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How the Invasion and Potential Occupation of Ukraine Will Affect the Future of Russia and Precious Metals

Sean Brazney and Jeffrey Christian
March 6, 2022
Video Transcript

Sean Brazney: In a report recently, or something in one of your reports and it’s something I think I wanted to mention here today, because it really struck a nerve with me in regards to someone basically buying gold. They are making a bet, they’re putting their chips on the table, they think something is going to happen whether it’s short-term or long-term and they’ve put their bet on the table and I read something that you wrote in a report here recently and it talked about during times of both rising gold prices and rising rates that investors are going to need to bet whether the Fed or inflation will win. You also said that during times of rising gold prices and rising rates that the market has typically bet against the Fed. What do you mean exactly by betting against the Fed and more importantly what does it mean to win?

Jeffrey Christian: Winning is a hard thing to define, but let’s talk about betting against the Fed. If you see interest rates rising, you have to ask a number of questions… how low are they or how high are they? A lot of times when we saw interest rates rise in the past it was from 4% to 7%, now it’s from 0% to 2%. So, interest rates are very low. Real rates are still very low. It’s hard to say that this is going to be negative for gold prices, but when you see interest rates rising you have to say, “How low are they? How fast are they rising? Why are they rising?” What you see in the current situation, inflation numbers are up and the Fed is saying we need to respond to these inflationary numbers, we need to withdrawal monetary accommodation, we need to buy fewer bonds in our portfolio, reduce our portfolio, suck dollars out of circulation, which is having some contribution to the inflation, and we need to raise interest rates. Investors will say well, do I bet that the inflation rate is going to overwhelm the Fed and we’re going to have hyperinflation 14% like we had in 1980, not 7% like we had last month or do I think that the Fed can control this, as they have for the last 40-years, and you have to place that bet. Often times, what we see is initially--well, gold bugs will listen to the pundits on the internet and say, “Oh, the Fed has lost control, gold is going to $10,000,” but often times what you see in the broader market is that initially people will respond to the inflationary pressures and say, “Inflation may be getting out of hand, the Fed may not be able to control it.” But, I think, over the course of 2022, what you’re going to see is people are going to say, “Oh, the Fed is effectively managing the inflationary pressures and neutralizing the inflationary consequences that would accrue from the monetary accommodations of the past 12-years.” So, if you bet against the inflation and you bet that the Feds going to win, then you want to position yourself profitably. I think what you do… I define winning in terms of profit. If I can make money because the gold price has risen, that’s great—I’ve won. If I can take my profits, wait for the price to subside a bit, because the inflationary concerns have dissipated, and then buy more gold at a lower price, I think that’s winning too. We’re still very much positive on the price of gold. We think there’s this gigantic litany of reasons why investors should have more of their wealth in gold and silver, rather than less in gold and silver. We think that you’ll see pockets of time, over the course of 2022, where the broader market questions that wisdom, and the prices come off a little bit, and you buy the dips, and you take profits when the price rises, or you put hedges in place.

Sean Brazney: You shared with us a long-term trend report in the past about how much you allocate in a portfolio and the people that did the best were the people that not only held a core position, but also took some off the table when it made sense. So, this is just, again, right in line with all of that. Thank you for that comment on that process and one last thing before I let you go today is… the other day, we saw the reports come out on Ukraine and Russia—The imminent attack on Ukraine. Instantly, gold jumped about $40 to $50 from its position it had been hanging out in and reports of them backing off when gold settles down and another report that says no their not backing off their back at the border, or however you want to describe it and it’s been a little bit of a yo-yo, but gold is responding to that geopolitical risk right now and what’s your take on what may play out there over the next few weeks to months?

Jeffrey Christian: Honestly, we don’t know. I mean, I heard somebody say yesterday, “I don’t even think Putin knows how it’s going to play out.” I don’t think he does. One of the things is… why is he doing this? We think he’s kind of painting himself into a corner. There are three scenarios. One is he invades Ukraine and if he invades, he occupies. He might not occupy all of the Ukraine; he might occupy just the Eastern portion or he might occupy two thirds of it. He probably doesn’t go into Western Ukraine, because that’s the old time Galatia and those guys were very hesitant to accept the Soviets when the Soviets came to power 100-years ago. So, if he invades, he occupies, and Russia will be bogged down and dissipated for as long as it’s in the Ukraine. One of the things that Putin thinks of is they got bogged down in Afghanistan and the Afghan invasion, their invasion of Afghanistan in 1979, and the occupation for 10-years, really is what destroyed the Soviet Union and bankrupted it and also demoralized the population. If they invade and occupy the Ukraine, you’re going to have body bags coming home, you’d have ongoing terrorist attacks, and snipers killing Russian soldiers, and it’s going to be further reducing his popularity in Russia and I think that one of the factors that’s caused him to mass his troops on the border is a diminution of his popularity and a sense that he has… that the party that he runs is actually losing power in Russia. You have to take into context, not only is he looking at Russia, he’s looking at Belarus where one of his client states, where you had two years of protests and demonstrations trying to overthrow his Pro-Russian government there. You had Kazakhstan riots in December, where the Russians actually sent in troops to crush it, because they were ready to overthrow the Kazakhstan government, which is also very friendly and Pro-Russia. Next door to Kazakhstan, you have a U.S. Airbase in Kyrgyzstan, you have U.S. soldiers in Uzbekistan to the south of it. So, he’s really feeling kind of boxed in and he’s really concerned. So, the first scenario is he occupies it and it’s a disaster for him, it’s great for NATO, it’s great for military contractors in the United States and Europe, and it’s also great for China. The second scenario is he backs off, he loses status both on a global basis and internationally and he’s pretty much not as in bad a shape as if he’s occupying it, but he’s in pretty bad shape. He has to find a way to rebuild his reputation in so far is possible. The third scenario which is the least damaging for him and the worst for the world is he keeps those troops on the border and he continues to harass the Ukraine, Europe, and the United States, and that probably is the most likely scenario for the foreseeable future, which is good for gold, because it’s going to extend this period of enormous uncertainty where you see the price as you said… $20 down, $20 up, $60 down, $40 up. It’s probably going to be that kind of way for at least the next few months.

Sean Brazney: So many reasons to be holding gold right now and I’m really looking forward to this year and getting into more of those reasons with you. It’s been a pleasure being with you today. Thank you again for your time Jeffrey.

To remind our viewers, call Monex, talk to an account representative, and get the newest report, “Precious Metals For More Than Just Inflation.”

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