The 2019 Gold Rush

One side of my family has held a reunion every few years for more than four decades. It’s a big, raucous event filled with lots of food, many half-true stories about the past, and copious amounts of alcohol.

In other words, it’s a not-to-be-missed event.

Hosting responsibilities transferred from one sibling at the oldest generation to the next, and then moved down a level. My relatives are spread across the nation. So, we’ve held the reunion in Minnesota, Wisconsin, the Upper Peninsula of Michigan, California, Texas, and Florida. Last week we gathered in Colorado, descending on Mt. Princeton Hot Springs Resort just outside of Salida.

We enjoyed the springs and pools, and many of us went kayaking, hiking, and riding ATVs. But there was one activity that caught my attention more than others.

This year, the Centennial State has experienced a boom in panning for gold.

Grabbing a plastic or metal sluice and standing in 55-degree creek water has been a thing in Colorado since gold and silver were found there in the 1800s. But this year, things are different. Over the past winter, the state received more than 160% of the average snowfall from 1981 through 2010, which was followed by a wet spring. The resulting runoff has closed attractions like the creek bed hot springs at our mountain retreat. It’s also moved boulders and sediment that has been in place for hundreds if not thousands of years.

As the rocks have shifted, whatever was underneath has become exposed. In some cases, that includes gold.

I didn’t see anyone show up with gold nuggets, or claim they’d found riches, but there’s no doubt that many of the visitors trolling the mountains were keeping a weather eye for the shiny stuff.

Investors appear to be doing the same thing.

Banking On Gold

After spending almost eight years in purgatory, bouncing between $1,100 and $1,300, gold finally broke out to the upside a few weeks ago, climbing through $1,400 and – despite a brief downturn Tuesday morning– now sits comfortably around $1,500. Gold enthusiasts (who are not to be confused with insects) are starting to feel a bit more confident. But their benefactor isn’t the weather, it’s the coordinated efforts of central banks around the world.

The Fed lowered rates at its latest meeting even though the U.S. economy is bumping along with just above 2% growth, less than 2% inflation, an unemployment under 4%. Fed Chair Jerome Powell claimed to be fighting a foe that hasn’t yet entered the ring, possible economic headwinds that could emerge later this year due to the trade wars and a weakening global economy. But those are strawmen. His enemy is clear: other central banks.

The European Central Bank all but explained that it will restart its bond buying program in September, while the Bank of Japan is contemplating more aggressive monetary easing. Central banks from New Zealand to India are lowering rates as everyone tries to do the same thing… keep their currency from strengthening so as to pave the way for greater exports.

Everyone’s trying to balance their economic books on the backs of foreign nations, and they’re cheapening their currency to pave the way. The actions make real assets worth more, and boosts the value of precious metals like gold and silver.

We now have more than $15 trillion worth of global bonds trading at negative interest rates. Almost 60% of Americans have some money in savings accounts, although most don’t know how much interest they are earning.

I can tell them – almost nothing.

Precious Metals In Context

The FDIC reports that the average savings account returns about .09% per year, which is 90 cents per $1,000. That same chunk of cash loses $18 per year in purchasing power to inflation, which makes the interest paid close to financial theft, and sets the stage for gold.

A traditional knock on gold is that it doesn’t do anything. There aren’t a lot of commercial uses for gold, and it doesn’t pay interest. It’s essentially a dead asset. But if saving money doesn’t pay, and bonds actually return less than the original investment, then gold takes on a certain shine. As the currency wars heat up, gold shines brighter.

As long as the U.S. and China are trading tariffs and barbs and central banks around the world are figuring out new ways to separate savers from their cash, I think gold will trade higher. Maybe not past the highs of 2011 over $1,900, but still above $1,500.

And when we throw in the uncertainty of Brexit in late October and the falling British Pound, gold might get an extra boost.

Over the next year, Colorado might get more visitors looking for sluicing pans than marijuana shops. Luckily investors don’t have to make the trip, they can simply purchase securities like the SPDR Gold Shares (NYSE: GLD) if they want to get in the game.