MacroVoices #378 Ronnie Stoeferle: In Gold We Trust - Showdown
Ronnie Stoeferle discusses the 2023 In Gold We Trust report, arguing that three major showdowns are unfolding: central banks facing a trilemma between fighting inflation, avoiding recession, and maintaining financial stability; geopolitical de-dollarization driven by emerging markets; and gold's technical showdown near all-time highs. He believes a recession is coming despite analyst consensus suggesting only mild slowdown.
Summary
Ronnie Stoeferle, principal author of the annual In Gold We Trust report and fund manager at Incrementum, presents his analysis of precious metals markets centered around three major 'showdowns.' The first showdown involves central banks caught in a trilemma between fighting inflation, avoiding recession, and maintaining financial stability. Stoeferle argues that despite aggressive rate hikes, central bankers will lose credibility and that recession remains their base case, contrary to Bloomberg analyst consensus expecting only 1% growth with minimal recession risk.
The second showdown is geopolitical, focusing on accelerating de-dollarization trends. Stoeferle explains that Western sanctions on Russia catalyzed this process, with central bank gold demand hitting new all-time highs in 2022. He notes that 17 nations want to join BRICS, and that China and India now represent 50% of consumer gold demand. The infrastructure for gold trading is shifting eastward through the Shanghai Gold Exchange and other emerging market institutions.
The third showdown involves gold's price action near all-time highs in USD terms while making new highs in other currencies. Despite negative sentiment in the gold community, Stoeferle sees this as a positive setup. He discusses the shift in gold demand from West to East, with emerging markets becoming increasingly dominant in both production and consumption.
On inflation, Stoeferle predicts short-term disinflation followed by another inflation wave, driven by factors like deglobalization, demographics, and 'greenflation.' He believes current disinflationary forces (recession, base effects, commodity price declines) will give way to medium-term inflationary pressures from wars, resource nationalism, and supply chain reorganization.
Regarding mining stocks, Stoeferle advises caution, noting that royalty companies are near all-time highs while producers lag significantly, indicating low risk appetite. He emphasizes the social benefits of mining operations, arguing that the 'S' in ESG is more important than environmental concerns for the sector.
Technically, while acknowledging gold could fall another $100, Stoeferle expects a potential breakout above $2,120 leading to targets of $2,500-3,000 within 12 months. He anticipates the next major move beginning in late summer/early fall after current seasonal weakness passes.
Key Insights
- Stoeferle argues that central banks face an unprecedented trilemma between fighting inflation, avoiding recession, and maintaining financial stability, with no good solutions available
- Only 4 out of 100 Bloomberg analysts expect recession in 2023 despite massive monetary tightening, contradicting the narrative that this is the 'most anticipated recession ever'
- Central bank gold demand hit all-time highs in 2022, driven primarily by emerging markets seeking alternatives to dollar reserves after Western sanctions on Russia
- China and India now represent 50% of global consumer gold demand, while Western demand has largely stagnated except in Germany
- The Shanghai Gold Exchange, being 100% physically backed, is becoming more important than London/New York in determining gold prices
- Stoeferle predicts short-term disinflation followed by another inflation wave due to structural changes like deglobalization, demographics, and green energy transition costs
- Mining stock risk appetite remains low, evidenced by royalty companies near all-time highs while major producers trade 30-50% below peaks
- Resource nationalism is emerging as a significant challenge, with countries like Chile and Mexico implementing policies that could impact mining operations
- The social component of ESG is more important than environmental factors for mining companies, as they often provide crucial infrastructure to local communities
- Gold could decline another $100 in the short term due to seasonal weakness, but Stoeferle expects a breakout above $2,120 to trigger moves toward $2,500-3,000
- Seventeen nations are seeking to join BRICS, indicating growing momentum behind alternative monetary arrangements to challenge dollar dominance
- Despite gold trading near all-time highs, sentiment in the gold industry remains pessimistic, which Stoeferle views as a contrarian bullish indicator
Topics
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