Collapsing trust in government printed (fiat) money could drive gold well beyond its current record price of $5057 an ounce because investors feel betrayed.
A human analogy used by leading gold trader Ross Norman to explain the psychology behind the gold boom is the difficulty in rebuilding trust after a marital break-up caused by one partner being unfaithful.
Gold tops paper currency
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“Imagine you’re married,” London-based Norman wrote in the latest note published on his MetalsDaily.com website.
“Your partner is unfaithful but later repents. When do you start trusting them again?”
“That’s the dilemma facing asset allocators today. They feel betrayed by the current system, by declining trust in dollar assets, mounting debt and a lack of political courage to face reality.”
Norman does not provide a gold price tip of his own, he’s been around too long to fall into that trap.
But he does write with great authority on the signal being sent by gold which is performing its timeless role not simply as an alternative asset or a portfolio diversifier but as an asset of last resort, something of real value that isn’t someone else’s promise to pay.
“Gold’s rise beyond $5000/oz reflects a deep malaise in global finance, not yet mirrored in equity valuations,” Norman wrote.
Systemic Trust Collapse
“It’s not merely about geopolitical tension or uncertainty; it’s about a fundamental collapse in trust and confidence in the system itself.
“The gold price, at heart, is not just a market indicator. It’s a voting machine. The ticker might jump on news of a political abduction, distant revolts, or threats over Arctic resources, but the underlying story remains the same.
“Gold is recalibrating to a world where trust is eroding, and debt is self-fueling and of course, those two dynamics are intimately connected.”
It could be a long way down after peak gold.
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Norman looked for signs that the gold price is close to a peak but failed to find one.
Even the oldest maxim about cab drivers and bell hops giving share prices was tested by relating an anecdote about comments in his village pub from locals and complete strangers firing questions at him and a fellow gold trader about the gold price.
“The funny thing is, the moment people begin telling us where they think the market is going, that’s usually the clearest sign that it’s about to top out,” he wrote.
“For now, though, the barometer hasn’t fallen, not yet.”
Singled out as a significant financial sector worry is the continued rise in debt, which is not inherently bad, he wrote, but is a real danger when it becomes uncontrolled and self-perpetuating and there’s no political will to pull out of the dive.
“In the liberal west we routinely vote out leaders who propose austerity, we refuse to take our medicine, and the east knows it, Norman wrote.
Debt Junkies
“We’ve become junkies hooked on the latest fiscal stimulus.
“So then, who would buy those charming IOUs (I owe you) the west keeps issuing as gilts and treasuries to sustain our habit of living beyond our means.”
Norman then posed the question of what might bring the gold rally to an end, using the loss of trust in marriage for comparison as economic alliances and assumptions are being questioned.
Seen that way, he wrote, gold becomes the economic equivalent of the dating apps Hinge and Tinder, which represent a search for an alternative when the status quo no longer feels worth keeping.