LAWRIE WILLIAMS: Gold – predicting the future with a ‘Thunder Road’ analysis
Time was when an independent precious metals analyst named Paul Mylchreest used to publish a hugely interesting, prescient and occasionally controversial newsletter called the Thunder Road Report. This concentrated on precious metals and gold in particular. Paul’s views generated a strong following within the gold investment community, and some of his old articles are archived on the Silver Doctors website if one cares to go back and read them. (We believe the last such archived article is dated December 2013). This old newsletter, its analysis and advice is sorely missed! It was a newsletter this writer used to look out for and read avidly. Alas no more!
Then Mylchreest joined a mainstream brokerage as a specialist analyst and this valuable independent contribution to the understanding of the precious metals markets ceased to be published. Since then we have occasionally been privileged to receive some of Paul’s valuable thoughts and analyses and he has recently contacted me with an opportunity to review and republish his latest take on the future path of gold.
To view this latest offering click here. It comprises a series of powerpoint slides plus some notes pertaining, used to illustrate a talk given by Mylchreest to a group of institutional investors. The slides on their own are a valuable resource, but you will need to interpret them and their relevance without the accompanying presentation. However we will attempt to fill in some of the gaps with our own assumptions regarding Mylchreest’s overall findings.
Perhaps the most important take-away from the presentation is Mylchreest’s view that he sees the investment case for gold as arguably better now than it has been for years – brought on in part at least by the profligacy of central banks in response to the COVID-19 virus. Speaking of which the spread of the virus in the U.S. – most relevant because it is the U.S. futures market which tends to define the global gold price – seems to be accelerating. The latest figures according to the worldometers.info website which, in our view is probably the most accurate and comprehensive measure of global COVID-19 statistics, have the U.S, recording close on 200,000 new cases a day and yesterday over 2,000 deaths in a single day. The Trump legacy, due to mixed messaging on virus control measures from the top, is looking damning.
Along with the horrendous figures in the U.S., some western European virus spread and deaths figures are also looking dire – notably in Belgium (which has one of the world’s highest death rates), Spain, France, Italy and the U.K. Even Germany, which had been held out as an example of effective virus control, is seeing seemingly an accelerating infection and death rate. China, on the other hand, if its figures are to be believed, has been hugely effective in controlling virus spread and deaths, as perhaps only a country with a centralised economy and a compliant populace, can be.
One of Mylchreest’s main focuses is on historical ‘great inflations’ reckoning that the current one, which has been playing out around the world since around 1897. One of his slides is a fascinating one showing how the current ‘great inflation’ compares with those in history going back to the 12th Century. If his figures are correct, and we have no cause to doubt them, current inflation growth is enormously higher than that seen in the past, and still rising fast. These ‘great inflations’ may also incorporate times of deflation, but Mylchreest has always been an adherent of Roy Jastram’s seminal work on gold ‘The Golden Constant’ which shows that gold tends to hold its value through both inflationary and deflationary periods – indeed outperforms in both scenarios. Given that Mylchreest’s charts show global inflationary pressures continuing to rise, then the gold price would likely rise also.
He puts the upwards pressures on gold (and silver) as being three-fold. The first is a lack of financial discipline, exacerbated by the worldwide spread of the COVID-19 virus and efforts to control it. The second is the massive debt bubble being run up by central banks and governments – this was growing even before the virus struck but now it has risen to the kind of level that it can probably never be repaid which suggests the only way out has to be some kind of massive financial reset – in which gold may well play a major part being our interpretation. The third principal driver is in reality a subset of the second above, being the huge rise in negative interest rate bearing debt – over $17 trillion and rising.
Mylchreest also points out that gold always outperforms in the final stages of a major debt cycle and that we are probably coming towards the end of such. Also the ending of these major debt cycles historically ends in an equities crash and, arguably, the recent growth in equity valuations in the light of an enormous virus-related global economic downturn make such a predicted equities crash virtually inevitable in our view.
He also sees a potential gold shortage, which would drive the price up given what he sees as a running down of the unencumbered gold volume in London vaults – a theme he has promoted in the past. All the above suggests a major financial reset lying ahead in which gold – the only major asset without some kind of counterparty risk – should have a significant role. Perhaps the only real unknown, assuming the analysis is valid (which we think it is) is the timing thereof. The current cycle has been under way, according to Mylchreest’s theories, for well over 100 years already and the end-game could yet be years away before everything comes crashing down (except gold) – but then it could also be only months away! As usual in investment decisions timing is everything, but in our view it is better to be too early than too late.
20 Nov 2020