Ronald Stoeferle: Gold Bubble or Bargain?

In this one hour presentation for ABC Bullion, Ronald Stoeferle from Incrementum Liechtenstein explains in much detail why he believes gold is a bargain and debt a bubble. This article provides the highlights of the presentation and the rationale for Stoeferle’s key premise.

The difference between the Keynesian economist and Austrian economist (explained by a comparison with a doctor):

The Keynesian economist doctor will suggest to take pills and other medicins. The Austrian doctor will try to understand the root cause of the problems (not the symptoms). Likewise, in the economy, the problems with Lehman Brothers or Greece are symptoms but the underlying problems are far more important. The real issue is the fundamental monetary problem. That’s the focus of the Austrian economist.

A comparison between today’s corrective phase and the one in the 70’s:

Based on the damage on the chart and the length of the correction, Stoeferle expects gold to revisit $1,900 in two years, i.e. 2015. It will probably be at around $1,500 that the investment community will start buying again.

The quote from Richard Russell is quite accurate: “Gold always does what it should do … it just never does it when we think it should.”

Some of the most important reasons for the current correction:

  • disinflation
  • the outlook of QE taper or QE exit
  • rising real interest rates
  • partly declining money supply (especially ECB)
  • record high short positions
  • rising opportunity cost of owning gold due to the rally in stocks

Why the gold bull market is not over:

The rationale of Stoeferle for why the gold bull market is in a temporary correction and will resume its uptrend:

  • Not any event or major policy change has occurred associate with the peak (eg Paul Volcker in 1980).
  • Gold producers have not made significant new highs yet despite a near doubling of the gold price.
  • Monetary climate has not changed. QE has not been discontinued by any central bank yet.
  • Nodoby has a real idea how global central bank balance sheets will be normalized. The potential for future paper currency debasement clearly exists.
  • Short term interest rates will remain extremely low until 2016 at least.
  • Gold’s behaviour leading it up to its $1900 peak and its subsequent decline bore none of the hallmarks of a classic secular top.
  • Confidence in gold among developed world financial/macro investors has been shaken. Confidence in gold, particularly physical gold, among emerging market investors and central banks remains unshaken.
  • The fall in gold in 2013 has taken gold from weak hands and put it into stronger ones.

Structural over-indebtedness is the key problem in our economy:

“History shows that once an enormous debt has been incurred by a nation, there are only two ways to solve it: one is simply to declare bankruptcy – repudiate the debt. The other is to inflate the currency and thus to destroy the wealth of the ordinary citizen” by Adam Smith.

The structural debt figures are most known by the debt to GDP ratios of sovereign countries. Besides that, however,  Stoeferle gets some worrisome data by looking into the US forecasts of the CBO (Congressional Budget Office). The forecast reveals the following:

  • The CBO calculates a $8,4 trillion deficit over the next (ten) years.
  • The underlying assumptions of the calculation are based on an avereage real growth of 3.5% for the next ten years, a drop of average unemployment to 5.5%, not any recession in next ten years.

Japan is the most concering country of them all. Apart from the largest debt to GDP in the world, the country’s demographics are extremely bad. It is clear that Japan has reached the Keynesian endpoint. What will happen with the other fragile economies if Japan would be hit economically?

Clear signs of a debt bubble:

The debt bubble is going to its highs, signaled by interest rates and the bond market(s):

  • US 10 year interest rates were at an all-time lows recently. Austria and Germany as well.
  • Netherlands reached the lowest level in over 500 years.
  • Japan: yields are near record lows.

Besides, if interest rates in the US would rise to 7%, the impact on the servicing cost would increase from 450 billion to 2 trillion, which equals 80% of the tax revenues (the “death zone”). The death zone in the US is 7%, it is 6% in South Europe and in Japan current interest rates should only rise with 3 percentage points to reach the death zone.


The big bubble is not in gold; it is in bonds.

Stoeferle asks a question to the audience:

Is someone aware of a solvency crisis in history that was caused by too much debt and currency debasement which has been solved with more deficit spending, more debt, more currency debasement. There was no answer in the room.

What to expect going forward?

Sad but true, financial repression is the most likely outcome in the foreseeable future. It’s worth listening to that part in some more detail as of the 43 minute mark.



Further reading from Incrementum Liechtenstein:

In Gold We Trust 2013 – Long Term Gold Price Target $2,230
Gold Bull & Debt Bear Market In 50 Amazing Charts
Gold Is Not In A Bubble: Gold Bull Market In 10 Charts

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