What happens to gold after Georgia Runoffs? Peter Hug
The start of 2021 has been great for gold Bitcoin stocks are seeing mixed results. The COVID cases around America continue to rise. Britain is back and full lock down the economy around the world seems to be picking up. I'll be a very slowly Peter hug is here to break us, break this down for us. Peter.
Welcome back to the show. It's been a. Nearly two weeks since we last spoke, it feels like yesterday prices have moved up a lot, though. Good to be here. David, happy new year to everyone near to you, too. Peter, you were right in your call. You had said last time we spoke that gold was headed up towards 1920.
It could breach that level, took a few days more to get there, but, uh, it did eventually. So we're at 1940 today as we speak, that was a great call. Is this a, is this rally going to continue? That's what people are wondering right now. I'm very constructive the market. As a, I mentioned a number of times going into the latter part of 2020, uh, the macro picture remains positive for the metals.
Uh, not only for the precious metals, but also the industrial metals in 2021. And, uh, I see absolutely no reason to change my, uh, my, uh, feeling of, uh, uh, uh, continuous, uh, continuing uptrend, uh, both in, uh, the precious and industrial metal complex through at least, uh, the first half of 2021. Okay. We'll come back to gold a bit later.
Let's start with talking about the Georgia runoff elections tonight. The first wave of votes will be counted. Now the markets are seeing mixed results. Yesterday was down today is up a little bit. What do you think the markets are pricing in terms of results? Uh, I'm not sure or the market. I mean, if you look at the Dow, it's up some 140 points today, but, uh, I think the primary reason for that a point move in the Dow is the energy complex.
You have oil up almost two and a half dollars. Uh, It tried to get through 50 on the nearby contract. And it's just slightly below that now. Um, but I think most of this down move is, uh, is, uh, energy related. Uh, I, I don't think anybody is stepping in front of these, uh, Georgia elections, uh, and probably also waiting until Wednesday before they recommit to the market.
Uh, it is, uh, still a total crapshoot. To, uh, whether the Democrats will be able to pull off winning one or two of, and they'll need both of the Senate seats in the Georgia race, uh, which, um, uh, the polls close tonight at seven o'clock. So do you think that gold was, do you think that goal was up because of this uncertainty?
Uh, no, I, I basically think that there was some year-end selling. Uh, we did get a, you know, I was looking for that 1920 a level by sort of Christmas. Uh, the Christmas week, it got to nine, uh, 1913, and then sort of sold up and got all the way back down to the, uh, Uh, the 18 sort of, but 85 90 level. Uh, but this seasonally only is a great time for precious metals.
If you look back over the last four years, uh, uh, sort of mid December through the end of January, uh, has been a very positive momentum. Space for both gold and silver. So I was constructed the market prior to any of this garbage going on now with what may happen on Wednesday, uh, with, uh, the Republicans possibly challenging the election results and the Georgia election.
Um, I think that the global economies are still struggling, uh, and the vaccine will still take some time before it has the effect, uh, of returning. The general workforce back to sort of normal, uh, capacity. And I still think that's, uh, an event that is probably early to mid summer before that, that that is achieved.
Uh, and in the short term, the next three, three to four months, I think the economy, uh, especially in the us, uh, and if you look at the UK, which has just shut down totally since yesterday, uh, is, is going to struggle. Um, so in that context, uh, it's hard to believe, uh, that there's not going to be more stimulus.
Both from a fiscal perspective from the government, uh, and, uh, or from the, uh, the federal reserve, uh, to sort of bridge this gap until, uh, the vaccine can do its job. So in that context, um, I see a lot more stimulus coming into the market. I think that's negative for the dollar, and I think that would be a price positive for the metals complex, at least through the first half of 2020.
Let's go through some scenarios now, let's suppose the Democrats don't take the Senate tonight. Uh, would that still be positive for the stimulus aspect? Will we still get stimulus in that case or you think it would be. More difficult. Uh, I mean, if, if the Democrats win both the Senate seats in Georgia, then Biden's going to have basically a blank check.
Uh, and I think the stimulus from, uh, from the government perspective, the fiscal side, uh, will be significant. Uh, should he have control both of the house and the Senate, if the Republicans control, uh, maintain one of those sentence seats or both? Uh, it doesn't matter. They'll still have the majority in the Senate.
I think then Biden is going to have a much more difficult time trying to come up with a massive stimulus package. Um, Without it being blocked by the Senate. So the best thing, uh, if you're looking for a stimulus package and more liquidity added to the market, uh, would be, uh, the Democrats winning both of the Senate seats in Georgia tonight.
Yeah. So that would be the best outcome for gold and stocks. You see, you think stocks as well because you add that liquidity into the market. I think it's a extremely positive for, for all asset classes, uh, real estate, uh, the stock market. Uh, the, uh, precious metals, uh, complex, uh, we'll all do well in, in NEC in, in that environment.
So you, you, you said that, uh, the vaccine will take some time to have full impact on the population. Okay. So what, what happens before then? Peter, are we going to see any choppiness in the stock markets? Like you said, COVID cases are still rising. You were talking to me offline. Elway's hospitals are packed.
It's difficult to even get in, get into the hospital. Now, even if you're sick, So the situation on the COVID front, isn't really improving well, in most States, it is not in the big States. It is not, uh, you know, in some of the smaller States. So for North Dakota, they've sort of, it seems that, uh, they're bending the curve a bit.
Um, but it's, uh, you know, I think. We haven't yet seen the result of Christmas and new years, um, from a perspective of additional surge, uh, within the economy. I mean, I think there were some four or 5 million, um, people that traveled via plane alone, uh, over Christmas, new years. And then you had another 70 odd million people, uh, that visited relatives, uh, throughout that same, uh, uh, timeframe that that's a one to two to three week lag before it, it shows in cases and then chosen hospitalization.
So I still think the worst is in front of us. Um, And, uh, the vaccine, uh, albeit, uh, is, is coming on stream and hopefully will come on stream in a quicker fashion in 2021, uh, is still sort of behind the curve. I think the only vaccine did something like 5 million people, right. Uh, with a, with the first shot.
So, uh, you know, we have a long way to go. Uh, if we need to get to herd immunity to be able to stop this coronavirus. And, uh, from again, I'm not a doctor, but from what I'm reading and hearing, um, herd immunity is a achieved somewhere between 70 and 80% of the population and at the given run number, uh, that looks to me like it's, uh, It's certainly not going to be achievable in the first quarter of 2021.
And so if you have these issues with COVID. Accelerating. And, uh, governor's forced to shut down their States. That's going to have a negative economic impact, uh, on the economy. And, uh, you know, it's going to be a, a difficult time, I think, over the next three to five months. Uh, but I'm looking at the light coming sometime in summer.
Uh, and then, uh, the pent up demand. If we can get the economy at full guns again, sometime late summer, early fall, um, I think, uh, will bring us back to some kind of normality, but in that context with the central banks, Still with their foot on the pedal, not likely to take their foot off the pedal until at least the end of 2022.
Uh, now you have to reconsider potentially inflation rearing its head sometime second half this year, which is also conducive for higher precious metals prices. So the overall macro picture, when you look at it continues to remain bullish on the metals, uh, uh, at least from a perspective of having a portion of your metals in your portfolio, Peter, the, the operating assumption here is that.
As COVID cases, dwindle, if the, if the vaccine is effective and eventually the case has died back down, the economy will recover. Can you walk me through the logic and the thought process behind that? Because let's assume for the sake of argument that let's say tomorrow COVID cases dropped to zero in America.
Let's just assume that it drops to zero. Will the economy bounce back right away? Because I'm thinking millions, unemployed, still jobs are not going to be created overnight. It's still going to take some time. Uh, for some of these jobs to recover, if they're even able to be recovered, maybe they're lost permanently.
What do you think that's certainly possible within certain industries? Uh, I mean, um, I would imagine again, I'm not a restaurant tour, but I would imagine some of those restaurants will not come back, but the ones that don't come back will be replaced by other entrepreneurs that opened up new restaurants.
Yes. There will be obviously a time delay. It's not like you turn on a switch. Uh, and, uh, all of a sudden everything comes back to normal and it's hunky Dory. And it's like, uh, you know, February, January, February of 2020, uh, and everything's led full of guns. It will be a process, but there, I think there is so much latent demand in the economy.
There's a lot of people, a lot of people that have saved money during this COVID time period. Um, not. Not the lower, lower or lower middle class, possibly. We're not able to do it, but there is certainly a lot of savings in the economy and a lot of cash that is sitting on the sidelines. And once. You get that sort of euphoria, that everything is more normalized and, and, and you want to go back to the movies and you want to go back and fly and you want to go back to the theme parks and you want to go back and, and go to restaurants.
I mean, the pent up demand is enormous. And the question is whether the supply chains can pick up quick enough to meet that demand. Then if they can't that's inflationary. I think that the, the. Yeah, I think the counter-argument is the danger that some people people see here is that this culture of savings that was forced upon us, maybe here to stay, maybe people, well won't want to go out as much as they used to, because now they're used to doing things from home.
Now they're used to having a lifestyle over the last year that doesn't evolve the movie to restaurants or bars as much. W do you think, do you think that's possible? Not the people I speak to. I mean, my friends are just Jones and to get out and do something. I mean, just to go to a movie or to, you know, to be able to go to dinner with friends.
I mean, I don't know of anyone that I've spoken to Northern. My wife has spoken to that. That has indicated, Oh, I'm really cool. Watching Netflix all night and ordering and from, uh, uh, from Uber eats. I mean, I just don't see it. I see nobody jumping up and down saying I'm very comfortable doing what I'm doing now.
Will people remind great back to the cities, if it's possible for them to work from home, that could be a radical shift, uh, that. Maybe the market hasn't taken into account. Uh, if you look at the big cities, uh, give you Toronto as an example, I mean the condo market in downtown tomorrow, the prices have dropped some 15, 20%, uh, outside of Toronto and we're talking 50 to a hundred miles outside of Toronto, where.
Uh, if you had to work in Toronto where obviously most of the jobs are, um, required a commute every day, maybe an hour, both ways. Uh, uh, and now these people are living, uh, In smaller towns because they're able to work with DPN and, and be effective workers. Now, the question is once COVID goes away, how many of these companies are going to force their people that come back?
When will they allow those people to go work from home? So now you have dynamic shirts. First of all, the real estate market, uh, shift the commercial space market. Uh, and may have impact on downtown restaurants in downtown businesses, but that'll flow more out into the suburbs. So that is yet to be determined.
We haven't seen yet. The result of when we go back to normal, what that normal will look like. I do agree with you that that normal will definitely not look like it did in January of 2020. It will be a different normal, um, and the market will adjust and. Certain stocks will be with extremely well under that new normal and other stocks will suffer.
And it's yet to be determined, which way that that dynamic is going to evolve. Okay. Peter, let's go back to gold and we'll finish it off here. So I had some time to do some reflecting over the holidays. Now, as a, as a skeptical investor, somebody who challenges conventional viewpoints, I have to wonder. Why gold is still considered a store of value.
If you take a look at pockets of history, where that definition just simply doesn't hold up. See, I define a store of value as something that simply just beats inflation. So you, you might, you might have a different definition, but that's how I see it. If you'll just look at the last cycle of, of gold breaching all time highs in 2011.
Yeah. 2011. Yeah. And then right after that, it had a nine-year period of just stake stagnating prices on an annualized basis from 2012 to 2019 gold, really didn't beat inflation at all. So why would people hold onto something long-term as a store of value with that expectation of beating inflation, Peter?
Can you explain how cycles work, uh, how cycles work? Uh, okay. Well, you know, again, these questions are, it's a general question, but the answer has to be specific to the psychology of, of what your, of what your goal is. And, um, I mean, commodity cycles tend to run in 10 year cycles. Um, so, you know, in the context of a 10 year cycle, uh, there are macro influences that move those 10 year cycles, but there's also short term influences I E Wars, uh, you know, they're just geopolitical events that, that, that, that, that interfere with, with cycles, albeit, uh, for short periods of time.
I've never said buy gold because you're always going to be happy with the result of where the price of gold is. Relative your portfolio. I've looked at gold in two contexts, one from a perspective of being a trader and one from a perspective of being a long-term investor. And if you are a long-term investor, I've always suggested that holding a portion of your portfolio.
Again, this sounds like a broken record. I've been saying it since the seventies, uh, in hard asset classes, I E gold or oil or a hard asset that is sensitive to inflation. A portion of your portfolio should be allocated to those types of assets. And assuming that that portion is gold, um, You have to, again, recalibrate your portfolio every six months or a year, and you'll be liquidating your gold as the price goes higher and buying more as the price goes lower and it's then more as a protection.
On the balance of your portfolio, which represents 90% of your well for a trader, there are times when you want to take advantage of being in the gold market or being short, the gold market, or being out of the gold market. And a lot of those trends are signaled by the way, the federal reserve and the central banks in the world.
So in, you know, 20, a, in 2008, when we had the financial crisis, Every central bank in the world basically said, we're going to zero and we're going to stay there until this mess gets behind us. And gold took off. And in 2011, the fed came out and said, okay, we're sort of out of the woods. And we're now going to start to ratchet back on our easing policy.
That's the signal for a trader that the trend is now going to reverse may not reverse that day, but it's going to reverse. And when a trend reverses. It tends to be a long process. It could take five years, seven years, eight years for that trend to finally complete itself. And once that trend completes itself, then generally there is a another event and that event would then cause the central banks again, to create a more easy monetary stance, which is generally then the signal to reenter the hard asset space.
Because the carry costs then of these hard assets drops and investors move into the hard asset space. So if you look at 2011 and the fed came out and said, look, we're just about at the end of this easing cycle. And they started tarp. And once that started, that was the signal that the prices were coming down and it took seven, eight years for the price to bottom.
And then you have another event and that event happened to be, uh, The, uh, the COVID event that occurred at the beginning of this year, where the central banks came out and they basically indicated that they were going to go to zero and they were going to stay at zero as long as necessary. And they've reinforced that for the entire year of 20, 20.
Not only have they reinforced that they were going to remain extremely flexible and liquid and accommodative in this market, but. Over two or three times during 2020, they've extended their forecast as to how long they were going to remain accommodative. Uh, the EU just came out about it month ago and said they were going to stay accommodated til 20 til the end of 2023.
Initially the fed said until the end of 2021, now they're at the end of 2022, uh, that they're going to remain. Yeah. Zero. So in that context, That is a very rich environment for commodities in general, to accelerate and go higher. So now you have the uptrend. This uptrend, I think, will continue for the next year or two years.
And then there will come a time. Again, if everything normalizes and the economies get back into full gear, unemployment comes down in a real sense. Uh, the central banks will Malvin start to tighten. That will strengthen, especially if the fed starts to tighten first, that will strengthen the dollar, which will be negative for the commodity cycle.
And the commodity cycle will start to go into a bear market. How long that bear market lasts, generally, nothing happening will last anywhere from seven to 10 years. If there is an event again in five years from now where the fed has to again, come in and be stimulant, stimulate them again. That would be the signal to get into the market.
Now I'm talking as a trader. So, if you're looking at longer type of trends and you want to hold and you're trying to make capital gains on your position, you have to take those types of things in the context. All right. Well, uh, I guess we'll wrap up for today and we'll follow up next week on the price action.
It would be interesting to see what ha what happens after the Georgia runoff. Yeah, it's going to be an interesting week and it's going to be an interesting, uh, next few days until January 20th. Absolutely after January 20th, still plenty of things to unravel. Plenty of things to conclude. Thanks, Peter.
Thank you as always for coming on the show and I'll look for, to speak with you next time. No, my pleasure. Thank you very much. Thanks for watching kicker news. I'm David Lynn, stay tuned for more