In Gold We Trust

By Rich Checkan

The following is an interview with Ronald-Peter Stoeferle, CMT and author of In GOLD we Trust, an in-depth analysis of gold investing. Ronald is a precious metals and energy analyst who worked with Erste Group Bank, helping over 20 million customers. In 2013, he set up his own company, Incrementum AG, in Liechtenstein. Currently, Ronald manages two funds which contain physical gold and other inflation-sensitive investments. He is also the author of Austrian School for Investors, a bestselling book in the field of economics.

RICH: Much of your approach in ‘In GOLD we TRUST’ is based on the Austrian School of Economics. What are the basics we should know before we read the report?

RONALD: In the current stage of our financial system, investors have a crucial advantage when they understand Austrian School of Economics. Austrians focus on the understanding of our monetary system and the consequences of debt and monetary policy as well as the interplay between inflation and deflation.

RICH: You have coined the phrase monetary tectonics. Give us a definition and explain why you think it suggests a buy signal for gold.

RONALD: The interaction between central bank directed inflation and credit deflation can be compared to the reciprocal pressure between two tectonic plates. This is why we coined the term “monetary tectonics.” In the past 12 months, we were able to observe a textbook example of systemic instability – i.e., of monetary tectonics in action. The price of crude oil declined by more than half within just seven months. Many analysts have attributed this solely to underlying supply and demand factors, which is in our opinion a deficient explanation. All industrial commodities, as well as every paper currency, have lost enormous ground against the U.S. dollar over the same time period. In our current dollar-centric monetary system, this concurrent devaluation of all commodities is a disinflationary earthquake.

RICH: Are you surprised at how well your writings are received?

RONALD: Actually, I am astonished. Our book Austrian School for Investors is quite a bestseller and was nominated for several awards. The book is now available on Amazon.

RICH: If you were to explain one element of importance to our readers’ understanding of gold, what would it be?

RONALD: That we have all become involuntary guinea pigs in an unprecedented monetary experiment, the economic (and sociological) outcome of which remains uncertain. Ever more frequently observable phenomena including asset price inflation, chronic over-indebtedness, extreme boom-bust cycles, but also the fragile interaction between inflation and deflation are symptoms of a problem with a systemic cause. The endogenous addiction to money supply growth and rising prices is - especially in light of the over-indebtedness problem – a central pillar of our thesis that a turning point in the trend of price inflation is close.

RICH: Why do Austrians and others traditionally have gold in their portfolio and U.S. investors often do not?

RONALD: Because followers of the Austrian School tend to know the history quite well. Gold has historically been the best hedge against excessive inflationary efforts. Gold was and remains an outstanding pillar as a store of value and medium of exchange. These qualities are likely to be rediscovered if, or rather when, paper currencies suffer a general loss of confidence. Lengthy periods of rising price inflation and negative real interest rates are the main catalyst for such a loss of confidence.

RICH: How did you conduct your intense research?

RONALD: Over the years I have studied gold in hyperinflationary environments and looked deeply into our economic history. I have written a couple of thousand pages of gold research and there are still many new topics to analyze and explain. Therefore, I really enjoy a lot what of I am doing.

RICH: How do you feel ASI readers can best approach your detailed report?

RONALD: They might devote two or three hours to cover all the comprehensive chapter summaries. Then, concentrate on Chapters 3 and 7 to understand the monetary dynamics that dictate price, and Chapter 8 to see the long-term political view.

RICH: What is the biggest mistake investors might be making when considering gold?

RONALD: The consensus opinion appears to be that a strong U.S. dollar automatically leads to lower gold prices. This thesis can be buttressed with empirical data. However, our analysis shows that this relationship is clearly asymmetrical: the damage a strong dollar inflicts on the gold price is far weaker than the wind a weak dollar blows into gold's sails.

RICH: How should the average investor include gold in their asset allocation?

RONALD: It depends on their purpose. I see gold as cash, not to be compared to equities. They are a different pair of shoes. Gold is currency with no counterpart risk. If you're looking to gold for wealth insurance, to secure purchasing power when currency devalues, or to profit when inflation raises prices, think of it as holding cash with extraordinary characteristics. Pension funds should also understand this. Harry Brown suggested 25% in stocks, 25% in bonds, 25% in gold, and 25% in cash. Others suggest 1/3 stocks, 1/3 bonds, and 1/3 gold. For me, anywhere between 5% and 25% of net worth makes sense, and this isn't just because I'm a ‘tinfoil hat.’

RICH: That's a funny term, what is a ‘tinfoil hat’?

RONALD: I mean what you would call a ‘goldbug.’ I have found people either love or hate gold. There is nothing in-between. In today's current environment, it makes sense to overweigh in gold because we have an economic mess. It could rise dramatically in price as it did in the big 70’s bull market. At the moment, everybody hates gold, and that’s why I like it.

RICH: Thank you for sharing the meaningful results of your research with our readers and clients.

Michael initially met Ronald at an Austrian School of Economics conference in Zagreb, Croatia, half a decade ago. Since then, we have eagerly anticipated his annual gold report. And, we are pleased and thankful Ronald has agreed to share it with us and with you.

If you would like a full copy of this insightful look at gold, simply email your request. Or, you can call us with your request at 877-340-0790.

I encourage you all to do so. It is a great first step in your goal to Keep What’s Yours!