Logic Literally Demands It…
If F = C and CS = BG, then clearly you should own gold. Logic says so.
Let me explain…
Back at college, I took a class called Philosophical Logic. This was a unique and surprisingly enjoyable mashup of logic and philosophy using algebra-like equations to solve philosophical problems. Never liked algebra, but I loved this class. Aced it.
Here’s a simple example of how it works…
If all mammals feed their babies milk, then: If cats (A) feed their babies milk (B), then we can say that all (C) cats are mammals.
Logically, that’s A ˄ B → C.
Or A and B, therefore C
I bring this up today because I’m going to use Philosophical Logic as proof that you need to buy gold for your personal portfolio.
So, here we go, and we start with a phrase most investors have heard: Don’t fight the Fed.
It’s the idea that, as an investor, you pay attention to what the Federal Reserve says it’s doing, or what it is in fact doing, because the Fed decides where the market goes next. Go against the Fed, the theory holds, and you will lose your money.
Philosophically, let’s take that at face value.
We will rename “Don’t fight the Fed” as “F” in our equation.
Now, the Federal Reserve is, by definition, a central bank… America’s central bank. So, if “C” refers to central banks, then we can logically say that F = C. Which broadly gives us “Don’t fight central bankers.”
Now, let’s jump to the gold side of our new logical puzzle.
Why Logic Says We Should Buy Gold
To do that, we call upon the most recent report from the World Gold Council.
The Council tracks the comings and goings in the global gold world, including how much gold exchange-traded funds are buying… how much gold is going into the jewelry market… and how gold is flowing into or out of the world’s central banks.
Frankly, the amount of gold that central banks are buying and selling really isn’t the information I care about. I’m much more intrigued by sentiment. By that I mean what does the buying and selling by central bankers say about their expectations for the long-term future of gold?
The sentiment in this new report says central bankers are clearly super-bullish on gold and increasingly bearish on the U.S. dollar. (So am I, by the way.)
A clear majority of central bankers are telling the World Gold Council they expect gold to become a more prominent asset in their country’s basket of financial reserves… and for the U.S. dollar to hold an increasingly smaller role in that basket.
Putting numbers to that: 62% of the world’s central bankers say gold is taking up a larger portion of financial reserves. Last year, only 46% of central bankers said that. Clearly, something has changed when the reading jumps by a sharp 16 percentage points in a single year.
The bankers, meanwhile, expect the dollar to account for as little as 40% of reserves, down from a recent 51%.
They expect this trend to play out over the next five years, which oh so conveniently matches up perfectly with what I’ve been saying for a long time now—that we’re going to see a global shift away from the dollar and toward gold that will lead to a financial crisis centered on the buck by the 2027-2028 timeframe.
So, to our logical equation, we will give the label “CS” to “central banker sentiment,” and we will say that “BG” represents “bullish buying” of gold. That gives us CS = BG.
Now we get all philosophical with logic… or is it logical with our philosophy?
Either way, we have this string of logic:
- If the Fed is a Central Bank,
- Then “Don’t Fight the Fed” can be read as “Don’t Fight Central Bankers.”
- And if global Central Banker Sentiment is the same as Bullish Gold-Buying…
- Then we can say that if you subscribe to the theory that you Don’t Fight the Fed, then you must also subscribe to the theory that you Don’t Fight Central Bankers, which means you should be following the lead of central bankers around the world and buy gold for your personal reserves.
Why Are Central Bankers Buying Gold? Safety
Global central bankers clearly know something and they clearly suspect something less-than-good is awaiting the dollar later this decade.
They’re using the opportunity now to stockpile gold on the cheap.
It’s a safety play.
If lots of countries around the world were to abandon the dollar and load up on gold, the global demand for dollars would fall. That would mean the price of the dollar would tumble. That, in turn, would mean higher prices on everything from gasoline to mortgages to imported brie and Nike sneakers (which are made in Vietnam).
Yes, those overseas central banks may have just a fraction of the financial muscle of the Fed. But remember… The Lilliputians took down Gulliver. The 1980s American Olympic hockey team took down the Soviets. David took down Goliath.
And while the Federal Reserve might scoff at gold, most of the world’s central bankers are buying gold… in record amounts.
So, F = C and CS = BG.
And the logical solution to that equation says that you and I, therefore, should be buying gold for what’s to come.