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Seth Davis – I certainly understand your views and appreciate them.

I will try my best to explain my thesis:

Gold did rise between 2002-2008 but I would caution drawing conclusions between then and now. The big difference which you cannot discount is the HUGE central bank interventions we have seen. Front running CB bond purchases is why bond rates went negative in a lot of countries, it had nothing to do with inflation expectations or the real rate of return. When you have investors buying bonds for capital appreciation and not yield you have to throw the old model out. CB’s are still active yet you are seeing investors fleeing and pushing yields up right along the curve. I don’t know what the next move will be from CBs or what happens when they start to taper off their idiotic purchases but I just don’t see gold repeating the same pattern it did during the 2000s.

I agree that it is an unknown what the Fed will do, adding to that Janet won’t be running the show once her term expires and we don’t have any clear indication who the replacement will be so the uncertainty factor is extremely high.

I don’t have a strong view on what the RBA will do or if it can provide a pseudo hedge. I have always found it difficult to predict our domestic outlook even though I live in this country, the underlying strength of the Aussie economy always surprises me. I do think over the last 5-7 years the RBA has taken less cues from overseas then previously. At the moment they appear to be stuck between a rock and hard place when it comes to rates. They have competing agenda’s – keep the AUD low while not encouraging a even bigger bubble in the property market. I think they will act very cautiously before they move in either direction. I agree that the AUD could fall significantly, if the USD surges as expected I don’t see why the AUD wouldn’t trade down around the 70cent level.

It will be weeks until the rebalancing and risk adjustments are complete, until then markets will continue wild swings. Aussie gold producers with top management like NST will do well moving forward but you are not going to see the same type of growth we have previously seen in the share price.

To quote a recent zero hedge headline ‘Everything is soaring as Trump makes buying stuff great again’. A clever headline yes, but it points to something deeper.

s.loeb