Around this time each year we look forward to the publication of “In Gold We Trust” from the team at Incrementum AG.

It’s always a must read for anyone with an interest in precious metals. 

However, this year is particularly pertinent, given increasingly unhinged Central Bank behaviour and now, what appears to be, return rumblings from “main” street.

This free report (available as a compact version or extended version) can be downloaded from the Incrementum AG website blow. It’s extremely well laid out and easy to read. 

Incrementum AG website – In Gold We Trust 2020 Report

Source: Incrementum AG

In the 12 or so years since we’ve been following Ronald-Peter Stöferle and his team they’ve never really been super bullish in their gold price predictions and their analysis is always well supported by a variety of key data metrics.  

This year’s report is similar but given the current backdrop, before you read the attached, read this:

In view of the extremely strong rise in the world gold price recently, it seems that a consolidation is now likely

As in, although the fine work by the analysts at Incrementum conclude a much higher gold price in the future, this does not mean we won’t have corrections along the way, even soon.

(no gold investments), waiting for what one might think to be a fair entry price. This may prove costly when Central Banks believe there is no problem unsolvable by money printing.

One of the more interesting conclusions is supported by something we’ve been keeping a close eye in the gold market for a long time now, participation trends. Hence, we found the following chart on BULL Markets very interesting.

Source: Incrementum AG

1) Accumulation phase: In this first phase, the most informed, astute, and contrarian investors buy. If the previous trend was downwards, then clever investors can see at this point that the market has already discounted the “bad news”. For gold, this phase lasted from 2013 to June 2019. 

2) Participation phase: Prices are starting to rise slowly. Trend followers are showing interest; news is improving; and commentators, the media, etc. are increasingly optimistic. Speculative interest and volume are rising, new products are being launched, and analysts’ price targets are being raised. This phase began after gold crossed the resistance zone in June 2019 and could now last for several years. 

3) Distribution phase: During this final, mania phase, the group of informed investors who have accumulated from near the low point begins to reduce their positions. Media and analysts outperform each other in raising their price targets, and the environment is characterized by “this time is different” sentiment. 

The report also contains much general wisdom, as usual, such as a reference to help those wondering why it’s so hard to keep a family harmonious!:

When we recall the recessions of recent years, the Anna Karenina principle comes to mind. Leo Tolstoy noted in his epoch-making novel: 

“All happy families are alike; each unhappy family is unhappy in its own way.” 
While many factors, such as sexual attraction, finances, child rearing, religion, and relationships with in-laws and friends must all go well to make possible a happy family life, it is enough for one of these factors not to be positive for unhappiness to prevail. 

In general terms:
• Success requires many positive factors, all of which must be interlinked. 
• For failure, only one negative factor is needed.

Or another describing the complexity of an over flowing barrel:

The prediction of the final drop that causes the barrel to overflow is known to be complex. However, it was evident that the barrel was filled to the brim. In previous years, we have often referred to the increasing fragility of the global economy.

And finally, on the current sucker rally:

Between 2008 and 2015 the Federal Reserve’s balance sheet total increased from USD 0.9trn to 4.5trn. Only a fraction of this increase was repaid in the course of the economic cycle. After the first round of Federal Reserve measures to combat the catastrophic economic effects of Covid-19, the balance sheet total currently stands at a breathtaking USD 7trn 

Now the question arises: Has the danger in markets already been averted? Have central bankers and politicians once again bailed us out? Will the financial and real economy soon return to “business as usual”? The loyal reader probably already suspects that a healthy dose of scepticism is in order, because historically market crashes occur in three phases: 

  1. Initial panic selling ✓
  2. Relief rally from the low point, aka “dead cat bounce” ✓
  3. Demoralizing retest of the panic low as disastrous corporate and economic news is released. But the market no longer falls below the initial panic lows. X

So, there is a summary on page 4 for the time poor!!

Enjoy.