Black Gold and Yellow Gold – Diego Parrilla

Featuring Diego Parrilla

Lehman squared and a perfect storm for gold are the scenarios outlined by energy authority and portfolio manager Diego Parrilla, as testing the limits of monetary policy and credit will eventually lead to the “monetary supercycle”. Drawing parallels to the financial crisis, Diego argues that yield seeking appetite has mispriced both volatility and gold, with an extremely asymmetric set of outcomes seen for the precious metal.

Published on
13 January, 2017
Topic
Energy Commodities, Gold, Monetary policy
Duration
59 minutes
Asset class
Currencies, Commodities, Cash
Rating
30

Comments

  • JS

    Josiah S.

    25 5 2017 02:36

    0       0

    Excellent stuff. I felt like I was getting to hear my future explained to me a few years before it happens. Brilliant.

  • J

    J. .

    24 1 2017 02:59

    4       0

    I've watched it three times and i will do it again! Clear pure brillance.

  • MG

    Mike G.

    23 1 2017 02:00

    1       0

    Outstanding perspicacity! Thank you!

  • Sv

    Sven v.

    22 1 2017 09:50

    2       0

    A joy to watch

  • WM

    William M.

    21 1 2017 07:10

    2       0

    The most beautifully articulate and comprehensive explanation I've ever heard or read of the very ugly mess we're all in! Bravo!

  • sf

    santiago f.

    19 1 2017 23:21

    4       0

    Brilliant Diego!
    I would love some more discussion on why gold is so different from other 'real assets'

  • BK

    Bruce K.

    19 1 2017 22:58

    4       0

    Quite a brilliant thinker, one able to clearly articulate his thoughts. Sets a high bar for others on RVTV!

  • UA

    Uday A.

    19 1 2017 13:19

    4       0

    Superb interview, many thanks to Diego

  • JF

    Jennifer F.

    18 1 2017 06:44

    3       0

    Diego explains things in a very clear manner. I will definitely watch this one again.

  • OD

    Oleg D.

    17 1 2017 09:33

    0       0

    Great piece however I'd like to see the analysis of demand other than from transportation, eg petrochemicals, which will increase in share and keep the demand strong.

  • BF

    Bill F.

    16 1 2017 17:05

    14       0

    one of the best explanations of the current environment that i have ever heard,absolutely brilliant analysis...everyone should view this video.

  • JS

    John S.

    16 1 2017 01:47

    2       0

    Very well articulated and compelling would also like discussing scion on good ibstruments

  • SL

    Steven L.

    16 1 2017 00:59

    16       0

    I would love to hear Diego talk about the different ways to own gold and their relative strengths/weaknesses. It seems to me the miners might be one of the safest ways to own gold while avoiding the storage costs and confiscation issues. Also, what about silver?

  • js

    jacob s.

    16 1 2017 00:52

    6       0

    Just an idea here. But RV should have an option called "Closed Captioning" where - instead of closed captioning the dialog, they should closed caption financial terms. So the viewer has the option of turning these captions on and off.

  • AA

    Alexander A.

    15 1 2017 23:12

    1       0

    This was great!

  • AA

    Alexander A.

    15 1 2017 23:12

    2       0

    This was great!

  • AD

    Anthony D.

    15 1 2017 19:26

    16       0

    Diego, thank you for your offer to return to discuss implementation strategy for PM investment. I have my positions on, but I really wrestle the fine details of the right mix of paper, bullion, etc... let alone the closure of markets in times of severe stress....GRANT, RAOUL.... please expedite! Great work by the way. Can't get this feedback anywhere else I know of. Thank you.

  • JM

    Jim M.

    15 1 2017 17:21

    9       1

    I'd just like to strongly suggest as RVTV guest Dr. Lacy Hunt. Few are as eloquent as he is on the global debt/ reset subject. I just read Hoisington's latest quarterly report and it's terrific.

  • fc

    frank c.

    15 1 2017 15:20

    12       0

    what amazes me is how we all try to give an analysis of he current situation, we all seem to doubt, but from a long term investment perspective there is no doubt that we are at the end of the rope. The system seems to stay together based on ducktape strategies, the fact that currencies from the top three economies can move the way they do indicate major stress.

  • JM

    Jim M.

    15 1 2017 15:07

    10       0

    ANDREAS H. Please keep commenting and don't worry about "hate" or down votes on your comments. The last thing this place ought to be about is conformity of opinion and 'groupthink'.

  • GS

    Gordon S.

    15 1 2017 14:56

    5       0

    @Steve R. Well I think Diego's view on central bank's manipulation of reality which becomes a "self fulfilling prophecy” is spot on. Have you ever considered that they could also manipulate the price of gold? If I were a central banker, that is exactly what I would personally do! Just in case you are interested here are in my opinion some thought provocative master pieces posted on ZH:

    An Inside Look At The Shocking Role Of Gold In The "New Normal" (could explain that JPY - Gold correlation?)
    (http://www.zerohedge.com/news/2014-12-04/inside-look-shocking-role-gold-new-normal)

    Gold Price "Manipulated For A Decade", Repeatedly Slammed Lower, Bloomberg Reports
    (http://www.zerohedge.com/news/2014-02-28/gold-price-manipulated-decade-repeatedly-slammed-lower-bloomberg-reports)

    Why Is JPMorgan's Gold Vault, The Largest In The World, Located Next To The New York Fed's?
    (http://www.zerohedge.com/news/2013-03-02/why-jpmorgans-gold-vault-largest-world-located-next-new-york-fed)

    Our Money Is Dying
    (http://www.zerohedge.com/news/guest-post-our-money-dying)

    One might never know the truth, but I think just the possibility of the above being true makes owning gold a nice trade / hedge. Again it’s all about the structure and also about sizing. Also I think one should own gold for capital preservation, not for profit seeking… Just my 2 cents on that. (P.S.: I’m a millennial)

  • db

    don b.

    15 1 2017 14:42

    2       2

    This argument is based on way too many assumptions, many of them wrong imo. The only way this plays out is if demand is destroyed by Keynesian Central Banks destroying the global economy (which could happen). Depletion, weather, record car sales, electric cars suck, huge percentage of oil supply is over 50 or even 60 years old. technology has created not more oil but super straws to suck it out of the ground. The game is not over and oil will have it's day because..... “Petroleum is industrial oxygen,” Matt Simmons

  • TW

    Tom W.

    15 1 2017 13:23

    3       0

    Excellent discussion on volatility, liquidity, correlation.

  • TW

    Tom W.

    15 1 2017 13:06

    2       0

    Commenting as I watch... I really liked Diego's overview of oil supply/demand taking into consideration currencies, marginal producers, etc. On to gold...

  • TW

    Tom W.

    15 1 2017 12:58

    2       2

    According to source below, in the USA, 28% of energy is used for transportation, 40% residential/commercial and 32% for industry. This doesn't align with the speaker's assertion that transportation is the primary use of energy.
    http://needtoknow.nas.edu/energy/energy-use/

  • GR

    Guido R.

    15 1 2017 10:16

    2       0

    Agreed. Trouble is of course, that just as governments are trying to ban the use of cash, gold will too succumb to capital controls and taxation. France and Italy are rather well advanced in that regard. I suspect that a better way to protect significant investments in gold would be to hold the gold in peripheral countries where buying and selling bullion may not be banned or taxed excessively. Of course, storing gold in a place in the Middle East, Africa or Asia opens you up to different risks. This is a situation of "Picking one's poison" really.

  • SR

    Steve R.

    15 1 2017 08:31

    3       4

    Gold is continually peddled by gold bulls, but so far, it has failed to react as everyone has been expecting for years now. Could it actually be that past history is indeed NOT an indication to the future with respect to GOLD? I have noticed its primarily the older generation pushing the bull case. If rates go up, USD goes up, GOLD will more than likely go down. Also there is (at present) a strong correlation between USDJPY and the price of GOLD that's lasted for years. Why do people see GOLD playing a part in some kind of global reset? IMHO I don't beleive this will turn out to be the case, but we will just have to wait and see on that one.

  • AC

    Andrew C.

    15 1 2017 02:38

    1       1

    I would agree with Andreas and a couple of other commentators. William S below (there will be ways to manipulate "the reset"), another point that stocks perform reasonably well in inflationary periods (especially in the first years), and investor sentiment still sucks. Nobody owns shares, highest cash levels, etc, etc. Supply and demand means that with fewer sellers, prices will rise. We probably won't ever get to euphoric levels like 1999, but we are probably just now leaving Templeton's skepticism stage.

  • JB

    Jack B.

    15 1 2017 02:25

    2       2

    It seems unlikely governments will confiscate physical gold when they can simply use fiat emission to buy gold they need for fiat credibility or settling accounts. Of course politicians may attempt a tax or confiscation which will freeze the flow of gold, which is what a government needs to establish credibility of fiat. The politicians will soon relent as the reality of 'gold must flow' is more important than their outrage and envy.

  • AH

    Andreas H.

    14 1 2017 23:54

    26       7

    Well I think I love to be hated, but I just cannot be more on the opposite of this video: Gold is an inflation hedge, not more and not less! There is a reason why we have no inflation (in Europe and the US), the middle class has been ripped off since the 80ths (productivity growth did not flow in the pockets of the middle class), there is just not enough demand! CBs can print money as much as they want until this changes! You guys live in an eco bubble of financial experts, ask the people on the street, they love (paper) money and 98% of the people even do not know that central banks are able to print money out of thin air (this is not taught in universities!), they trust the paper money blindly (at least in the US and in Europe!). As a species we made it, because we believe in something (God, Paper Money, Nation, you name it!) and they believe in paper money is totally unbroken! The fed is going to get the next curve without a big accident! Look at the book from Siegel (Stocks for the long run), from 1801 - 2000 gold is up from 1 Dollar to about 2 Dollar, the dollar went from 1 Dollar to 6 Cent, and Stocks went up from 1 Dollar to 755.163. Gold is a store of value, not an investment instrument that grows value, if you think you can time it, good luck. I do not know anybody doing this successfully (yeah, now blame central banks that "rig the system"). Also the threat of bitcoins is there for gold, much more versatile (you can pay with it!) and much more likely to be set up for a hype in a case of hyperinflation. Another myth: gold is a hedge for stocks, no they very often go up at the same time (what happened in 2003 - 2007? and in 2016?!). Guys, I really think the bears got it totally wrong. A huge stock bull market is in the making, prepare for it, generation Y is huge! Also read the book of O´Shaughnessy (Predicting the Markets of Tomorrow). He nailed it in 1999 and 2005 ("Big Cap stocks will underperform", "Micro Caps and Small Caps will outperform from 2000 - 2020, then a new cycle begins"). Look at the chapters where he goes through the last 200 Years of the market step by step, there are 20 Years Cycles in the stock market and the bears today sound like the guys in 1982 or like whenever the bad cycle just turns, bearish, bearish, bearish on stocks, gold, gold, gold. (I know it’s cool and uncool to be bullish on stocks). I am not saying gold is not going up, but only to a limit where it holds value (while Paper Money loses because of Inflation), it does not create any value (ask Warren Buffet, he will give the exactly same answer)! At least buy good managed gold companies like MUX! Also read the 4th Turning, it (the fourth turning, e.g. “the bad times”) goes until 2020 - 2025 and with Trump a new card has been turned over (I think it might be a “mild” fourth turning). I just do not buy that bearish views, bull cases like from Jawad S. Mian make much more sense to me right now. Interestingly enough: in the research papers of RV Publications (great service by the way!!!) are much more bullish views then the videos of RV TV. As I said, love to be hated ;-) The thing is, I even would write this, if I even would be the opinion of the bears, just for the sake of a different opinion; looking on both sides has its advantages.

    • WG

      Wade G.

      11 6 2017 14:17

      0       0

      Just a couple responses. Props for making an alternative case and providing some references, and props for the mention of MUX, a favorite, if somewhat speculative expression for what some of us might buy as insurance. So no hate here, because its always useful to look at the opposite side of a trade. We disagree on the bullish case for equities here. I'd point to the research laid out by Hussman for a guiding post. First, earnings may be the most mean reverting series in all of finance. They turned over in late 14 and have rebounded just enough to make u wonder what direction next. Valuations may not matter in the short run, but if the best valuation measures correlate .93 with 12 year total returns over the last century of market data, I'm willing to go with the regression model and believe the S&P will return an average of about 1 percent per year between now and then. The data implies that since dividends are 2ish%, the index will be below where it trades today in 12 years. And if the present over-valuation is resolved at it typically is when valuations reach these levels, I'll also bet on a material sell off to provide for that predicted return outcome... not some flat-lining for the next 12 years. Setting aside Hussman's thorough and documented research, the outcome he predicts seems reasonable to me in part because of a point u mentioned. The shrunken middle class, along with everyone else, is pretty much debt saturated and even with lower consumer loan interest rates, who's gonna be driving earnings growth over the coming decade? Underfunded boomers first retiring and later checking out can't be offset by younger generations.

      On Gold, I'm concerned about a deflationary impulse from a China credit disaster, and the possibility of persistently low reported CPI over the coming months and quarters. A strengthening dollar will be a head wind. But until central banks and especially the Fed end their pursuit of financial repression (literally an objective to create and maintain materially negative real interest rates), I like the shiny.

      Thought the presentation was excellent. Complex ideas presented clearly and concisely. Thanks to RV, and Diego especially.

  • DP

    Diego P.

    14 1 2017 19:16

    49       0

    Thank you all for your comments and questions. In response to the comments about implementation, I would be happy to come back to RV TV one day and discuss implementation strategies and considerations across physical vs ETF vs derivatives vs futures vs gold equities, etc... Important to understand the differences and invest smartly. Remember the gold perfect storm thesis has many dimensions beyond gold. Investors must watch out for first, second, and third order risks that go beyond the obvious liquidity, volatility, and correlation I discussed briefly in this video. Also, as always, important we learn from history and past mistakes, in the gold market and beyond, and there are many lessons to learn from currency and energy markets which may be applicable in the gold monetary supercycle ahead of us.

  • rp

    ross p.

    14 1 2017 17:23

    6       0

    Bravo Diego. You articulate such a compelling gold argument. I understand many feel that the conditions and timing today do not favor gold, however “Everything is theoretically impossible, until it is done.” Instant Classic!

  • GB

    Grant B.

    14 1 2017 12:47

    17       3

    I agree with Gordon S. Most long time RTV viewers understand the gold "story". It's beaten to death. It's hard to be bullish on gold over the next 12 months given US economy and USD outlook. Yes the fiat currency thing I get that longer term. In crises it seems gold is sold and USD bought as in GFC. Most RTV viewers will have sufficient time to set up a gold trade. Right now the gold trade is driven by the US 10 year and Yen. I like the gold trade just don't see any reason to be bullish in the next three months other than short term trading opportunities. Look forward to all the thumbs down :).

  • HJ

    Harry J.

    13 1 2017 23:05

    2       0

    Clearly an intelligent

  • GS

    Gordon S.

    13 1 2017 20:29

    18       2

    Great summary of where the world stands today and as always excellent “first order” conclusions about gold. I loved Diego’s previous interview and enjoyed this one as well, but I somehow feel we have beaten the “basic” gold story a little too much. I think everyone on RV understands the importance of gold, it’s role as an insurance, etc. Isn’t the fulcrum of the trade its structure? I would love to hear more about that from the people recommending the yellow metal. Diego did not even mention the word physical gold?! Especially as we have seen more recently with India, the confiscation probability might be very high in most scenarios, especially in those where prices move up 10X+, so having this trade on is getting more dangerous by the day. You might even end up being labeled a terrorist soon… (http://www.zerohedge.com/news/2016-12-27/europe-proposes-confiscating-gold-crackdown-terrorist-financing). So maybe gold “derivatives” could be an even smarter move? Gold jewelry? Silver? Platinum as previously already mentioned on RV? And finally a slightly off-topic question here. I noticed the many complains about trades recommended on RV being impossible to implement for the “average” investor. Is one of the many products RV is planing to launch going to help with that? :).

  • RB

    Rob B.

    13 1 2017 20:04

    5       0

    Great discussion on how to use a framework to think about commodity prices, interest rates, duration risk, volitility and the interplay when you reach the limits that markets can accept. If you think through what happens when one of the above starts to mean revert and the interplay among the others, very sobering quickly. Great presentation!

  • EK

    Emil K.

    13 1 2017 19:52

    7       0

    Every several dozen episodes we get a quote or analogy that goes down in the RV Hall of Fame. The 'Romeo-and-Juliet-and-West-Side-Story' analogy is a candidate. 'But Diego! That's a totally different story. Right?!' Ha. Classic.

  • AD

    Anthony D.

    13 1 2017 19:33

    12       0

    Diego,
    In this asymmetric outcome senario, how concerned are you of the mechanical fragility of the markets? Will NY, London, Toyko be closed for business periodically? Will the ETF's like GLD or a unit trust like PHYS be safe investments? Or will you have to hold bullion outside the system in the right country?

  • KV

    Kuba V.

    13 1 2017 19:06

    8       0

    I like the way how he explain his ideas. Absolutely a great interview.

  • DM

    Daniel M.

    13 1 2017 18:52

    6       0

    This is fantastic! Sharp guy.

  • RM

    Rainer M.

    13 1 2017 18:49

    4       1

    Well done Diego. Would have been nice to get more of your thoughts on the Trump trade dumping gold and any price targets next to the thousands ....

  • WS

    William S.

    13 1 2017 18:41

    29       1

    Great interview. I do have one general observation in relation to a common thread I have discerned in the narratives of several commentators, both on RealVisionTV and elsewhere. I perceive what often presents itself as an almost-constrained assumption (as it were, a prayer) that the current captains of money on the planet will -- even in the face of a global monetary reset imposed upon them by their own folly -- somehow still find a way to navigate through the ensuing storm without having the ship sink beneath them. I am not so sanguine in respect to their prospects. I am inclined to believe that the banquet of unintended consequences upon which the entire world is about to sup is more than likely to erupt in a food fight of epic proportions as the various diners scramble to scoop as much of the buffet as possible onto their own plates.

  • GC

    Gary C.

    13 1 2017 18:20

    0       0

    As previously, smoothly delivered logic....but Grant, you did not ask the perfect person to validate your Get it, Got it ,Good thesis of oil sales in Gold....Need a written D P answer

  • HA

    Hamed A.

    13 1 2017 17:59

    8       0

    Great macro discussion - hope RV does more of these
    wide range of topics covered

  • PV

    Peter V.

    13 1 2017 17:57

    16       0

    Very interesting. It's humbling for me to see such a complex argument given in the interviewees second language. Thanks to all.

  • T~

    Tshort63 ~.

    13 1 2017 17:52

    24       0

    Admitted gold bug so I agree with his theory. I too see the trade as asymmetrical in that holding gold as a currency has a limited downside but in "bumpy" times, the upside is by far worth the risk. If the economy does not suffer than I have gold *and* a job. If the economy crashes I still have gold at a higher valuation which would help offset the loss in earnings due to a lost job.

  • PJ

    Peter J.

    13 1 2017 17:24

    10       2

    A very intelligent guy covering a subject that is of key interest to me i.e. the ongoing macro cycle changes, where they are leading and what impact and role gold will likely play within them. I did however find his explanation and approach somewhat convoluted and long winded at times, with other players (Jim Grant) covering some of the same themes a lot easier to follow. Still well worth the listen.

  • RM

    Robert M.

    13 1 2017 17:06

    0       1

    Interesting perspective.