Keith Weiner: Will Gold & Silver Prices Soar in a 2008-Style Economic Collapse?
Palisades Gold Radio: 4-2-2024
Tom welcomes back, Keith Weiner, to the show. Keith is the President & Founder of Gold Standard Institute USA and CEO of Monetary Metals.
Keith discusses his 2024 gold outlook report which focuses on cause and effect in markets and economy, analyzing the impact of rising interest rates on GDP components like consumption and wages.
Higher interest rates reduce the burden of paying wages but also decrease credit availability, affecting businesses’ ability to operate.
Consumers may sell assets as wages and other expenses tighten up.
Keith discusses the use of lagging indicators like employment and yield curve inversion to predict economic trends.
Employment is said to be a lagging indicator because it reacts to changes in the economy with a delay, and its predictive value is reduced due to the Feds influence on employers.
Yield curve inversion, where long-term interest rates are lower than short-term ones, has historically signaled an upcoming recession. However, Keith argues that this indicator should be interpreted carefully because the Fed only controls short-term rates.
The low interest rate environment of the past 40 years has driven businesses to take on more risk and leverage to achieve returns. This has resulted in the creation of “zombie companies” that have profits less than their interest expense and cannot survive without artificially low interest rates.
A recent study found that 20% of corporate debt was zombie debt before interest rates started to rise. The impact of hiking interest rates on these companies is uncertain, but it has not yet resulted in widespread issues.
It seems that the current economic situation, with high inflation and rising interest rates, is leading to a process of supply destruction in many industries. This means that in order for companies to maintain or increase their return on capital, they will need to destroy a significant amount of supply, which will likely result in job losses, bankruptcies, and a lot of pain for entrepreneurs and investors.
The market will only reward the best and luckiest actors in this situation, as those who got loans earlier or have lower cost structures may be better positioned to survive.
Keith believes this rise is due to physical demand in the East and not speculation as seen before.
Gold may drop less during a crisis compared to other assets and could make new highs soon after. There’s less leverage in the gold market now, leading to less price drop during liquidation and potentially higher prices post-crisis.
Gold’s future price should be higher than spot due to carry costs, primarily interest rates. Dubai sees high demand for physical gold, with an estimated 500-700 tons a year being unofficially exported through retail purchases by tourists.
Time Stamp References:
0:00 – Introduction
0:36 – Spending & Wages
5:07 – Consumer Squeeze
7:36 – Lagging Indicators
10:48 – Yield Curve Inversion
14:40 – Returns, Risks, & Zombies
22:02 – GDP & Gov’t Spending
23:23 – Credit Tightness
24:37 – Supply/Demand Issues
29:12 – Fed & Capital Costs
37:07 – 2024 Gold Performance
41:28 – Next Crisis & Fed Cuts
43:54 – SOFOR & LIBOR
48:12 – Jewelry Trade & Dubai
50:47 – Wrap Up & Gold Report
Talking Points From This Episode
– The impact of rising interest rates on GDP components and their role in creating “zombie companies.”
– Employment acts as a lagging indicator influenced by the FED and cautioned against overinterpreting yield curve inversion as a sign of an upcoming recession.
– Current high inflation and rising interest rates, could result in supply destruction, bankruptcies, and job losses in various industries.
