Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
“The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals: that it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted…” Thomas Jefferson
The US has seen accelerated debt build-up since the early 1980s, before culminating in the financial crisis of 2008-2009.
You would think everyone would learn their lesson and ease off the gas, but the exact opposite has occurred! Debt levels are now at record highs, staving off GDP growth.
In 2014, debt over took GDP for the first since post-World War II. Unfortunately for the United States, it is no longer the world’s only superpower. After WW2, the US was the beneficiary of having its infrastructure unscathed, and was essentially the world’s manufacturer. The baby boomers benefited immensely, with low tax rates and generous pensions.
Today it’s a different story. Extreme debt has slowed economic growth, and the world’s central banks are forced to print money to continue growing and service debt.
China’s economy grew fast than expected last year, but this of course was throttled by higher government spending and record bank lending. China’s debt to GDP ratio is a staggering 277%, with increasing new credit being used to service debt. Japan’s debt to GDP has increased to 250%, the United Kingdom’s to 123%, and France’s to 122%.
For every dollar of GDP growth, we are adding $1-2 dollars in debt!
What does this mean for gold?
Since the end of Bretton Woods, gold has followed debt. We saw a period of divergence, but this was quickly rectified by a spike of 500% in gold price.
Currently, we are seeing another divergence, and we believe another spike is in the works. While gold is already on the mends, the resulting rally can easily put gold over $2,000/oz. or more.
The world cannot fix its debt problem overnight. In the near future we see a sustained period of economic drought and gold price abundance.
