You Need the TRUTH to Make Informed Decisions — Part Two

My Daily Reckoning Australia column last week ended with…‘what will be our lived truth?’.

The lived truth came as a bit of shock for some young ladies being paid to travel and play netball.

Netball Australia is bleeding money and in debt to the tune of $4 million.

In spite of the game’s far-from-healthy financial position, the professional players want a pay rise.

Fair enough. If you don’t ask, you don’t get.

While the players have their hand out, Gina Rinehart (Australia’s richest person) puts her hand in her pocket to sponsor the sport to the tune of $15 million.

Due to something Gina’s father, Lang Hancock, said 40 years ago, the players decide to stand as one on a matter of principle…biting down hard on Gina’s hand.

Commercial naivety meets commercial reality…the players talk and Gina walks.

The public statement released by Hancock Prospecting (Gina Rinehart’s company) announcing the withdrawal of its sponsorship, included a reference to neglected truth (emphasis added):

‘Mining is critical to securing the minerals essential for everyday life…

‘An often conveniently neglected truth when activists talk emotively about mining is that most, if not all, of the primary products required for the equipment, production, distribution and delivery of renewable energy depend on resources that need to be mined.’

Every fair-minded Aussie should applaud Gina Rinehart’s decision to remind activists, with their cherry-picked principles, to get a grip on the truth.

Crude awakening

Virtue signalling on selective ideologies by lily-livered politicians, corporate sycophants, and so-called celebrities and sporting ‘stars’ is collectively biting the hand of the very industry that’s given them their privileged lives.

Energy sources powered by fossil fuels have enabled us to enjoy a far better quality of life than our ancestors could have ever imagined.

Demonising these critical resources is beyond stupid…it’s reckless and, quite frankly, sickening.

The idiocy of green policies is forcing too many people to choose between heating or eating.

But who cares when you’re sitting in the comfort of a first-class cabin!

The truths being lived by lower socioeconomic groups are deemed inconvenient.

No amount of reason or common sense can deter the woke denialists from their zealous pursuit of this concerted propaganda campaign…one that’s based on ignorance, half-truths, and outright lies.

Capitalising on this movement to rid the world of CO2 has been the focus of attention by my good mate and fellow Editor, Greg Canavan.

For several months now, Greg has been forensically searching for the truth on what we all know is coming…a looming energy crisis.

Commercial naivety is (once more) destined to meet commercial reality.

How has this energy crisis evolved?

Just how bad could it get?

Will oil go from US$100/barrel to US$300, or US$400, or even higher?

Where are the opportunities to profit from the growing imbalance between (lack of) supply and (increased) demand for traditional forms of energy?

I’ve read Greg’s well-researched and aptly titled report…‘Crude Awakening’.

It is, in a word…brilliant.

If you would like to access Greg’s detailed report, outlining the truth of what’s ahead of us and the companies poised to profit from the ‘Champagne Socialists’ blindingly stupid pursuit of carbon neutrality, please keep an eye on your inbox tomorrow for an email from Greg.

In search of the truth for the Dow/Gold ratio

The challenge with the investment business — if you take it seriously — is the ongoing search for value.

In a booming market, almost everything gets valued on a ‘relative to’ basis.

If X is worth $1, then relative to X, Y must be worth $1.50.

But, what if, in less speculative conditions, X is really only worth cents on the dollar?

When it comes to investing in precious metals (hard money), there’s a host of ‘relative to’ ratios.

Are these valuation methodologies valid?

In an effort to identify whether an allocation into precious metals was warranted, the September 2022 issue of The Gowdie Letter went in search of the truth.

Here’s some of what we found:

‘When it comes to the world of Gold, there are a myriad of ratios.

‘Gold-to-Oil ratio.

‘Dow-to-Gold ratio.

‘Gold-to-Platinum ratio.

‘Gold-to-Decent Suit ratio…I kid you not.

‘And the Gold-to-Silver ratio.

‘The ancient store of wealth is an often-used anchor by which the value of other assets, commodities, and consumables are measured…vis-à-vis, is one over, under or fairly valued.

‘These ratios all widely accepted benchmarks of comparative value.

‘Are the various Gold ratios valid?

‘Why would I have such doubts?

‘Because of this gold price table dating back to 1833…prior to the late 1960s/early 1970s, the gold price had been fixed for more than 250 years.

‘To quote from the NMA site (emphasis added)…

“The price of gold remained remarkably stable for long periods of time. For example, Sir Isaac Newton, as master of the U.K. Mint, set the gold price at L3.17s. 10d. per troy ounce in 1717, and it remained effectively the same for two hundred years until 1914. The only exception was during the Napoleonic wars from 1797 to 1821. The official U.S. Government gold price has changed only four times from 1792 to the present. Starting at $19.75 per troy ounce, raised to $20.67 in 1834, and $35 in 1934. In 1972, the price was raised to $38 and then to $42.22 in 1973. A two-tiered pricing system was created in 1968, and the market price for gold has been free to fluctuate since then…”

‘The story of gold’s evolution from fixed to floating market (I prefer this to “free” market, as markets are rarely free) is told by Reuters:

“1968: London Gold Market closes for two weeks after a sudden surge in the demand for gold. The governors in the gold pool announce they will no longer buy and sell gold in the private market.

“A two-tier pricing system emerges: official transactions between monetary authorities are to be conducted at an unchanged price of $35 per fine troy ounce and other transactions are to be conducted at a fluctuating free-market price.

“1971: ‘Nixon Shock’ U.S. President Nixon ends dollar’s link to gold established under Bretton Woods Agreement. Dollar became the sole backing of currencies and a reserve currency for the member states.

“1973: On February 13, the United States, devalues the dollar again and announces it will raise the official dollar price of gold to $42.22 per fine troy ounce. Dollar-selling continues and finally all currencies are allowed to ‘float’ freely without regard to the price of gold.

“By June, the market price for gold in London has risen to more than $120 per ounce. Japan lifts prohibition on imports of gold.

“1974: Americans permitted to own gold, other than just jewellery.

“1975: Trading in gold for future delivery begins on New York’s Commodity Exchange and on Chicago’s International Monetary Market and Board of Trade.

“1978: The weak U.S. dollar propels interest in gold. By act of Congress, the U.S. abolishes the official price of gold. Member governments are free to buy and sell gold in private markets.”

‘Why is this relevant?

‘How is it possible to properly gauge the value of a floating market (Dow Jones, the handiwork of a tailor et al) against a fixed market?

‘It’s an apples with oranges comparison.

‘For the purpose of illustration, let’s bring back this chart:

‘The Dow was the same level in 1929 as it was in 1954…around 380 points.

‘Here’s what the Dow-to-Gold ratio did over this 25-year period:

‘The maths is very straightforward:

‘What if, in 1934, the US Government had decided to fix the price of gold at US$100?

‘The Dow-to-Gold ratio would have been 3.8 ($380 divided by $100).

‘In theory, the lower ratio would have meant the Dow (vis-à-vis gold) was a real bargain.

‘But how can this be a meaningful gauge of value when one price is arbitrarily decided by bureaucrats and not market participants?

‘How is it possible to measure a market that operates in this fashion from early 1900 to mid-1970s:

‘Against an asset whose price (due to government dictate) virtually flatlines for the same period?

‘In my opinion, any reliable and informative view on comparative value can only be formed AFTER the US Government removed its heavy hand from the gold price scale.’

What happened AFTER the US Government turned the pricing of gold AND silver prices over to the market?

More on this next week.

In the meantime, be sure to keep an eye on your inbox tomorrow for access to Greg’s excellent report…‘Crude Awakening’.

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia