Gold Steps Up

Podcast Transcript

Ed Coyne: Hello and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott. I'm pleased to welcome back our returning guest, Ronnie Stöferle, managing partner of Incrementum AG. Ronnie, as always, thank you for joining Sprott Radio.

Ronnie Stöferle: Thanks for having me, Ed. Always a pleasure.

Ed Coyne: First, Ronnie, let's get an update on how you've been doing personally and what you've been working on at Incrementum.

Ronnie Stöferle: Currently, I'm doing two big things. I'm preparing for a marathon, which is going to be in three weeks. It's my third marathon. The older you get, the harder it gets, but on the other hand, I'm feeling well prepared, which already leads me to the other marathon I'm currently working on, the In Gold We Trust Report.

Ed Coyne: Oh, yes.

Ronnie Stöferle: I can tell you it's the 19th edition now. I've been doing it for 19 years. It's probably never been harder to solve this 3D puzzle that's going on because everything is so turbulent and volatile. On the other hand, the good thing is that gold did a tremendous job over the last couple of weeks, especially when volatility picked up in the market. There's going to be quite a lot of topics to analyze, discuss, and research. My day starts at 5:00 AM. I'm writing, I'm researching, I'm crunching numbers, and talking to the team. Then I'm going for a big run at night. That's my life right now.

Ed Coyne: Perfect. People can't see this, but you look fantastic and healthy. Of course, I wish you the best for the marathon and for both marathons.

Ronnie Stöferle: Thanks, Ed.

Ed Coyne: Let's talk about the volatility because, to me, I would have thought you would have started by saying, "We're taking a bit of a victory lap here. Gold is doing great. It’s above $2,900. We're really happy to see its performance." You said it's quite hard. A lot of things are going on. Talk a bit about that. What gold’s doing, the volatility? Give us a recap of 2024 and work your way into 2025 if you would.

Ronnie Stöferle: Sure. Let's start with the numbers, Ed. Gold was up 26% in U.S. dollar terms. It was up 38% in Australian dollar terms. 37% in Canadian dollar terms. Even in the Swiss franc, which used to be by far the hardest fiat currency, it is up 35%. In Euro terms, 34%. 2024 was a great year for gold. If you change the perspective, you could say that every fiat currency is devalued by roughly a third compared to gold, which is quite dramatic from my point of view. Last year's In Gold We Trust Report was called the “New Gold Playbook.” That describes what's going on in the gold world in general.

We see that gold doesn't react to old patterns like the inverse correlation between real yields and gold price. Historically, if you had seen real yields rising dramatically like last year, you wouldn't expect new all-time highs in gold. Central banks are one of the most decisive factors. Especially central banks from emerging markets. That's important to understand.

The second is the weaponization of fiat money, which started with the confiscation of Russian reserves in 2022. That was a wake-up call for wealthy private individuals in many emerging market countries. Of course, it affects real estate in London, New York, or Vancouver, which are preferred savings destinations for emerging market capital. I think this has really changed, and gold has become a new safe haven for that kind of money.

Then we're seeing that there is some monetary climate change, which was also the title of a previous In Gold We Trust Report. Monetary policy isn't as important as fiscal policy anymore. I think that's one of the key takeaways. Last year, the United States had a budget deficit of roughly 8%. Of course, on a relative basis, this makes a huge difference compared to China and Europe, which explains why the U.S. economy has done so well over the last two years. We are in a bull market for gold that I think is standing on a very strong foundation. This foundation was mainly driven by emerging markets demand.

Now, this year, I would expect that Western financial investors will, at some point, come back. We're already seeing that with gold ETFs having stabilized. There were some inflows in the second half of 2024. I think this is just really getting started. A friend of mine on LinkedIn once said there are probably more people in the United States who believe that Elvis is still alive than people in the U.S. holding physical gold. I think there's quite a long way to go. Of course, we're experiencing enormous uncertainty in this world. You're waking up, and you see crazy new headlines. Investors, markets, and equity investors, especially, just hate this uncertainty. That's an additional driver for the price of gold going forward.

Ed Coyne: Let's start with policy. There's been a lot of movement in policy here at a very rapid pace. What's your take on that? What foundation is that laying for gold going forward in your view?

Ronnie Stöferle: Ed, I'm not a political analyst. I'm just a small gold analyst. All those geopolitical movements that are happening now are just so complex. I think it's even too much for people doing nothing else than trying to understand political developments. From my point of view, what's interesting for capital markets is that Scott Bessent said recently that the U.S. is headed for a detox period. The last few days have been quite turbulent in the capital markets. Yesterday, Monday, March 10, $1.75 trillion was wiped out from U.S. markets. Of course, this is all paper wealth, but it influences consumer confidence and spending behavior.

If that detox period, which probably just started, continues, it will have major impacts on capital markets, equity markets, currency markets, the bond market, and, of course, the gold market. Now, everybody is hoping for this Trump put, but Scott Bessent said recently that there is no Trump put anymore, but there's a Trump call upside. I thought that was an interesting comment.

We are already seeing this in Europe, with Friedrich Merz announcing that Germany will eliminate the debt brake. Germany, the capital of prudent fiscal policy and conservative government finances, is making a U-turn, saying, "We'll invest roughly $500 billion into infrastructure and $400 billion into defense." That had a major impact on the bond market.

If you look at the 10-year German government bonds (German Bunds), which used to be the gold standard for fixed-income investors in Europe, they went through the roof. It was the biggest loss for bonds since the German reunification. A big, big move. The signal for countries like France, which is, from my point of view, the biggest threat in the Eurozone, but also for Italy and other countries, is a very strong signal, saying, "Let's do what the United States did recently." Very Keynesian fiscal spending. Trying to stimulate the economy. We don't care about debt levels and debt limits anymore. This obviously will also have a tremendous impact on the gold market.

If I put it in a nutshell, it seems that there's a relative shift in fiscal policy. While the United States has become more hawkish and is trying to eliminate those enormous budget deficits, China and Europe are experiencing significantly higher fiscal deficits. That's the main reason for this massive shift in capital markets. Let's not forget that there is still very one-sided positioning in many global mandates. The U.S. has a 37% weighting in the MSCI World Index, while the Eurozone accounts for just 8%. This reversal of flows will probably continue in capital markets.

Ed Coyne: You discussed the fiat devaluation in 2024 in the U.S. That has traditionally also helped gold. If you hear what the policies are out there, what's your take on that? If you think about the U.S. dollar relative to other currencies, do you think you will see a continuing weakening of the U.S. dollar? As you talk about the new playbook, will that continue to help gold going forward?

Ronnie Stöferle: We've seen enormous strength in the euro recently. The DXY Index is very heavily weighted towards the euro. We're also seeing the Japanese yen showing some strength. Japanese yields are rising. The yen has risen dramatically. Japanese savings are a very important factor in global financial flow. When the yen rises, Japanese savers tend to repatriate capital. Again, most importantly, probably, is that European countries are now set to run much more stimulative fiscal policies. I could see the euro doing better over the next couple of quarters, which doesn't mean that it's fundamentally a buy, but it's all relative. However, if we crunch the numbers versus gold, you can see that the average rise in gold in various currencies is pretty much the same.

Over the last 15 years, on average, gold was up 7.2% in U.S. dollar terms. In euro terms, it was up 8%. You can see that fiat currencies are being devalued versus gold. Then, the fiat currencies versus each other—that's a relative game. I would say that the Swiss franc still probably is, from a fundamental basis, the strongest fiat currency out there. I would say that the strength in the yen and the euro could continue based on capital flows.

Donald Trump, Stephen Miran, who's a very interesting man and the chair of the Council of Economic Advisers, and Howard Lutnick have been quite vocal about the U.S. dollar being too strong. They want to have U.S. manufacturing celebrating a renaissance, and therefore, I think they will try to get the U.S. dollar down. We've had the Plaza Accord. Now, they're openly talking about the Mar-a-Lago Accord.

Ed Coyne: Are you seeing gold return as an alternative currency? You talk about fiat currencies being devalued relative to gold. Is gold having its hat thrown in the ring and just saying, "Hey, we're a currency also. Let's buy oil and gas with gold, not with U.S. dollars, with other currencies." Is that happening, or is that just more anecdotal regarding how people think about gold?

Ronnie Stöferle: Ed, I often travel for business and with my family. I've been in Saudi Arabia. I'm attending one of the largest mining conferences this year and spending lots of time in Dubai and Turkey. If you talk to Indians, for them, gold is money. There's no discussion about that. It's a very Western view that gold is coming back because, for most people, it's never been not money. What is super interesting, Ed, is stuff like auditing Fort Knox, stuff like revaluing gold, stuff like gold-backed bonds. These are all the topics that were discussed on ZeroHedge. The Usual Suspects on Twitter discussed that.

Now, it's becoming mainstream. Luke Roman, I found out about him through my friend Grant Williams many years ago. Now, he's speaking about gold with Tucker Carlson. This stuff is really becoming mainstream. I think it's super interesting. Sometimes it seems that when a new band gains popularity and starts being played on the radio, it becomes more commercial and widely liked by many people. It sometimes feels like that.

We released our 2020 report, in which we predicted a golden decade and announced our long-term target of $4,800. Back then, in 2020, people said, "You are crazy. What are you drinking? What are you smoking?" Now, people seem to say, "It's still on the high end, but it could happen." There was a major shift in sentiment. Gold is being accepted again.

Let's put it that way. In sports terms, we're somewhere in the beginning of, let's say, the third quarter, something like that. We are not at the very end of this game, but gold is not a contrarian play anymore like it was a couple of years ago. It has become more mainstream. You can see if you look at the research reports from the big banks, they're all becoming slightly positive now, but they're not going crazy yet like in 2011, where every bank had a super bullish price target out. Based on the Dow Theory, we're in the so-called public participation phase.

Ed Coyne: I love that comment. Public participation, because every year, all the big bank stuff comes out, and gold is always a predicted price, and it's always lower than what it's currently at, until last year. The world is waking up to it. To your point, we're maybe at halftime, not even in the third quarter yet. It does seem like a foundation has been set, and the world's waking up to it, and the fact that it's being talked about at cocktail conversations. More people are talking about it today than they have in the past. I've been with Sprott for a decade now, and I've even noticed the general acceptance of gold today versus just four or five years ago. That seems to be happening.

Ronnie Stöferle: It has become more of a cocktail party thing that is being discussed, but most people say, "Ah, Jesus, why didn't I buy when it was trading at $1,800 or $2,000?" Now, it's too late. It's already too expensive.

Ed Coyne: Great point. That's when we started this podcast today. I thought maybe you'd be taking a victory lap. At $2,900 plus, it sounds like a lot more work still has to happen, that there's a lot of runway with this still. For those investors saying, "Maybe I missed it," maybe they missed it when it was at $1,200 or $1,800. It continues to do its job. That's the message we try to continue to convey to our investors: you're investing in its ability to add value over time. That's the message. People get caught up too much on price and forget the value and the productive aspect of gold in a portfolio.

How do you convey that to clients as the price rises like this? How do you get them to understand it is a smart, valuable, low-cost, liquid way to diversify a portfolio? What would you say to someone today who says, "Hey, I missed the move. I should have bought it a year ago, or six months ago"?

Ronnie Stöferle: I think it's always best to let the numbers speak for themselves. That gold is an excellent portfolio diversifier. Gold works well during recessions, and perhaps the gold market is sniffing out that a recession is on the horizon. Gold works well in times of rising inflation. Inflation volatility is something that we should expect going forward. Gold does tremendously well during times of geopolitical crises. Gold works well as a dollar hedge. That alone should make a strong case for gold.

We also know that gold usually works well when equities correct big time. From a portfolio diversifier point of view, it makes sense. We put out the special paper. It was a bit academic, but we crunched the numbers and asked: What is the optimal gold allocation?

Now, we all know that on average, asset allocators and investment advisors hold 1% to a maximum of 2% gold. That's first.

The second thing is, I would say, of course, on a nominal basis, we've seen quite a move, but then, on the other hand, have a look at how the debt situation has developed. Have a look at monetary aggregates, how they exploded over the last couple of years. Have a look at the S&P 500 Index. Have a look at house prices. Have a look at other asset classes. I would say, on a relative basis, gold isn't super cheap anymore, but it's far away from being extremely expensive. That's the second thing.

Then the third thing is, from my point of view, every big bull market, and we're really in the bull market, and you can tell that because every little correction is being bought. What this tells me is that there's an enormous amount of capital waiting on the sidelines because they have missed the gold party.

Normally, what performs best in this parabolic phase of a gold bull market is silver and mining stocks. So far, their performance has basically been in line with the price of gold, but they haven't massively outperformed yet. Therefore, I would say, in sports terms, again, somewhere like halftime, beginning of the third quarter. I don't understand baseball too much, so I don't know which inning it is.

Ed Coyne: We'll call it the fifth inning, sixth inning maybe, somewhere around there. Miners, let's stick with that for a second because it's been a head-scratcher for a lot of people. The price of gold continues to go up. The price of silver is showing strength. The margins are expanding, and people aren't paying attention. The quality of these companies is there. The dividends are strong. They're doing all the right things, but the market's not paying attention yet, I guess, is the best way to say that. What's your take on miners right now? What's happening with the mining space?

Ronnie Stöferle: If you have a look at relative charts, and I think in a world that is also being driven by monetary inflation, I think relative charts give you a tremendous amount of information on how markets actually develop and how they are building a relative strength or weakness. If you have a look at, for example, a chart of gold miners versus the S&P 500 or gold miners versus the tech space semiconductors, you can see that they're breaking out from a long bear market.

If you have a look at the relative strength of gold versus the S&P 500, you can also see that gold has built up an enormous amount of relative strength versus equities. Gold is now outperforming bonds and equities, which is important, and also basically every major currency. That's a sign of a strong bull market. When it comes to equities, just have a look at the results, the numbers that the well-run mining companies are producing at the moment. They're free cash flow monsters. We've already seen that the Fed has started lowering rates, but it's been a bit different compared to previous cycles.

If there should be a larger pivot, I had a look at 2001, for example, during the dot-com crash, the S&P 500 was down 18%, gold was up 20%, and the GDM index, the mining index, was up 177%. The same goes for the period after the financial crisis, 2008, 2009, miners were up 122%. 2018, we all remember that when the Fed reversed course, they halted quantitative tightening and started cutting rates, the mining stocks were up 50%. In the COVID response of 2020, mining stocks were up 104%. They significantly outperformed not only gold but also the S&P 500.

You've got great fundamentals. You've got a technical setup where gold is holding up well, where gold is in a pronounced bull market. You've got generalists slowly coming in. I think that's a pretty, pretty good setup for the mining space going forward.

Ed Coyne: It's fair to say you like the miners?

Ronnie Stöferle: It is.

Ed Coyne: Your work is awesome, and we appreciate you continuing to educate us. When can we expect this year's report?

Ronnie Stöferle: May 15 is the big date. We will be publishing the report, as always, in English, in German, the compact version, also in Spanish, and in Mandarin. For the very first time, also in Japanese. Japan has become a really interesting gold market. 22 people are working basically 24/7 on this report. I'm just one of them. It's a great team, but again, it's really challenging because there's so many things going on now.

Of course, we want to write a report that if you read one report about gold every year, it should be the In Gold We Trust Report. That also means it must be interesting, or it shouldn't be outdated if you read it three months after its publication date. That's a challenge that we're facing: addressing all the things that are going on now while also not forgetting the longer-term perspective.

Ed Coyne: I still love the hard copy. I dog-ear it throughout the year. I save them, which is maybe what makes me a nerd, but I save all the old ones.

Ronnie Stöferle: The Report will actually be available on Amazon for the first time.

Ed Coyne: I love it.

Ronnie Stöferle: We're now able to set it up on Amazon, so everybody can order the printed copy.

Ed Coyne: When you start doing them in leather-bound books, we know we've hit a peak in the market. What have I not asked that you want to leave the listeners with? What should people be watching for the rest of this year in 2025? One or two little clues for the newer listener or the newer investor in gold?

Ronnie Stöferle: Somebody on Twitter just wrote the last two years were make-money years. We are now approaching don't-lose money years. That perfectly sums it up. It's going to be a volatile ride. There will be huge opportunities in the mining space. There will be opportunities in the silver space. Also, in commodities. But it's not going to be an easy year.

Being from Austria, skiing is my favorite sport. When the weather is fine, and you've got great snow, and the sun is shining, everybody is a great skier. When it's icy, when it's foggy, when it's steep, then you can differentiate if you're a good skier or not. This year, for money managers, this will separate the wheat from the chaff. That's what we are being paid for. That's our job offer. That excites me, to be honest.

Ed: I love it. Ronnie, it's always a treat to have you on. It's a crime that we haven't physically met in person yet after all these years. I suspect that at some point, that has to happen. Thank you, as always, for making the time. Get back to work on your training. Get back to work on In Gold We Trust. We're looking forward to the May 15 rollout.

Ronnie Stöferle: Thank you very much, my friend. Take care.

Ed Coyne: Thank you all again for listening to Sprott Radio. I'm your host, Ed Coyne.