The Erste Bank/Incrementum Gold Report

We are happy to once again present the annual gold report by Ronald-Peter Stoeferle and his co-author Mark Valek. Although Ronald is no longer with Erste Group in Vienna (he is now a managing partner at Incrementum AG in Liechtenstein), he still writes the 'In Gold We Trust' report for Erste Group in his role as an external advisor. The version of the report that we are offering for download here is the extended Incrementum version, which inter alia contains a section on gold stocks and a number of elaborations on topics which are not as extensively discussed in the shorter version.

In spite of this year's decline in the gold price, we still trust in gold, one might say. There are a few valid reasons for the recent bearish trend, some of which Ronald dissects; nevertheless, the bet remains that it is very likely undergoing a large degree correction in a secular bull market.


As we have already remarked on occasion of previous editions, Ronald was and remains one of the very few analysts working at a mainstream institution (or in this case as an external advisor to one), who truly understand how the gold market works in terms of price formation and how it should therefore be analyzed. In chapter 3 of the report, this topic is thoroughly examined, including the fact that gold's high stock-to-flow ratio is precisely what gives it its importance as a monetary asset (and is a major reason why it was chosen as money, i.e., the general medium of exchange, in times past, before governments imposed fiat money). Chapter 3 also contains an interesting subsection on 'aurophobia' and its psychological roots.

Financial repression also receives an in-depth look in this year's report. The term was rediscovered by Carmen Reinhart and Belen Sbrancia and describes the many ways in which governments that have accumulated too much debt organize the theft of the citizenry's assets by underhanded means in order to avoid having to enact politically unpopular measures.

Obviously this is a topic that is highly relevant to gold investors, as a result of a number of unique properties gold possesses. After all, governments cannot devalue it at will. In the longer term, they can only lessen investor appetite for gold if they institute policies that are the polar opposite of those that are characteristic of financial repression. Moreover, gold represents relatively mobile wealth, that nevertheless exists physically and does not depend on counterparty promises (including that most rapacious of counterparties, the State). As such it offers investors a means to protect themselves against financial repression, at least as long as its possession is legal (as we know from historical experience, there is no guarantee that it will remain so, even if it appears likely from today's vantage point).

The chapter on financial repression also makes clear why it is erroneous to compare today's vast public debt/ financial repression combination to that of the post-war period.

Another new feature in this year's report is the attempt to approach the valuation of gold from a quantitative standpoint. Specifically, a regression model that looks at probability-weighted scenarios of future Fed balance sheet trends strikes us as quite interesting. Of course, the value of gold is subjective, as are all values. Since it pays no stream of dividends (why that is the case is also explained in the report) and issues no financial statements, one cannot apply any of the valuation methods that are employed in valuing stocks or bonds. However, it is possible to ascertain gold's relative value versus a range of other investable assets and where it stands at a given point in time in the historical context. We were actually surprised to learn how moderately valued gold still is when looked at in this manner in spite of the advance since 1999/2000.


The report can be downloaded here:   In GOLD we TRUST 2013 – Incrementum Extended Version

The german version is available here




Emigrate While You Can... Learn More



Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!


Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke


7 Responses to “In Gold We Trust, 2013 Edition”

  • I am now officially a gold bug. When I missed the breakout from the $400 range years ago, it was hard to convince myself to chase the price. This time, it is different. It could fall back to $500, which would put it in the range of the CPI from the 1920’s, but compared to other assets, that isn’t a disaster. The stock market could easily lose 70% of its value, based on historical norms, and need massive inflation to get out of that rut, as we have seen in Japan for 2 decades. I wrote my reasoning on another page today, where the blogger was anti-gold.

    The financial repression term is a good one. Cash earns no income. You want bonds, risk on has to be maintained, as does faith in the dollar. Due to the world insolvency, faith could last a long time, or it could vanish in a wink. The actions of Benny and the Fed tells me the bankers and the government have no intention of paying their debts, only devaluing our monetary assets. The stock market is totally out of any reasonable valuation and though it may go higher, it is based on unsustainable fundamentals. It could easily be decided the Cyprus mess is the solution to the debt problem. In fact, to solve this problem is going to require a massive haircut, before we are done. When all is said and done, $500 gold might be a bargain, when it was bought at $1200.

    I recall listening to Bob Hoye in 2007. He brought up the gold/silver ratio and used the measure of 58 or so to determine if a credit crunch was going on. We are currently around 65. I don’t believe we have reached the max there, but only that the divergence today was a brief respite and a response to the central bankers claiming they would clean up the mess. They can’t clean it up, because it is a matter of skin in the game and not credit in general. They merely threw another log on the fire. These are the true risks of remaining in other assets.

    • jimmyjames:

      I am now officially a gold bug.


      Welcome to the dark side mann- always good to have another whack out to share the daily ration of abuse with-

      As to your post.. it could take 10 years or 10 seconds to validate your views- I suspect it will be sooner rather than later-
      imo…If even one major bond market pukes…the flight to safety will not be like the days of old-
      Clueless governments in a panic- will be a goldbugs best friend in the end-

    • rodney:

      Right on board with you Mann, long @1215, stops below 1200.

  • jimmyjames:

    I can’t imagine what John Paulson’s portfolio looks like.


    I would suspect someone as big as Paulson would be hedged somewhere?
    If those who bought miners in 01 and held through the 08 crash and this one as well- are still doing fine-
    We can cherry pick whatever years we choose to make a gain or loss scenario out of anything-

  • ab initio:

    Gold is a good example of why dogmatism in investing can burn your portfolio. Risk management and portfolio exposure to any asset class is something that very few investment publications and blogs spill much ink on.

    At least Pater noted the deteriorating technical condition. Those that bought the miners at the 2008 spike low and held will have seen a near complete round-trip. I can’t imagine what John Paulson’s portfolio looks like.

    Macro and fundamentals while important do not provide the whole picture. Technical analysis is a useful tool in managing risk. But even more important is a strategy for portfolio management.

  • JasonEmery:

    Also a big divergence between gold and silver today, though not as big as with the stocks.

  • jimmyjames:

    Thanks for posting this-

    Finally a small divergence pog/miners- not much- but better than we’ve seen in a long time-

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 5-cotmmrangegc03Ganging Up on Gold
      So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
  • gold_bullionGold Sector Correction – Where Do Things Stand?
      Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit.   Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India   The commitments of...
  • wryAustralian property bubble on a scale like no other
      Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:   Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:    the record run up in commodity prices and subsequent correction;  the associated...
  • andy-duncan-and-claudio-grassA Looming Banking Crisis – Is a Perfect Storm About to Hit?
      Andy Duncan Interviews Claudio Grass Andy Duncan of has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove.   Andy Duncan of (left) and Claudio Grass of Global Gold (right)   Andy Duncan: How do you see the...
  • "What if we don't change at all ... and something magical just happens?"Prepare for the Unthinkable
      Red Ink Growth and profits mask a variety of problems.  They hide business inefficiencies and the money suck of corporate adminis-trivia.  They also conceal unproductive staff.   The final career leap   But most of all growth and profits obscure the extreme value subtracting forces of bloated management teams.  During good times it is unclear what these smug fellows do.  During bad times it is lucidly clear that most of them ain’t worth a darn. When the...
  • urban_ii_croppedPope Francis: Traitor to Western Civilization
      Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis.  At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”*   Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
  • spankinggoodtimeUS Stock Market - a Spanking May be on its Way
      Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though.   Time for some old-fashioned...
  • fischersDoomed to Failure
      Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years.  What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out.  Unfortunately, this may not be possible the way things are going.   As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
  • larry-1Meet Your New Stimulus Allocation Czar
      March Towards Midnight The march towards midnight is both stirring and foreboding.  Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom.  Thoughts of imminent mortality haunt each bite.   Tic-toc, tic-toc...   As far as the economy’s concerned, there’s no stopping its march towards midnight.  The witching hour’s rapidly approaching.  We intend to savor each moment and make the best of...
  • state_police_980_600_s_c1_t_c_0_0_1Are the Deep State’s Drones Coming for You?
      What’s Aleppo?   Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan   The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP   DELRAY BEACH, Florida – Biggest foreign policy blunder...
  • speculatorInterview with Doug Casey
      Natalie Vein of BFI speaks with Doug Casey   Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the  parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
  • where-to-goThe Bamboozled Middle Class
      Gassy and Bloated BALTIMORE – What a great time for an observer with a sense of mischief! This year’s presidential campaign is the most absurd and remarkable we have ever witnessed. After more than two centuries, Americans are finally getting the democracy they deserve – one that is grotesque... slimy... and immensely entertaining, albeit in the mud-wrasslin’ genre.   The mud-wrestlers – well, we did promise you in these pages it would be entertaining like never...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank




Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Buy Silver Now!
Buy Gold Now!