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Jared Dillian bullish on gold

“If you asked me to look across the commodity landscape and pick what I liked best, it would be gold. Literally, just this morning I saw that central banks are buying lots of gold. Sam Zell is buying lots of gold. You can try to fade this (bet against it) if you want, but it’s not going to work out for you. There is a blinding display of gold catalysts: MMT, wealth taxes, inflation picking up, chronic undersupply (peak gold), and M&A/consolidation. Things really cannot get much more bullish for gold.” The Daily Dirtnap 2/12/19.

Central banks bought 651.5 tons of gold in 2018, the largest increase seen in 50 years.  Among the banks buying: China, Russia, Turkey, India, Poland, Hungary, Kazakhstan, Mongolia and Azerbaijan.  Central banks now own more than 33,000 metric tons, about a fifth of all gold ever mined.

Sam Zell is a famed investor who has never before bought gold.  One of his reasons for buying is that there have been no new major discoveries in 20-30 years.  The major miners, instead of spending money on exploration, are buying smaller companies to increase production.

As for wealth taxes, announced presidential candidate Elizabeth Warren is calling for a 2% and 3% tax on assets of people worth $50 billion and $100 billion, respectively.  Should Warren be successful in implementing such a tax, the threshold would be much lower and would send thousands of Americans scrambling to hide assets. Further, should such a tax be imposed in other countries, literally thousands of people could be buying gold.

As for inflation, the Fed seems determined to get it above 2%, and it has some months.

But, the scariest development in the financial world is MMT, Modern Monetary Theory.  MMT rejects governmental austerity and embraces the premise that debt does not matter.  Print all the money that you want.  Issue all the debt you want.

MMT is Keynesianism on steroids.  If I had been asked to come up with a way to blow gold and silver through their prior highs, I could not have dreamed a better scheme than Modern Monetary Theory.

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