in place regardless of what happens in this election cycle, regardless of who wins. And I think that’s really the overwhelming driver that we just need to focus on. We can’t really predict. I don’t think anybody’s smart enough to predict the precise path we’re going to take going forward. But if we look at all of these factors, we look at all the uncertainties, we look at all the imbalances.
19:50
that lie ahead. And we can be very confident, I think, that we’ll want to own gold and associated investments going forward. That’s not to say you won’t want to own other investments and you won’t want to be diversified, but you definitely want to be positioned in the sector. You definitely want to have an allocation toward gold for protection. And I think it’s the profit opportunity is really generational as well. Absolutely.
20:19
creating generational wealth is what we say here. And just, if you don’t mind on that note, Brian, I always invite my audience to reach out to one of my associates at ITM Trading to book a strategy session, really surrounding and revolving around building a strategy based on owning gold and silver. And they can do so on the calendar, link below in the description. As we wrap.
20:44
Tell me about the conference happening in November. You always have such incredible guests. Yeah, this is our 50th anniversary conference. Wow. Yeah, the New Orleans Investment Conference is, I’ve only been around for 38 of them though, so I’m kind of a newbie, but it is the longest running investment event in the world, really.
21:10
And we have, as you mentioned, always been known for the quality of our speakers, our faculty, and the quality of our attendees. And this year we’re pulling out all the stops and getting not only a number of the speakers that we’ve had in the past few years, that investors have really come to respect.
21:31
I encourage everybody to go to neworleansconference.com to look at the roster because I will forget all of the great names we have coming. More to add to that. But it is the event to be at. As I say, all of the cool kids are coming this year. All the cool kids, right. Yeah, you want to be there. You really do. I definitely want to be there. And I think I covered like 10 of them. So wow. Kudos to you, Brian.
22:00
for all the success of that conference. You deserve it all, you really do. Thank you so much, Daniela. And you’re such a, always been such a kind, kind human. So thank you for coming on the show and we’ll see you soon, Brian. Looking forward to it, Daniela. Let’s don’t make it so long this time. Yes, absolutely. We’ll be in touch. We’ll see you soon and thank you all for watching. I hope you enjoyed this.
22:27
episode on the Daniela Cambone show. We’ll have more great content coming your way, so be sure to sign up at danielacambone.com so you can stay on top of it all. Thanks for watching.
