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Category: Bullion Bulletin

Bullion Bulletin: In gold we trust

The latest edition of the mammoth In Gold We Trust annual report, from the Liechtenstein-based asset management company Incrementum,...

29 May 2022

Gary Mead

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The latest edition of the mammoth In Gold We Trust annual report, from the Liechtenstein-based asset management company Incrementum, is titled ‘Stagflation 2.0’. As always the comprehensive (and humorous) report is a feast of charts and absorbing analysis and, remarkably, it’s free!

The report characterises what’s happened to the world economy in the past two Covid-19 years as being a steady but relentless growth in strength of ‘the wolf’, swiftly chased by ‘a bear’ – inflation followed by recession, an inexorable road to stagflation; high inflation combined with slow or no economic growth.

The generalised hope that a post-Covid economic recovery would happen has been undermined by mistaken “brute” monetary and fiscal policies, the report suggests, which rushed to fend off outright depression. These policies worked – only too well. All the extra money injected into the economy as anti-Covid measures has pushed up asset prices and distorted valuations. As the report says, the “S&P 500 rallied from its Covid-19 low” (in March 2020) “to a new all-time high in just five months and the Nasdaq soared 134% from low to high in just three months… The price paid for rescuing markets was steadily rising inflation…” Markets believed central bankers and governments when they repeatedly advised that inflation was ‘transitory’. Flooding markets with cheap money via Quantitative Easing (QE), as happened in the US and the Eurozone, might have created a wide ‘feel-good factor’ but it also encouraged some absurd bubbles; the Incrementum report quotes (incredulously) an invisible sculpture that sold for €18,300 in May 2021.

The report understandably pays great attention to the Ukrainian invasion by Russia and the sanctions patchily imposed by the West.

The sanctions’ immediate aim was to crush Russia’s Rouble, thus hindering its ability to trade and hence stifle its military capacity. This seems to have failed – the Rouble has actually risen in value prior to what it was before the invasion, helped by a relatively high base interest rate, reduced to 14%/year on 29 April and to 11% on 26 May. The Rouble is around 30% higher against the US Dollar for this year. Moreover, as Incrementum‘s report points out, the weaponization of fiat money (as has been done by the European Union and the US) is a double-edged sword; by freezing the reserves of the Russian central bank the US and the European Union have shown “many US-critical nations how quickly US dollar reserves can transform from a highly liquid asset to useless pieces of printed paper”. This undermining of what has long been regarded as one of the safest of havens – US Dollars and anything denominated in them such as US government bonds – is one of the unintended consequences of the Ukraine war, alongside the threat of food shortages and inflationary pressures.

Incrementum sticks to its long-term gold price forecast of $4,800/ounce by 2030. It believes that the efforts by central banks to fight inflation (pushing up interest rates) without triggering a recession will not work: “we therefore firmly believe that a return to sustained positive real interest rates” (that is, rates above inflation levels) “is as likely as a remarriage between Johnny Depp and Amber Heard”.

Inflation’s progress in the Eurozone and the US


Klarna, the Swedish ‘buy now, pay later’ firm that was founded in 2005 and which has grown at a red hot rate (300% in the first half of 2021 ) in the recent years of easy credit and low interest rates, will cut around 700 jobs as its CEO warns of a ‘likely recession’. At the Davos annual meeting of the World Economic Forum the German Vice-Chancellor and Economics minister Robert Habeck said last week we “have at least four crises, which are interwoven. We have high inflation…we have an energy crisis…we have food poverty, and we have a climate crisis… if none of the problems are solved, I’m really afraid we’re running into a global recession with tremendous effect…on global stability”.

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