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Chartbook of the
In Gold We Trust report 2019
Ronald-Peter Stoeferle
Mark J. Valek
October 2019
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In Our Partners We Trust 2
Media Partner:
incrementum AG | Im alten Riet 102, 9494 – Schaan/Liechtenstein | +423 237 26 66 | ingoldwetrust@incrementum.li @IGWTreport
Executive Summary of the In Gold We Trust Chartbook 3
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1. The Eroding Trust in Monetary Policy and
the International Monetary System
2 500
• Gold reaffirmed its portfolio position as a diversifier, as trust in the 0.3
1 000
-500
fact that it does not work.” FED PBOC BoJ ECB Total S&P 500
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The Everything Bubble 6
Everything
6.0 Bubble?
• In the years following the financial crisis, global central
banks flooded the economy with exorbitant monetary 5.5
stimulus. Nearly USD 20 trn. of central bank money Dot-Com
Real Estate
Bubble
Bubble
was created ex nihilo.
5.0
3.5
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Monetary Expansion Decouples from Annual World Gold Production, 1900=100 7
1 000 000
production!
1 000
“It's all about relative supply curves – the supply curve for
bullion is far more inelastic than is the case for paper money.
It really is that simple.” 100
Dave Rosenberg
10
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
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Effective Federal Funds Rate, in % and Recessions in the US 8
20
12 13
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S&P 500 (left scale) and Fed Funds – Upper Bound (in %, right scale) 9
3 100 7
• If this pattern continues, one should analyze and act with 600 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
special care on the US stock market in quarters to come.
S&P 500 Fed funds - upper bound
Sources: Crescat Capital LLC, Federal Reserve St. Louis, Investing.com, Incrementum AG
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Recession Forecasts Are Not Among the Strengths of Central Bankers
10
“The Fed has through the course of the year seen fit
to lower the expected path of interest rates. That has “It is not in the baseline to have a recession.”
supported the economy. That is one of the reasons
why the outlook is still a favorable one.”
Jerome Powell, September 9, 2019 Christine Lagarde, September 24, 2019
50%
• Since this level has been reached only two times in the last
30 years (both times in a recession), we assume that we
20%
might already be in a prerecession phase.
Consequently, crisis-proof assets will again be in
greater demand in the coming months. 10%
0%
1990 1995 2000 2005 2010 2015 2020
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Projected US Debt & Deficit, in USD bn 12
35 000 500
-500
20 000
• It should also be noted that the CBO forecasts are based on
very optimistic, almost naive premises. For example, the 15 000
-1 000
CBO assumes that the USA will not slide into recession in
the next ten years (!) and that the economy will grow by 3% 10 000
annually. -1 500
5 000
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Due to the Enormous Debt Pile, High Positive Real Rates Seem Implausible.
Negative and Falling Interest Rates Boost the Gold Price. 13
2 000 12%
• Real interest rates – their direction and momentum – are 1 800 10%
one of the most important drivers for gold!
1 600
8%
price. 800
0%
600
• One can also discern that the trend of real interest 400
-2%
0 -6%
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ISM Manufacturing Index vs. ISM Non-Manufacturing Index 14
70
year already.
60
40
30
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Recession
ISM manufacturing business activity
ISM non-manufacturing business activity
Sources: Investing.com, Incrementum AG
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S&P 500 and NBER Recession Dating 15
3 500
2 000
1 500
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Duncan Leading Indicator (YoY%) 16
15%
-15%
1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
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Industrial Production Index 17
30%
10%
-10%
-15%
-20%
1949 1959 1969 1979 1989 1999 2009 2019
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Capital/Consumer Goods Ratio 18
1.1
are produced.
0.8
0.7
• If interest rates are distorted, market participants receive
misleading price signals and invest too much into capital 0.6
0.4
• A reallocation of capital (i.e. bankruptcies, liquidation of
debt) becomes inevitable, which usually coincides with a 0.3
perpetuum mobile still prevails in the markets. 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
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What Can They Come Up With Now? Five Ways for the Fed to Further Ease 19
QE4
•Each QE program so far has been less effective in terms of raising consumer prices (falling marginal utility).
•An enormous asset price inflation has been caused instead.
•If markets are confronted with another round of QE, this might trigger a loss of confidence in the USD and more inflation than is welcome…
Currency Wars
•Cheapening the US dollar could provide some superficial ease.
•However, others are trying the same (i.e. China, Japan, Eurozone).
•If everyone wants to devalue, the only things left to devalue against are gold and commodities!
Forward Guidance
•Possibly the first policy tool: the Fed assures that it won't raise rates in the foreseeable future.
•People will reenter carry trades: Short the US dollar, invest in emerging markets for the longer term.
•This tends to weaken the US dollar and to import inflation.
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Rising Gold Reserves, in tonnes 20
34 000
31 000
since 2009.
28 000
27 000
“Well, it’s interesting, gold is still significant. I ask myself, if
gold is a relic of a long history, why is $1 trillion worth of 26 000
gold held by central banks worldwide plus the IMF and other 25 000
does everyone still own it?” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
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Change in Gold Reserves Held by Emerging Countries, in tonnes 21
2 500
reserves.
1 500
618
with it. 0
Russia China India Kazakhstan Turkey
Q2 2009 Q2 2019
* A term famously coined by Jim Rickards Sources: World Gold Council, Incrementum AG
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Chinese and Russian US Treasuries Holdings, in USD bn 22
1 400 200
1 000
Vladimir Putin
0 0
2007 2009 2011 2013 2015 2017 2019
China Russia
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Monetary Base vs. Gold Reserves at Market Prices, in USD bn (log) 23
10 000
10
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Dollars of Debt Required to Finance 1 USD Real GDP 24
4.0
• But that is not all: Beyond the servicing of government debt, 0.5
expansion represent costs that wage earners have to handle 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
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Total Credit Market Debt, in USD tn 25
80
credit expansion.
50
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Gold/Monetary Base Ratio 26
160%
120%
80%
20%
0%
1918 1928 1938 1948 1958 1968 1978 1988 1998 2008 2018
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2. The Status Quo of Gold
“Gold’s Perfect Storm investment thesis
argues that gold is at the beginning of a
multiyear bull market with ‘a few hundred
dollars of downside, and a few thousand
dollars of upside’.
The framework is based on three phases:
testing the limits of monetary policy, testing
the limits of credit markets, and testing the
limits of fiat currencies.”
Diego Parilla
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Gold Performance in Various Currencies 28
• In many currencies, such as EUR, AUD and CAD, EUR USD GBP AUD CAD CNY JPY CHF INR Average
2001 8.1% 2.5% 5.4% 11.3% 8.8% 2.5% 17.4% 5.0% 5.8% 7.4%
gold is trading at or close to all-time highs! 2002 5.9% 24.7% 12.7% 13.5% 23.7% 24.8% 13.0% 3.9% 24.0% 16.2%
2003 -0.5% 19.6% 7.9% -10.5% -2.2% 19.5% 7.9% 7.0% 13.5% 6.9%
2004 -2.7% 5.3% -2.3% 1.8% -1.9% 5.3% 0.7% -3.4% 0.6% 0.5%
• The average annual performance from 2001 to 2019 has 2005 36.8% 20.0% 33.0% 28.9% 15.4% 17.0% 37.6% 37.8% 24.2% 26.1%
2006 10.6% 23.0% 8.1% 13.7% 23.0% 19.1% 24.3% 14.1% 20.9% 17.2%
been +10.0%. During this period gold has outperformed 2007 18.4% 30.9% 29.2% 18.3% 12.1% 22.3% 22.9% 21.7% 16.5% 21.7%
practically every other asset class, and in particular every 2008 10.5% 5.6% 43.2% 31.3% 30.1% -2.4% -14.4% -0.1% 28.8% 15.5%
2009 20.7% 23.4% 12.7% -3.0% 5.9% 23.6% 26.8% 20.1% 19.3% 16.5%
currency, despite intermittent, sometimes substantial 2010 38.8% 29.5% 34.3% 13.5% 22.3% 24.9% 13.0% 16.7% 23.7% 25.2%
corrections. 2011 14.2% 10.1% 10.5% 10.2% 13.5% 5.9% 4.5% 11.2% 31.1% 11.2%
2012 4.9% 7.0% 2.2% 5.4% 4.3% 6.2% 20.7% 4.2% 10.3% 7.5%
2013 -31.2% -28.3% -29.4% -16.2% -23.0% -30.2% -12.8% -30.1% -18.7% -24.1%
2014 12.1% -1.5% 5.0% 7.7% 7.9% 1.2% 12.3% 9.9% 0.8% 6.2%
2015 -0.3% -10.4% -5.2% 0.4% 7.5% -6.2% -10.1% -9.9% -5.9% -3.8%
2016 12.4% 9.1% 30.2% 10.5% 5.9% 16.8% 5.8% 10.8% 11.9% 12.3%
2017 -1.0% 13.6% 3.2% 4.6% 6.0% 6.4% 8.9% 8.1% 6.4% 6.3%
2018 2.7% -2.1% 3.8% 8.5% 6.3% 3.5% -4.7% -1.2% 6.6% 2.6%
2019 ytd 21.7% 16.4% 15.4% 21.4% 12.5% 20.0% 15.4% 18.0% 19.3% 17.8%
Average 9.6% 10.4% 11.6% 9.0% 9.4% 9.5% 10.0% 7.6% 12.6% 10.0%
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Average Annual Gold Price, in USD 29
1 800
1 668
1 572
• Since August 15, 1971 – the beginning of the new monetary 1 600
1 413
1 357
US dollars has been 10%. 1 400
1 270
1 266
1 258
1 246
1 225
1 161
1 200
970
1 000
against the US dollar averages 4.5% per year.
873
10% p.a.
800
696
613
605
• This long-term context puts the correction of the years 600
462
2013-2015 into perspective, as this chart of average annual
446
445
438
423
410
388
384
384
384
381
377
367
363
362
361
360
344
332
prices shows. The chart also provides impressive evidence
317
310
400
307
294
279
279
271
that it is advisable to regularly accumulate gold (“gold
194
161
158
148
125
200
97
saving”) by harnessing the cost-average effect.
58
41
0
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World Gold Price and Gold, in USD 30
2 000
1 600
1 300
1 200
1 100
1 000
2011 2012 2013 2014 2015 2016 2017 2018 2019
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Gold, in EUR 31
1 600
1 000
• Since the euro was introduced as book money on
January 1, 1999, the price of gold in euros has risen 800
by 454%.
600
0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Gold in EUR
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Milligrams of Gold per Euro 32
140
80
-82%
20
0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
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Purchasing Power of Main Currencies Valued in Gold (log) 33
100
• Among the currencies USD, EUR, GBP and CHF, the Swiss
10
franc has lost the least in valuation, by far.
1
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
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Currency Value Relative to Gold 34
120
20
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
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Gold ETF Holdings, in USD bn (left scale) and Gold, in USD (right scale) 35
3 000 2 000
1 400
2 000
investors, who choose ETFs as the primary instrument for 1 500 1 000
400
500
than their North American peers have done. 2003 2005 2007 2009 2011 2013 2015 2017 2019
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Gold/S&P Ratio Bottoming 36
1.8
1.4
0.8
• After seven years of gold’s underperformance vis-à-vis the
broad equity market, the tables may soon be turning in 0.6
favour of gold.
0.4
0.2
2011 2012 2013 2014 2015 2016 2017 2018 2019
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Gold, in USD (left scale) and Silver, in USD (right scale) 37
2 000 50
indicator for gold. Strong bull markets for silver usually only 1 200 30
• Silver has lagged gold so far but tends to catch up late in 400 10
cycle. 200 5
0 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Gold Silver
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Gold in Nominal and Real Terms, in USD 38
2 500
0
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
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S&P 500 (left scale) and Gold/Silver Ratio, inverted (right scale) 39
3 000 20
80
• Our interpretation for this phenomenon is that in previous
500
economic cycles reflation was conventionally 90
more expensive but did not sustainably fuel consumer price S&P 500 Gold/Silver ratio (inverted)
inflation.
Sources: Federal Reserve St. Louis, Incrementum AG
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3. Gold Mining Stocks
“For the first time in my lifetime the gold
mining industry has actually decided to
become an industry rather than a floating
abstraction. This focus on productivity, this
ability to deliver economic results in 2018,
combined with the expectation of
performance in the mining industry, which is
nil, is going to yield surprise after surprise
after surprise in 2018, with damn near all of
those surprises being good.”
Rick Rule
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BGMI/Gold Ratio 41
to gold in 78 years.
2
0
1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016
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BGMI/S&P 500 Ratio 42
12
• The recent M&A deal flow might have marked the bottom of
the bear market. 6
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XAU/S&P 500 Ratio 43
0.0
XAU/S&P 500
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HUI Index: Bull and Bear Market Cycles 44
700
this as well:
400
Benjamin F. King
1996 1999 2002 2005 2008 2011 2014 2017 2020
HUI Index
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CRB Commodity Index vs. US Dollar Index 45
700 60
100 120
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
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GDX/Gold Ratio & GDXJ/Gold Ratio Confirm Rising Strength of Gold Miners 46
Peak: 0.13
0.06 0.12
0.05 0.10
0.04 0.08
0.03 0.06
0.02 0.04
0.00 0.00
05/2006 05/2008 05/2010 05/2012 05/2014 05/2016 05/2018 11/2009 11/2010 11/2011 11/2012 11/2013 11/2014 11/2015 11/2016 11/2017 11/2018
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Bull Markets in Mining Shares: Performance Is Way Below Average 47
800
10/1942-02/1946 07/1960-03/1968
• The chart shows all bull markets in the Barron’s Gold 12/1971-08/1974 08/1976-10/1980
01/2016-09/2019
600
• One can see that the current uptrend is still relatively weak
compared to its predecessors. Should we actually be at the 500
200
• Moreover, the chart shows that every bull market in the
sector ended in a parabolic upward spike, which lasted nine 100
Current bull market
months on average and resulted in prices doubling at a
minimum. 0
1 41 81 121 161 201 241 281 321 361 401
Number of weeks
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4. Quo Vadis, Aurum?
Simon Mikhailovich
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Cycle of Market Emotions 49
Optimism
“The mind is a fascinating instrument that can make or Optimism
Desperation
break you.”
Yvan Byeajee
Panic
Relief
Capitulation
Despondency Hope
Depression
Sources: Incrementum AG
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The Emotional Rollercoaster Is Turning Upwards 50
1 800
• We are currently in the stage of relief, which means that the Thrill Fear
gold bull market we are observing right now has just entered 1 400
Excitement Capitulation
Desperation
1 100 Optimism
1 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
360d MA Gold
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Gold Bull Markets Comparison, log scale (indexed 10/26/1970 & 01/04/2000 = 100) 51
• The analysis reveals the fact that the bear market since 2011
has been following largely the same structure and depth as 450
the mid-cycle correction from 1974 to 1976.
a while.
50
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
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Gold/Silver Ratio (left scale) and USD 5y5y Inflation Swap, in %, inv. (right scale) 52
100 1.25
• The gold/silver ratio clearly correlates with inflation expectations.
90 1.50
• Strong bull markets for silver usually happen only in the course of
rising gold prices, because investors seek higher leverage and end up 80 1.75
scenario.
30 3.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
• Our proprietary “Incrementum Inflation Signal” has just
switched to a full-blown signal! Gold/Silver ratio USD 5y5y inflation swap (inverted)
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Commodities vs. Stocks: Lowest Valuation Since 1971 53
10
Gulf War 1990
• This chart was by far the most-quoted one in last year’s
9
In Gold We Trust report. GFC 2008
Oil Crisis 1973/74
8
GSCI Commodity Index (TR) is trading at its lowest level Median: 4.10
4
since 1971.
3
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GSCI Commodity Index/Dow Jones Industrial Average Ratio Since 1900 54
0.0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
GSCI/DJIA Ratio
Sources: Goldman Sachs Commodity Index until 1970, Goehring & Rozencwajg Commodity Index pre-1970,
Bloomberg, Incrementum AG
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GSCI Commodity Index (left scale) and S&P 500 (right scale) 55
12 000 3 500
2 000
6 to 8 years – the S&P would have to fall by 48% and the GSCI 1 500
Sources: Professor Dr. Torsten Dennin, Lynkeus Capital, Bloomberg, Investing.com, Incrementum AG
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Gold/Silver Ratio: Bullish on Gold? Then Consider Silver! 56
100
80
40 Silver
Silver
+203%
+60%
• According to the results of our statistical analysis, a Gold
+8%
Silver
+64%
Gold
+80%
30
sustainable increase in the gold price is unlikely to happen
Gold
-21% Silver
Silver +371%
bull market in gold and silver. 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
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Gold/Oktoberfestbier Ratio – Litres of Beer per Ounce of Gold 57
250
2019:
• In 1950 the beer-loving visitor had to put only 0.82 EUR on 2012:
137 Beer/Ounce
115 Beer/Ounce
the counter. Since 1950, the annual average inflation rate of 150
• How many Maß of Oktoberfestbier do you get this year for 100 48 Beer/Ounce
average.
0
• Link to our “O'Zapft Is - In Gold We Trust 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
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The In Gold We Trust Report in 8 Bullet Points 58
1. The breakdown of trust in the international monetary order is manifesting itself in the
highest gold purchases by central banks since 1971 and the ongoing trend to repatriate
gold reserves.
2. Gold reaffirmed its portfolio position as a good diversifier as trust in the “Everything
Bubble” was tested in Q4/2018. While equity markets suffered double-digit percentage
losses, gold gained 8.1% in USD and gold mining stocks 13.7% in USD.
3. The normalization of monetary policy was abruptly halted by the stock market slump in
Q4/2018. The “monetary U-turn” that we had already forecasted last year has begun.
4. Recession risks are significantly higher than discounted by the market. In the event of a
downturn, negative nominal interest rates, a new round of QE, and the implementation of
even more extreme monetary policy ideas (e.g. MMT) are to be expected.
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The In Gold We Trust Report in 8 Bullet Points 59
5. The Belt and Road Initiative (BRI), a.k.a. One Belt, One Road (OBOR) or New Silk Road, is
going to cement China's position as the world's top-ranked gold consumer as well as
producer and will keep boosting physical gold trading at the Shanghai Gold Exchange
(SGE).
6. Regarding the process of de-dollarization, more and more countries are looking for
alternatives to the US dollar, be it trading in other currencies, accumulating reserves of
non-US-dollar currencies, or buying gold.
7. After several years of creative destruction in the mining sector, most companies are now
on a much healthier footing. The recent M&A wave reinforces our positive basic
assessment.
8. The political and economic tensions between the USA and China are increasing. These and
other uncertainties, such as the worsening situation in Iran, should support the gold price.
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Subscribe and download the
In Gold We Trust report 2019
by following the link!
https://ingoldwetrust.report/igwt/
?lang=en
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Addendum
Because we care…
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About the In Gold We Trust Report 62
• Published for the 13th time in English and German and for
the first time in Chinese.
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#igwt2018
About the Authors 63
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#igwt2018
Selected Testimonials 64
John Reade
Chief Market Strategist
World Gold Council
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Selected Testimonials 65
Rick Rule
President & CEO
Sprott U.S. Holdings, Inc.
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Selected Testimonials 66
Brien Lundin
Editor of Gold Newsletter and CEO of the
New Orleans Investment Conference
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Selected Testimonials 67
Simon Mikhailovich
Founder
Tocqueville Bullion Reserve
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About Incrementum AG 68
Incrementum AG is an owner-managed and fully licensed asset manager & wealth manager based in the
Principality of Liechtenstein.
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Contact Us 69
Incrementum AG
Im alten Riet 102
9494 – Schaan/Liechtenstein
www.incrementum.li
www.ingoldwetrust.li
Email: ingoldwetrust@incrementum.li
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Disclaimer 70
This publication is for information purposes only. It represents neither investment advice nor an investment analysis or an
invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual-investment
or other advice. The statements contained in this publication are based on knowledge as of the time of preparation and are
subject to change at any time without further notice.
The authors have exercised the greatest possible care in the selection of the information sources employed. However, they do
not accept any responsibility (and neither does Incrementum AG) for the correctness, completeness, or timeliness of the
information as well as any liabilities or damages, irrespective of their nature, that may result therefrom (including consequential
or indirect damages, loss of prospective profits, or the accuracy of prepared forecasts).
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