Mellon on the Markets: Gold and what comes next

Hallelujah! In the past month gold seems to have broken out of a seven-year sideways slump, and may now be on its way to a new all-time high. It’s already at an all-time high in Australian dollars and sterling, and is only a sliver away from it in euros. It will surely go up and down but I see a convincing bull market ahead for the shiny stuff. .

This may seem counterintuitive to some; after all, inflationary expectations, particularly as reflected in the crazily distorted and monumental inventory of negative interest rate bonds (US 13 trillion out of a global total of US 50 trillion), are very low indeed.

But as we know, the consensus is generally wrong, and in this case, gold is reflecting just how wrong it is. Inflation is lurking below the surface, and like a stealthy submarine it’s going to rear its periscope and release a barrage of torpedoes that will sink the overpriced bond markets where central banks, King Canute style, have been manipulating prices for years.

Although Canute wasn’t an emperor, his clothes are about to be removed, and everyone will see what a decade or more of reckless monetary manipulation will do when its consequences work their way through to the real world.

Venezuela and Zimbabwe didn’t deliberately seek to debase their currencies, but their doltish leaders thought that a faster speed on the monetary presses would kickstart anemic growth – which it didn’t, but it sure kicked the life of the currencies of those benighted countries.

Don’t get me wrong- I’m not expecting hyper inflation in the US, the Eurozone, China, Japan or the UK or any of the other countries which have been tinkering with Gresham’s Law at their peril.

I just expect that the inflationary tiger will come back to haunt us – and that it isn’t far away.

And that’s why gold is rising, not much yet, but a lot over the next three years or so. I really wouldn’t be surprised to see gold at US 5000 an oz in that time period, and I urge all readers to be positioned accordingly.

The boat is leaving and there is just enough time to jump on the gangplank

The same applies to silver and, possibly, palladium, but gold is easier and there are lots of ways to play it, physical, futures, ETFs, and gold miners. Barrick (NYSE: GOLD) is good, as is mining minnow Condor Gold (LON: CNR) here in London, where I am a director and shareholder.

So that’s a pretty easy trade – sell those bonds (especially given my forecast that disaster lurks under the surface of the frantic machinations of the ECB to avoid a full-blown crisis in Italy), and buy your own flavour of gold.

Meanwhile, we floated our new venture Agronomics (LON: ANIC) through the small Port Erin Biotech listing, and it more than doubled on its debut. Anthony Chow, my longstanding colleague, is seeking out appropriate investments in the clean meat and plant-based protein space and in the tools that will allow that to happen. This is going to be a big space, for all sorts of reasons, including emissions, land despoliation, reduction in antibiotic use and animal cruelty avoidance.

I’m really interested and was the biggest investor in the recent placement, but my day job is Longevity Science and in particular the company Juvenescence.

We are in the Isle of Man next week, firstly, to regain my house which was flooded about nine months ago and only recently restored to habitable status, and also for the second major board meeting of Juvenescence and a review of some of the exciting investments we have made. One will be in sick patients with liver failure next year, with the hope that a new technique will allow them to grow brand new livers in their own lymph nodes, which will then take over from their diseased organs. This is super exciting stuff and is matched by some of the other stuff that we are doing. Juvenescence is a private company and won’t go public until next year, but I think RestorBio and Unity, both listed in the US, are worth a look as they operate in some of the same space as Juvenescence.

I have also been looking at dividend stocks in some detail, looking for those with solid finances and dividend growth prospects. Tesco looks good in this respect as it claws back market share in the UK and avoids reckless expansion overseas. Second, Avation, the aircraft leasing company listed in the UK. I just added a lot to my position as although the yield is still modest, it is growing and this is a very well-run outfit. As validation, it has no Boeing Max 737 aircraft, which surely must be doomed. The 737 design has been continuously stretched over the past 50 years to the point where the aircraft’s instability has to be counterbalanced by sophisticated software. I know I couldn’t fly it –but then I’m not much good on a small Cessna!

The interminable bore fest that is Brexit trundles on – the UK economy seems to be OK, and anecdotally I think people are genuinely surprised at how London continues to attract people and money to its financial services sector. I know of one large bank which has closed its private banking business in Switzerland and moved it to London, as an example. A few people have been moved to the hinterlands of Frankfurt, Paris and Dublin, but more people- and probably the higher caliber type – are moving to London.

Since I am now on a train to Stansted Airport and have just braved what can only be described as a tidal wave of people arriving for work on a sunny Monday, I can attest to the vibrancy of London. Although I can’t say any of the trudging commuters were smiling!

I think those of us who hold gold or proxies will be smiling soon – so load up!

Jim Mellon