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Keith Weiner: Will Gold & Silver Prices Soar in a 2008-Style Economic Collapse?

Tom welcomes back, Keith Weiner, to the show. Keith is the President & Founder of Gold Standard Institute USA and CEO of Monetary Metals.

Keith discusses his 2024 gold outlook report which focuses on cause and effect in markets and economy, analyzing the impact of rising interest rates on GDP components like consumption and wages. Higher interest rates reduce the burden of paying wages but also decrease credit availability, affecting businesses’ ability to operate. Consumers may sell assets as wages and other expenses tighten up.

Keith discusses the use of lagging indicators like employment and yield curve inversion to predict economic trends. Employment is said to be a lagging indicator because it reacts to changes in the economy with a delay, and its predictive value is reduced due to the Feds influence on employers. Yield curve inversion, where long-term interest rates are lower than short-term ones, has historically signaled an upcoming recession. However, Keith argues that this indicator should be interpreted carefully because the Fed only controls short-term rates, and a yield curve un-inversion may actually signal the Fed’s reaction to a credit crisis rather than its cause.

The low interest rate environment of the past 40 years has driven businesses to take on more risk and leverage to achieve returns. This has resulted in the creation of “zombie companies” that have profits less than their interest expense and cannot survive without artificially low interest rates. A recent study found that 20% of corporate debt was zombie debt before interest rates started to rise. The impact of hiking interest rates on these companies is uncertain, but it has not yet resulted in widespread issues.

It seems that the current economic situation, with high inflation and rising interest rates, is leading to a process of supply destruction in many industries. This means that in order for companies to maintain or increase their return on capital, they will need to destroy a significant amount of supply, which will likely result in job losses, bankruptcies, and a lot of pain for entrepreneurs and investors. The market will only reward the best and luckiest actors in this situation, as those who got loans earlier or have lower cost structures may be better positioned to survive. This process is not necessarily merit-based, but rather determined by timing and luck.

Keith, who predicted a $2300 gold price for this year, notes we are close to reaching it. This rise is due to physical demand in the East and not speculation as seen before. Gold may drop less during a crisis compared to other assets and could make new highs soon after. There’s less leverage in the gold market now, leading to less price drop during liquidation and potentially higher prices post-crisis. The LIBOR rate, previously an indicator of unsecured credit rates between banks, is no longer quoted and has been replaced by the SOFR rate, which reflects policy as it is a secured overnight funding rate using Treasury bonds as collateral. Gold’s future price should be higher than spot due to carry costs, primarily interest rates. The calculated fundamental price attempts to determine the price of gold if speculators did not influence the market. Dubai sees high demand for physical gold, with an estimated 500-700 tons a year being unofficially exported through retail purchases by tourists.

Time Stamp References:
0:00 – Introduction
0:36 – Spending & Wages
5:07 – Consumer Squeeze
7:36 – Lagging Indicators
10:48 – Yield Curve Inversion
14:40 – Returns, Risks, & Zombies
22:02 – GDP & Gov’t Spending
23:23 – Credit Tightness
24:37 – Supply/Demand Issues
29:12 – Fed & Capital Costs
37:07 – 2024 Gold Performance
41:28 – Next Crisis & Fed Cuts
43:54 – SOFOR & LIBOR
48:12 – Jewelry Trade & Dubai
50:47 – Wrap Up & Gold Report

Talking Points From This Episode

  • The impact of rising interest rates on GDP components and their role in creating “zombie companies.”
  • Employment acts as a lagging indicator influenced by the FED and cautioned against overinterpreting yield curve inversion as a sign of an upcoming recession.
  • Current high inflation and rising interest rates, could result in supply destruction, bankruptcies, and job losses in various industries.

Guest Links:

Keith Weiner is the founder and CEO of Monetary Metals, an investment firm that is unlocking the productivity of gold. Most people regard gold as a dry asset, to lock away in a vault, incurring storage fees. Many are waiting for it to rise in price.

Keith and Monetary Metals are on a mission to change this.

Gold should once again serve to finance productive enterprises and extinguish debts. The dollar performs one of these functions, but not the other. Bitcoin cannot finance anything, as no business can borrow a currency that’s expected to go up a hundred times. Gold is the one thing that fills both roles, par excellence.

Keith writes and speaks extensively, based on his unique views of gold, the dollar, credit, the bond market, and interest rates. When he is not working on the business, he is developing his theory of monetary science, and an arbitrage theory of economics.

Keith also serves as founder and President of the Gold Standard Institute USA. His work was instrumental in the passing of gold legal tender laws in the state of Arizona in 2017. He has met with central bankers, legislators, and government officials around the world.

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