Why Gold Is Surging: BofA Says To Expect A "Massive Policy Shift In 2016"

Tyler Durden's picture

While US equity futures have gone nowhere overnight, which is surprising considering (the incorrect) interpretation that by boosting overall liquidity through expanded collateral China has finally unleashed shadow QE (more on this later), which led to a rally for Chinese stocks if not US risk, one asset class that has been quietly levitating higher overnight is gold. Perhaps a lot of this is due to the realization that while the PBOC may not have launched QE now, it has no choice but to do so eventually.

Or perhaps the real realization is what Macquarie said over the weekend when it laid out quite correctly what the next big policy step will be after the current QE craze fizzles. This is what we said on Saturday:

To summarize what Australia's biggest investment bank just said, in a nutshell, "small and incremental is out", and will be replaced by big and "paradroppy", a step which as Macquarie succinctly puts it, will "ban capitalism and by-pass banking and capital markets altogether."

 

Crazy? Not at all: since the status quo will be fighting for its life, this step is all too likely if it means perpetuating a broken system, and an economic orders based on textbook after textbook of lies. In fact, we would go further and say war (of the global variety) is also inevitable, as the global "1%" loses control. It won't go quietly.

 

Finally, we most certainly agree that the catalyst to unleash the "endgame" cycle will be some "combination of a major accident in several asset classes and/or sharp global slowdown." But long before that even, keep an eye on gold: having provided a tremendous buying opportunity for the past 4 years because for some idiotic reason "conventional wisdom" decided that central banks are in control, have credibility and can fix a problem they created and make worse with each passing day, soon the global monetary debasement genie will be out of the bottle, and not even the entire BIS trading floor will be able to suppress the price of paper (as physical gold has not only decoupled from paper prices but long since departed on a one-way trip to China) for much longer.

Keeping an eye on gold this morning confirms just this:

Then last night, none other than BofA's Michael Hartnett who is one of the very few strategists out there who "gets it", issued a report warning investors to "anticipate a massive policy shift in 2016" which would be a DM/EM mirror image: in the US/EU/Japan from QE to fiscal stimulus and in China from fiscal stimulus to QE & FX depreciation. In other words, the last big reflation push is almost upon us.

His key thoughts:

Neither deflation nor inequality has hindered the bull market on Wall Street in recent years. On the contrary, QE policies to end deflation & spark employment have been very beneficial to asset prices. But now:

  • The perception of unfair globalization, gilded elites & inauthentic politicians is leading to a rise in both populist politicians (Trump, Sanders, Corbyn) and parties (SNP, Syriza, Podemos, National Front) and…
  • …calls for the Fed to raise rates to boost the elderly’s return from saving are becoming louder…
  • …and the fragile improvement on Main Street is threatened by a stalled global economy in 2015.
  • If the secular reality of deflation & inequality is intensified by recession & rising unemployment, investors should expect a massive policy shift in 2016. Seven years after the west went “all-in” on QE & ZIRP, the US/Japan/Europe would shift toward fiscal stimulus via government spending on infrastructure or more aggressive income redistribution. And seven years after China went “all-in” on fiscal stimulus, a shift toward QE/rates/FX to support activity would be likely in the east.

And finally, getting to the point of this post, this is how Hartnett says investors should trade this "massive policy shift":

  • …buy TIPs, gold, commodities, Main Street not Wall Street, China small cap
  • This new policy mix (which would be in response to recession & Quantitative Failure) would be most positive for TIPS/gold/commodities, for Main Street rather than Wall Street plays (e.g. mass retailers versus luxury), and for Chinese small cap. These are the assets bears should accumulate if markets head to new lows.
  • A trough in inflation expectations (Chart 7)...positive for Gold, TIPS & real estate
  • Income redistribution…buy Main Street, sell Wall Street, long KRX, short XBD

So short Wall Street, buy gold. If accurate this could be the biggest policy shift since the artificial price controls were imposed on gold by the BIS trading desk in September 2011 when the SNB unleashed its now failed currency peg, just hours after gold hit its all time nominal high just shy of $2000.

Finally, if China is indeed set to reflate at all costs, watch as a few hundred million Chinese drop their infatuation with the housing and stock bubbles, and go back to the one asset class that throughout history has been the best defense for currency devaluation and runaway inflation.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
gherman's picture

Gold is good. Bitcoin is better.

Usurious's picture

yes...........insist on Invisable coins for payment...........

Tinky's picture

Apparently you aren't familiar with paper wallets. Ha!

NaiLib's picture

:) In the same way banks seem to believe that people will trust them more if they invent their own "blockchain" and tie it to Fiat,,,,

DeadFred's picture

Silver hit its head on the 200 dma three times this morning and retreated a bit for the daily 8:30 'selloff'. Watch for what happens later today, it will tell whether the breakout is sooner rather than later.

SWRichmond's picture

A great illustration of the way bankers think:

To summarize what Australia's biggest investment bank just said, in a nutshell, "small and incremental is out

So printing $3.5 Trillion against a currency base of $800 Billion is "small and incremental".  See?  Do you get it now?

Crocodile's picture

In the era of digital printing; how long can it take to print a quadrillion?  It was just a few years ago that million was a lot, then billions became the new norm, but not for long...now it is trillions.  Just as a $20.00 bill is the new $5 and a $50 is the new $20.  Why we make pennies or nickles is beyond me.  We spend a nickle to make a penny and the pennies look and feel like they are made in China and belong in a toy-set.

strangeglove's picture

Sorry Croc but 80 is the new $20

Slomotrainwreck's picture

...but 80 is the new $20

 

Au contraire - The old silver half dollar is the new $20.

BaBaBouy's picture

""but 80 is the new $20""

Just As In  That Kid In Zimbabwee Hugging Stacks Of Trillions Of Local Fiats Paper...

thunderchief's picture

And I've got 10 inches when measured from the A hole.

commander gruze?'s picture

How very a propos: Andreas M. Antonopoulos on money throughout history and, in particular, peer-to-peer money. A must watch for goldbugs still confused about bitcoin. Thank me later.

https://www.youtube.com/watch?v=n-EpKQ6xIJs

herkomilchen's picture

Spot on video.  It's disappointing that many here love gold out of mindless emotional devotion rather than a genuine understanding and appreciation of the fundamental qualities that make sound money sound.

Deez Nuts.'s picture

Let the goldbug Luddites mock Bitcoin all they want. More for us. ;)

With the Great Halving less than a year away, I'd prefer to have more time to stock up as much as I can before supply gets scarce. Evolve with technology or go way of the dinosaurs, Luddites.

OpenThePodBayDoorHAL's picture

LOL one guy named amalcin bringing the entire network to its knees from a cave in Russia. Core developers running the entire show in open revolt against each other. Retail usage and volume going nowehere, "merchant payments" companies laying off people left and right. Regulators around the world just about to step up enforcement. Doing 2.6 transactions per second, major upgrade required to bring that to 200 (Visa does 50,000). Competing digital currency systems with the biggest banks in the world signed up.

But hey knock yourself out

Tinky's picture

Yes! You see the problem is that there wasn't enough credit created initially. The drips and drabs of a few hundred billion here, and few hundred billion there, were simply insufficient to "jump-start" the economy.

To continue with the always useful drug addict metaphor, it's time now to inject syringes full of pure heroin, as the previous stuff was cut, dampening the desired effect. 

The problem of finding a receptive vein among those that have collapsed may be vexing, so I suggest looking into wherever the economy's toes or tongue are.

herkomilchen's picture

Yes, how lame is it to use bitcoin as merely a token of value in the abstract.  Might as well use some shiny rock as a token of value in the abstract.  Oh wait...

nnnnnn's picture

gold you can hide under your bed        bitcoin you can hide in a unicorn

SWRichmond's picture

Her "strong" attitude towards religion aside, I will quote Ann Barnhardt: "If you can't stand over it with an AR15 and guard it, it isn't yours."

Give up. Reality is not scientific nor even mathematical.'s picture

AR15?  Ann Barnhardt?

 

When the government comes for your gold, that old adage about "over my dead body" is likely going to turn out to be self-fulfilling.

 

If you're really so endeared with the yellow metal, you cannot bear to hand it over, remember, they pretty much feed you in prison.

 

The time to own gold has likely passed.  The government tracks all gold purchases now.  Now it is more likely the time to have a half-dozen comely daughters.

herkomilchen's picture

Bitcoin you can hide in your brain via a brainwallet.  If you don't think that's enormously valuable as protection against theft or confiscation, you're mistaken.

fudge's picture

I can hold my bars in my hand, they're real,,,shitcoin ? not much you can do digital crap.

terry44's picture

Nothing at all you can do with bitcoin if the Internet goes down for a few months.

commander gruze?'s picture

For bitcoin the Internet is a convenience, not a requirement. It's a peer-to-peer technology and is agnostic as to what medium you use to peer. If you want, you can peer over smoke signals, but I mentioned convenience already.

ejmoosa's picture

People cannot even read cursive any longer...and your backup plan is gonna be smoke signals?

commander gruze?'s picture

Backup plan for what? A nuclear disaster followed by global outage of all utilites, including internet? My backup plan for that options is going to be a quick suicide while painless death is still possible. For anthing less apocalyptic bluetooth should be just enough with paper wallets as backup storage for my bitcoin keys.

ejmoosa's picture

A regional outage will be more than sufficient for you to wish you had some real currency...

Bitcoin is is like a cult religion.  You might have faith, but most of the rest of us ain't buying it.  So you will be limited to trading with your other bitcoin buddies.

 

commander gruze?'s picture

Bitcoin is is like a cult religion.

Isn't it the same narrative used by central planners in FED to discourage ownership of gold?

Arnold's picture

One word dooms bitcoin.

 

 

Blythe Masters

commander gruze?'s picture

That's a real funny story here. Blythe Masters is pretty much stuck with the impossible choice between:

1. Pimping bitcoin-like knock-off with all power levers taken away from end user and no computing power (and therefore security) behind it, and no leverage for adoption, 6 years late

and

2. Jumping the bitcoin bandwagin using one of existing application layer protocols (i.e. XCP or OpenAsset) with all computational power and security of bitcoin network but no control over it.

For those who actually understand the invention of blockchain it is hysterical to watch her pathetic verbal gymnastics. She's basically doing her best to avoid words "bitcoin" and "blockchain" while trying way too hard promoting the phrase "digital ledger".

herkomilchen's picture

All fiduciary media requires consensus among its users, what you call faith, otherwise it is worth only its intrinsic value.  Paper money is inherently worth fireplace fuel value.  Gold is inherently worth a few dollars an ounce for some specialized scientific/industrial applications.  Bitcoin is inherently worth nothing.

The reason gold is so awesome as a fiduciary media is its divibility, portability, scarcity, etc. and that its consensus has existed for thousands of years.  Bitcoin has most of the awesome qualities of gold, without the long track record of consensus.  It also has the ability to be instantly transferrable globally at micropayment levels.  It can't be confiscated, and can be stored in your brain.  Gold can't do any of that.

However Bitcoin can't run trustlessly without electricity and a network connection.   Each fiduciary media has spheres where its capabilities crush the other.  Both are fiduciary media that are orders of magnitude superior in league to fiat.

thinkmoretalkless's picture

Bitcoin is a belief system. It hasn't been tested yet.

vq1's picture

I would have never purchased phys gold if it werent for things ive learned on this site. I still have cash and stocks and went against every financial adviser I know.

 

gold will go up and down and I dont expect it to make me money on it. However, no matter how much CP continues or even escalate its destruction of the dollar... Im going to feel fiscally safe or safer than without it. 

 

Deez Nuts.'s picture

Lol, loving the ignorance of ZHers. It's amazing how so many of you were able to connect to the Internet with your AOL Online CD. More for Bitcoin for me to stock up on. 

Wow72's picture

Till the power goes out.

knuppel's picture

or when the highly complex net goes out

1stepcloser's picture

Until the power goes out

Crocodile's picture

Bitcoin is the creation, pilot test if your will, of Central Planners and is speculative at best as it has shown to be.  The people at the top, early adopters, have profited the most..typical for a ponzi scheme.  Regardless of what "Bitcoin" community believes about its safety; the fact that the globalist have embraced it is enough to raise a flag to the most causal observer.  At the same time, whatever floats your boat, for the Tsunami that is coming upon the whole world; there is only one sure protection found in THE Person..I believe you know about whom I speak.

commander gruze?'s picture

Regardless of what "Bitcoin" community believes

Bitcoin community believes nothing. Bitcoin community requeres mathematic proof for everything. This is how we singled out the ponzi/central planners fearmongering.

the fact that the globalist have embraced it is enough to raise a flag

The fact that the globalist have embraced the electricity is enough to raise a flag. /sarc
Like electricity or calculus, bitcoin is just an invention.

northern vigor's picture

I don't believe it...central planners actually needed a test plot to see if people are gullable.

halcyon's picture

@gherman

 

Look at:

1) http://www.investopedia.com/terms/g/greaterfooltheory.asp

And learn something.

Oh, forgot. You are pushing your own investments into something useless.

My bad.

 

rayban's picture

Clever trick, by the way.

rayban's picture

Bitcoin, with the split-trick, is definitely NOT a limited-supply commodity. Ever tried to sell a one millionth of a gold ounce?

Hayabusa's picture

I've noticed a pattern... Tylers post pro-gold articles on a regular basis and I suspect they are receiving some sort of compensation from someone for "pushing PMs."  

Do I own PMs?  Yes, I purchased silver at $35oz years ago - worst "investment decision" I ever made!  

tool's picture

Tyler's are trying to drill it into us that you must have some of your wealth in gold.

 

Imagine in years to come when tshtf your got none you'll feel like a fool for not heeding the warnings!

herkomilchen's picture

Not better, different.  Which money is better depends on the context in which you need to pay someone.  Vegetable stand in the countryside, gold is better.  Hiring an international worker to crunch a spreadsheet for you on short notice, Bitcoin is better.