Ep. 26 - Real Conversations: Josh Crumb - GOLD: The Complete Investor’s Guide From the Smartest Guy In the Room

On the one hand, you've got the gold bugs. They long for the good old days when the U.S. dollar was backed by the precious metal. On the other hand you've got clueless financial journalists derisively dismissing it as "just a rock." Both may be missing the point. Gold is a currency, says Goldmoney co-founder Josh Crumb. He knows a thing or two about metals. In addition to being a former Goldman Sachs metals strategist, Crumb holds a masters degree in Mineral Economics from the Colorado School of Mines. As Hedgeye CEO Keith McCullough says in the interview above, "Josh is probably the best gold analyst there is." Most investors don't truly understand the long-term case for owning gold, according to Crumb. "People want to bean count gold like it's oil or copper," Crumb says. That's misguided. There's roughly $7 trillion of gold money stock and inventory, he says, and, unlike other commodities, gold is scarce and non-perishable. So that $7 trillion in inventory is basically the last 5,000 years of production. "I like the math of gold. It's got this deep simplicity" as money stock, Crumb says. According to Crumb, that’s why investors bid up gold prices in 2016. At its peak last year, gold was up more than 20%. It was a year of “extraordinary monetary policy” experiments, Crumb says. Last year beats out even 2010 and 2011, which saw the introduction of quantitative easing, he says. Consider a few of the facts. The European Central Bank deepened its negative interest rate policy. India banned what amounted to 50% of circulated cash to curb corruption and tax evasion. The Bank of Japan fixed the yield curve of the country’s 10-year bonds at 0%. Investors were desperately searching for alternatives to the euro, yen and rupee. WHY HAVE GOLD PRICES FALLEN THE LAST SIX MONTHS? Crumb thinks recent selling in gold is a temporary distraction brought on by the surprise Election Day victory of Donald Trump. The exuberance radically shifted investor expectations. But once this initial honeymoon period wears off, investors will go back to worrying about central banks again, he says. As they should. The hubris among global central bankers is palpable. “We can’t predict the weather tomorrow. But we’re going to tell you what interest rates are going to be 30 years from now.” A few weeks ago, Crumb debated the case for gold as money with a panel which included some prominent central bankers. The panelists were all arguing that money is “a construct of our minds.” In other words, you have to believe that it has value and that someone else is willing to accept it. That’s misguided. As Crumb retorts: “Just because the central bank’s models are more and more wrong doesn’t make the economy more and more subjective.” The best proof of gold’s stability as a currency is that, in the more than four decades since abandoning the Gold Standard, gold has maintained its value. In fact, a Goldmoney study from 2015, celebrating the 30th anniversary of the movie Back to the Future, shows that gold has maintained its per ounce value across a variety of consumer goods, from Big Macs to sports cars, even in the face of rising inflation. “It wasn’t by central bank decree. It wasn’t the Gold Standard, or because of the Bank of England. None of them actually made gold work. Gold worked without them. That’s the most important fact we have.” This is why people should own gold, Crumb says. The stability of gold over long periods of time,is compelling, especially in an era of increased central bank meddling. Crumb suggests slowly adding your gold position on pullbacks like we've just had. “Just like we’ve been trained to buy the dip on anything else investors should be in that accumulation phase for gold,” he says. Watch the entire interview between Crumb and Hedgeye CEO Keith McCullough in the video above.