Full transcript of “Is it Late to Invest In Gold ? Is Gold Rally About to End ? Weekend Investing | Alok Jain”. Click a timestamp to open the video at that moment. Need another video? Use the YouTube transcript generator.
0:01 Hi folks, today's topic is very interesting. Gold rally, are we too late? So I am being asked this question very frequently that am I too late to the party? Is now a good time to buy gold? Uh have I missed the bus? Uh what happens from here on? So we'll try to answer all these questions in this video. So do watch to the end and I'm sure you'll find some great insights in this video that we are presenting. So first things first uh please read the disclaimer and only then move forward in the video. So this is where we stand in terms of the precious metals the last couple of years. Uh the yellow line is that of
0:46 gold uh and the white line is that of silver. We've pulled off from the recent tops but is it a market top? Is it a top of this rally is the question that we are trying to answer here. The fact also remains that we've sort of just been above the previous highs for a couple of years. uh 2011 was where we made previous highs both on silver and gold and we've been higher than those levels practically just for a couple of years. So for a complete decade of consolidation that has happened is couple of years of run good enough or not. So to understand that we need to go back and understand
1:34 the structural foundation of why this rally is happening. the Federal Reserve which is uh essentially limited by the rising cost of debt service now. So in the sense that there is so much debt in the system that the interest that they have to pay on that debt is becoming a very large component of the uh government budget. So the whole system and this is the same in every country uh not as much as the US uh but practically every country is near 80 90 100% debt to uh debt to GDP.
2:20 What has happened is that you know we have relied too much on debt to push the system forward especially after 2008. So the natural growth is not leading the uh you know the path forward for for the economies. It is basically these injections of uh money supply that is causing inflation and the feelood factor continues to happen. So many people are surprised to know that the money supply in the world is increasing at double digits per year while you know even with a double-digit growth I mean how far are we able to go in real terms so inflation has become like a
3:07 necessary uh you know feature of the system and without that things don't just don't move forward but we have come to a constraint now where you can basically there is no free lunch in the world. You cannot just keep creating money and hoping that that will solve a problem. So we are coming we are bursting at the seams of that activity that how much money can you create without creating another problem which is basically hyperinflation. So what central banks are doing? Central banks are are the folks who create money just like our Reserve Bank of India. Now imagine this that the people who create money are themselves accumulating gold.
3:53 All the central banks across the world are accumulating gold right now. Isn't there a big irony in this entire statement that people who create money are not confident that the system can last that uh what they are creating and hence they need a backup plan plan B with gold. So if the people who create money can have a plan B I mean mere mortals we should be having a plan B as well right. So where are we in terms of this debt to GDP? when we look at the US debt to GDP as a as a chart and a lot of folks will you know I I still know will not believe any of this saying that you know this is a US problem how does it affect me but I
4:41 mean believe me if you understand this if you further go and research on your own and and also perhaps you may start to get some insights in terms of this experiment that has been going on since 1971 of a unbed fiat currency system and that is coming to a point which needs a change. Now this chart is showing you last 150 plus years of US debt to GDP and the only time we came to the current debt to GDP levels which is currently at around 120 125%. Was in World War II. So the world was in an extreme situation when we reached this point of debt to GDP where you had to you know uh
5:30 print so much and and create so much money to fund the war. But now in normal times we have reached that position. Just see this chart after this plateaued out in 1970s. Post this 1970 break of unbaked fiat currency is where this has gone up. Otherwise, it was reasonably in this ballpark of 25 to 50% all along. Now till the 1940s whatever debt was held by uh the government was backed 51% by gold reserves. So if if X was the debt level then 51% of it was backed by gold
6:17 reserves. So essentially what has happened is that total debt has been going up but gold reserves have not gone up. So now what is happening we were at 51% in 1940s that crashed down in 1970s to almost single digit 5 to 7%. Then it went up to almost 18% as gold prices went up. and then it collapsed again to 2 3% and we are currently at 3%. So if the total debt is backed by 18% gold which is the same as 1980s
7:04 the price of gold will need to be $26,000. Please understand that this is a match that cannot be denied. Whether we go there or not is another question. If gold were to back 51% of the federal debt today, the implied price of gold will need to be $75,000. So while we can say that, you know, we are not gold backed now. We are not going that way in terms of you know increasing gold. But then then the question to be answered is then why the hell will central banks buy gold today? they should just sell it off, clean it off from from their balance sheets and just have fiat currency. Why is that not happening? So there is, you know,
7:51 reasonable argument to be made here. Now let's also look at the market cap of all the gold in the world above ground whatever has been mined today till today. What is the market cap of that versus the global stock market? So in 1914 in World War I that went to about 80 85%. In World War II that ratio went to 90%. In 1970s when gold went up end of the inflationary decade we again went to 90%. Right now we are at 20 odd%. So what has happened in the last uh 40 50 years things have moved from the real
8:36 assets and more into financial assets. So and that rotation is now starting back. What has happened twice in the century before is potentially starting back. So this does not mean that the stock markets will not rise. It probably means that there will be more emphasis on real assets versus financial asset because financial assets are already everybody's up to their gill in financial assets. They are overowned actually. So u for instance the 6040 portfolio is out there for the last so many decades in the US. What has it done till till such time that debt was giving
9:24 you a very nice counterbalance to equity? 6040 was doing well. But what has happened in the last 10 years? Only the 60 equity has done well. The 40 debt has done nothing. And if inflation remains out of control then interest rates will have to rise and if interest rates have to rise then who will pay all this interest on the on the debt that we have accumulated? So there is a very big math problem that is happening. Please don't under estimate this problem that is there on hand. Some some release wallve is needed so that you know it remains under under control. Let's look at more data. Now that was the math side of it. Now the other side is the demand supply side
10:10 where it has just last 3 years 23 24 and 25. There is zero gold discovery in the world. No major gold discovery of even 2 million ounces of gold has happened. And in earlier years last two decades, three decades there used to be many such discoveries every year. But in 2023, 2024 and 2025 also zero discoveries. And it is not that if gold is discovered today, it will start supply tomorrow. It takes 10 15 years for that mine to become operational. So if we find a gold discovery tomorrow, it'll start production in 2041.
10:56 And hence if you have not had any mine discovery at some point of time later in the in the years there will be shortage of supply also. Now that is a supply side constraints. Supply today is about 3,000 odd tons 3,300 tons. What is happening? The demand is 5,000 tons because now you have additional demand of central banks which used to be 300 tons a year that is now running at thousand tons a year. There used to be virtually no demand of ETF gold, investment gold which is now also running in hundreds of tons per year. So there is now suddenly more demand and for other commodities like silver and copper etc. you have lot more demand from you know data centers from
11:42 EVs from batteries uh uh manufacturing and all kinds of you know other industrial demands are are there what is the investor side doing here this is a average portfolio allocation in the US especially 1.3% is allocated to commodities everything else is either equities fixed income cash hedge funds and so on so forth. So virtually no allocation to equities. What is Morgan Stanley uh Goldman Sachs all these guys saying? Get 20% gold. $350 trillion of private wealth has 1% gold. If they go to 2% gold also that
12:28 means how much money comes to gold? 1% more. So $3.5 trillion flows to gold just for increase of 1% exposure. The entire gold market is 35 trillion. If 3.5 trillion flows into that market, gold will go bonkers. And I'm only talking about 1 to 2%. I'm not talking about 1 to 20%. So can you see what kind of uh stage we are in in terms of where this is going. So when this demand eventually will come and it is coming in in drops right now. It'll come in a big flow at some point of time and you have a structurally broken supply. There is hardly any supply coming but
13:15 the demand curve is going exponential. What will happen? There is only one release valve for making them meet that is the price. Price has to continuously go up to satisfy that demand. So there is no I mean there's no stopping this according to me. Yes, that for small periods of time, for short-term, don't look at it in a short-term manner. This is not a short-term game, right? It may happen that tomorrow the war may stop and gold may drop to $100. All that is okay, but structurally you are now on a path which looks unstoppable because it is not a trade. It is not it is not something which is happening in the markets for the sake of it. It is
14:01 a structural change that is happening. you know, it's a mathematical adjustment to the global monetary supply and demand. Let's also compare gold with money supply. So the M2 supply divided by gold currently sits at about 5 5.1 whereas in 70s you can see it went down to as low as 2.15. Also in 2011 we were at two at five also but things have changed dramatically since then. We are now sitting in a world where the kind of geopolitics that is there the kind of uh ddollarization
14:49 you know the currency debasement that is happening you can't ignore all this basically. So you need that safe haven in place in your portfolio because what if something happens to the rest of 80% at least this 20% will be there to recover or and to restart your portfolio again that I mean the central banks are taking that call that they are currently at near 20 23% of allocation. If central banks can be at 23% our portfolio should at least be there. So are we too late in this cycle? So some part of it is done. Yes, I mean gold has moved from 2,000 to 5,000. Yes, that is that has happened. But
15:35 typically hard asset cycles runs for decades, not for few quarters. The forces that are driving the shift, record debt levels, constrained supply, deglobalization, this is not resolving tomorrow. And we have additionally this war situation now also. Who knows how long this goes. So we are transitioning from currently we are in sort of an awareness phase where the smart money is has gotten aware. The lazy money is yet to catch on and then there are others who are you know they they are aware about it but they are inhibited to take the step because the price has run up a little bit. Right? So institutional adoption
16:22 has not yet happened. You don't see pension funds, you don't see endowment funds, you don't see sovereign wealth funds getting big into this and they will at one point of time. So the truth is the recent rise in metals is a short-term phenomena only so far and it is it has a structural and a long-term leg to it. The bigger picture is that there is historical rotation out of paper financial assets into physical hard assets and that is just starting we believe. So the action that we need to do is to stop viewing it as a trade and recognizing that this needs to be a part of us our portfolio as an allocation. I don't care if gold doesn't perform for
17:07 the next two years. But as long as I have that allocation, I will feel safe because if the world does come to a point where you know there is a crisis, I know that that 20% is going to take care of the rest 80% of my portfolio. And it has happened so many times in the last century that whenever any country has gone through a crisis, people who held gold were the ones who were able to retain and uh generational wealth was passed on because of this. Paper wealth went to zero. The other sort of conclusion that is very very stark and in the eye is that
17:54 almost everybody is underallocated to gold. I don't consider silver to be in the same category as gold. It's a you know me too kind of a precious metal but it has its own industrial uses and there is scarcity that is happening there in that market also. So the my thesis since 2016 I've been talking about this is that you must build allocation. Don't worry about the price. Build allocation. And if you are at 0% plan to come to 2%, then plan to come to 5%, then plan to go to 10% gradually. And you will find that regardless of price moves, once you are at that comfortable allocation, which my thumb
18:40 rule is your age divided by two as percentage of your net worth. A lot of people believe it, a lot of people don't want to believe it. That's their choice. But as long as you are doing this, you will have a absolutely you know risk free sleep at night. If there is something like that complete peace and you can go back study any part of crisis in any markets and you will find that if you were to uh you know add a gold portfolio gold allocation in that portfolio the portfolio will stabilize. the volatility that most portfolios have the crazy volatility that gets subsided
19:28 in all our portfolios where we have gold allocations I mean the kind of dynamics that is there in those portfolios it's very different from a non- gold portfolio so let us know in the comments what are your thoughts about this uh I'll be very happy to read your thought process on this if you wish to look at some gold linked portfolios we have some model portfolios there's a link in the description. You can go subscribe to them if you like. But let me know how you like this content. And if you have your thesis which is uh against this uh this trend that I have shown, I'll be very very interested to read that. So please do write in uh about your thesis on gold. Thanks so much. Do subscribe to our channel and give us a like. Thanks.
20:14 Bye.
