Chartbook in Gold We Trust 2017

Chartbook
In Gold we Trust 2017
Twitter: @IGWTreport
Ronald-Peter Stferle & Mark Valek

www.incrementum.li
Download In Gold we Trust 2017 here:

https://ingoldwetrust.report/en/gold-report/#form
About The In Gold we Trust Report 2
The gold standard of gold-research: Extensive

annual study of gold and gold-related capital market
developments
Reference work for everybody interested in gold and

mining stocks
International recognition newspaper articles in

more than 60 countries, more than 1.5 mn. readers
German and English versions, available in a

Compact and Extended version
Published for the 11th time in 2017
Further information and old editions can be found at:

www.ingoldwetrust.report
@IGWTreport
Partners Of The In Gold we Trust Report 3
@IGWTreport
Executive Summary 4
High expectations of Trumps reflationary growth policy

dampened the gold price increase in 2016. However,
Gold was still up 8.5% in 2016 and is up 12.6% since
Jan. 2017.
The normalization of monetary policy in the US is the

litmus test for the US economy and it is decisive for
how the gold price will develop.
Source: Hedgeye
If the normalization of monetary policy does not
succeed which we expect - gold will pick up
momentum.
Mining stocks continue to be highly

interesting. In our investment process, we focus on
developers and emerging producers.
Based on the premise that the bull market in gold has

resumed, we expect the gold-silver ratio to decline.
Therefore, silver mining stocks should offer particularly
interesting investment opportunities.
Source: Hedgeye
@IGWTreport
1. Gold Where Are We Now And
Where Are We Going?
"Doubt is not a pleasant

condition, but certainty is
absurd."
Voltaire
Base Money Inflation And The Price Of Gold 6
20,000 2000
18,000
16,000 We live in an age of

1600 advanced monetary
14,000 surrealism
Balance Sheets in bn. USD.
Gold in USD
12,000 In Q1 2017 alone, the
largest central banks
10,000 1200 created the equivalent of
almost USD 1,000 bn.
8,000 worth of central bank
money ex nihilo
6,000
800 Almost a decade of zero
4,000 and negative interest rates
has atomised any form of
2,000 risk aversion
0 400
2008 2010 2012 2014 2016
PBOC SNB BOJ ECB FED Gold
Source: Bloomberg, Incrementum AG
@IGWTreport
Mind The Donald: Yields Surged After Election 7
3.0% 1400
The FED needs rising

2.5% yields on the long end
1300
of the curve in order to
sustain the hiking cycle
Yield in %/Fund Rate
2.0%
Gold price in USD

1200
1.5%
Trump optimism and
the related yield surge
1100 enabled continuation of
1.0% the hiking cycle in
December 2016
1000
0.5%
Will Trump be a
sustainable game
0.0% 900 changer for interest
rates and gold?
10Y Treasury Yield Fed Fund Rate Upper Limit Gold Price
Source: Federal Reserve Bank St. Louis, Incrementum AG
@IGWTreport
The Everything Bubble: Financial Assets Relative To
8
Disposable Personal Income
Everything Bubble ?
550% " Stocks, bonds and
real estate have all
Housing Bubble 2. The Sceptics become as overvalued as
Financial Assets of Households / Disposable Personal
we have ever seen any

500% DotCom Bubble one of them individually
in this country.
The end result of all of

450% this money printing and
interest rate
Income
manipulation is the
worst economic
400% expansion since the
Great Depression and
the greatest wealth
inequality since that
350% period.
Jesse Felder
300%
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
Source: Incrementum AG, Jesse Felder, Federal Reserve St. Louis
@IGWTreport
World Gold Price vs. Dollar Gold Price Since 2011 9
2,000 World Gold Price Gold Price in USD
The comparison of the

1,800 world gold price with the
USD price reveals that the
divergence has increased
significantly since 2014.
1,600
Reasons:
Expectation that the Fed
1,400
would implement the
announced rate hikes & at
a later stage, it was the
consequence of Donald
1,200 Trumps election and the
resulting economic hopes
that were fuelling the USD.
1,000
2011 2012 2013 2014 2015 2016 2017
Source: Federal Reserve St. Louis, Incrementum AG
@IGWTreport
Average Annual Gold Price (USD) 10
2,000
1669
1,800
1561
1410
1,600
Average annual gold price (USD)
1266
1249
1246
1228
1,400
1161
1,200
974
867
1,000
701
800
608
604
458
447
446
600
436
417
412
387
385
384
383
382
378
367
364
363
362
360
344
333
317
316
310
294
280
278
271
400
194
164
160
148
125
98
200
58
41
Average Annual Gold Price

Annual average gold prices puts the recent gold price correction into perspective
Clearly shows the benefit of a regular accumulation of gold ("gold savings plan") as a long-term strategy
@IGWTreport
Gold Bull Market 1970s vs. 2000 To Date 11
1970 1971 1972 1973 1974 1975 1976 1977 1978
1,350
The bear market

Performance of Gold in Percent
since 2011 has been

following largely the
same structure and
450 depth as the mid-
cycle correction from
1974 to 1976.
However, we can
150 see that the duration
of both corrections
2000 Bull Market 70s Bull Market
diverges significantly.
50
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
@IGWTreport
Gold Monthly Closes vs. S&P Monthly Closes 12
180%
160% We consider the strength

of the stock market
currently as the most
140% significant opportunity cost
for gold.
120% We can see that the

Gold/S&P Ratio
relative weakness of gold
50d Moving Average seems to be slowly coming
100%
to an end.
200d Moving Average
80% After almost five years of
underperformance relative
to the broad equity market,
60% the tables might slowly be
turning now in favour of
gold.
40%
2011 2012 2013 2014 2014 2015 2016 2017
@IGWTreport
GSCI/S&P500 Ratio: Equities Expensive, Commodities Cheap? 13
Gulf Crisis
10 1990
9 GFC 2008
Oil Crisis In a historical context, the
8 1973/1974 relative valuation of
commodities to equities
7 seems extremely low.
6 In relation to the S&P500,

the GSCI commodity index
5 is currently trading at the
Median: 4.1
lowest level in 50 years.
4 Also, the ratio sits
significantly below the
3 long-term median of 4.1.
2 Following the notion of

mean reversion, we should
1 be seeing attractive
Dot.com Bubble investment opportunities.
0
1971 1975 1979 1983 1988 1992 1996 2000 2004 2008 2013 2017
GSCI Commodity Index / S&P 500
@IGWTreport
Change Of Central Bank Balance Sheets vs. Change Of Gold
14
Reserves
Annualised rate of change of central bank balance sheets vs.

annual change of gold reserves (2003-2017)
39.93% 40.15%
37.01%
30.43%
27.26% Central banks try to fine-tune
the tightrope walk between
deflation and inflation.
19.15%
This chart underlines the
relative scarcity of gold in
comparison with fiat currencies
that can be inflated at will.
1.48%
Gold BoJ ECB BoE FED SNB PBoC

Source: FED, SNB, BOE, PBPC, Incrementum AG
@IGWTreport
2. White, Gray And Black Swans
"The two main risk factors for the average

portfolio are less than expected growth
and more than expected inflation."
Ray Dalio
A Black Swan? Zero Analysts See Recession 16
Of 89 economists surveyed by
Bloomberg, not a single one
50 currently expects a GDP
contraction in 2017, 2018 or
45 2019.
2017
40 The median expected growth
2018
rate in these years ranges from
Number of Analyst Forecasts
35 2019
2.2 to 2.4 percent.
30
The extremely high degree of
confidence in the economy's
25
robustness is also reflected by
market-based risk indicators.
20
The last time the VIX was close
15 to today's levels was in 2007
shortly before the beginning of
10 the crisis.
5 A potential recession in the US,

which would invariably lead to a
0 U-turn in monetary policy,
-1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% represents the potentially most
important catalyst for the future
Expected GDP growth trend of the gold price.
@IGWTreport
Rate Hike Cycles And Following Recessions In The US 17
20
13
18
12
16
14
11
12
14
10 10
8 15
2 5 16
6 1 3 4 9
8
4 7
6 17?
2
0
1914 1919 1924 1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
US Recessions Effective Federal Funds Rate (pre 1955 Fed NY discount rate)
Source: Fed St. Louis, Federal Reserve Bank New York, Incrementum AG
As a long-term chart of the Fed funds rate reveals, the vast majority of rate hike cycles has led to a
recession. Moreover, every financial crisis was preceded by rate hikes.
The historical evidence is overwhelming in the past 100 years, 16 out of 19 rate hike cycles were followed
by recessions. Only three cases turned out to be exceptions to the rule.
@IGWTreport
US Unemployment Rate Low Levels Beget High Levels And
Vice Versa 18
12 1
11 0.9
Should the current economic

0.8
10 expansion in the US continue
for another 20 months, it
0.7
9 would become the longest in
US history.
0.6
8 Declining unemployment rates
0.5 are an effect of economic
7 expansions. It is frequently
0.4 argued that the current low
unemployment rate
6
0.3 represents evidence of the
expansion's robustness, but
5 we would point to the long-
0.2
term characteristics of this
4 statistic, which simply
0.1
oscillates in a wide range.
3 0
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Recessions
@IGWTreport
Quantitative Tightening Having Opposite Consequences Than
Quantitative Easing? 19
5000
4500
4000
3500
3000
USD bn.
2500
2000
In June 2019 the current
1500 economic expansion would
become the longest in US
1000 history...
500
US Recession Fed Balance Sheet

Projected Balance Sheet According to Current Plan 3 trn Mark
2 trn Mark
As part of the normalization process of US monetary policy, QT was implemented starting in October 2017
As Quantitative Easing was extremely positive for asset price inflation, it can be expected that Quantitative Tightening
might have the opposite effect
In order to return to pre-crisis levels of the Feds balance sheet, there may not occur a further recession until 2024
@IGWTreport
Incrementum Inflation Signal Showing Rising Inflation 20
300
0.9
250
0.7
Inflation Signal (1 to -0,5)

200 0.5
0.3
150
0.1
100
-0.1
50
-0.3
0 -0.5
07/2005 07/2006 07/2007 07/2008 07/2009 07/2010 07/2011 07/2012 07/2013 07/2014 07/2015 07/2016 07/2017
Inflation Signal Silver Gold Bloomberg Commodity Spot Gold Miners
Source: Incrementum AG
We are increasingly convinced, that the unfavorable environment for inflation sensitive assets, which has
prevailed since 2011, has come to an end.
By the end of September, our proprietary Inflation Signal switched to rising inflation.
@IGWTreport
Performance Of Different Asset Classes In A Variety Of Price
Inflation Regimes 21
26.40%
Equities Fixed Income US TIPS Energy Equities
24.00%
30% Mining Equities Precious Metals Commodities
15.00%
13.50%
20%
11.30%
10.60%
10.50%
Performance p.a.
7.10%
5.30%
4.70%
10%
4.00%
3.70%
3.60%
3.40%
2.50%
2.20%
1.90%
1.50%
0%
-4.40%
-10%
-10.30%
-11.10%
-20%
Falling Inflation Stable Inflation Rising Inflation
Source: Wellington Asset Management, Incrementum AG
Both stocks and bonds tend to lose ground in an environment of accelerating price inflation. Even though
stocks are considered to be suitable inflation hedges, historical data on this point are rather more ambiguous.
Gold stocks and the stocks of other commodity producers have attractive characteristics in the context of
prudent portfolio diversification, as they are clearly positively correlated with rising inflation rates.
@IGWTreport
Gray Swans And Their Possible Effect On The Gold Price 22
Influence on Expected Influence Expected Influence

Gray Swan
USD on Gold (in USD) on inflation
Stagflation Depreciation positive inflationary
Credit crisis in China Appreciation positive uncertain
Political crisis in the US Depreciation positive uncertain
Geopolitical escalation Uncertain positive inflationary
Hyper deflation Appreciation negative deflationary
Inflationary boom Depreciation strongly positive inflationary
Monetary reset Depreciation strongly positive inflationary
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Mind The Gap! S&P 500 vs. Gross Tax Receipts 23
S&P 500 Gross Tax Receipts
210
190
Strong divergence
170 between stock
market and gross
150 tax receipts
If the economy is
130
improving, why do
tax receipts
110 stagnate?
90
70
50
2007
2008
2005
2006
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: https://www.fms.treas.gov/dts/index.html, Mac Overton, Incrementum AG
@IGWTreport
S&P 500 vs. Net Corporate Tax Receipts 24
S&P 500 Net Corp. Tax Receipts
180
Especially
160 Corporate Profits
seem to lose
140 momentum, which
also confirmed by
most recent
120
earnings numbers
as well as earnings
100 revisions.
80 An outright
decrease in tax
receipts is only
60
seen during
economic
40 contractions.
20
Source: https://www.fms.treas.gov/dts/index.html, Mac Overton, Incrementum AG
@IGWTreport
3. De-Dollarization: Good-bye
Dollar, Hello Gold!
There is a good case to be made that a

shift in emerging markets toward
accumulating gold would help the
international financial system function
more smoothly and benefit everyone.
Kenneth Rogoff
Global Reserve Currencies Since 1400 26
Gold
The dominant currency is always
issued by the economically
USA dominant country of an era.
Gold has always played a decisive

Britain role when the changeover from
one global currency to another one
took place. One can roughly speak
France of a revaluation of real assets
against financial assets during
these changeovers.
Netherlands
Reserve currency status does not
last forever. At some point, they all
have to leave the stage. Will this
Spain hold for the almighty US dollar
as well?
Portugal
1400 1500 1600 1700 1800 1900 2000 2100 2200
Source: Incrementum AG, based on a chart by JP Morgan Michael Cembalest
@IGWTreport
Russian Gold Reserves 27
60
At the G8 meeting in 2008 Dimitri

50 Medvedev, at the time president
of Russia, said about the
possibility of a supra-national
currency: I happen to have good
40
news. I have such a supra-
Mio. Fine Troy Oz
Source: The Telegraph

national coin in my pocket. It was
a present. () Here it is. You can
30 see it and touch it.
The process of moving away from

20
the dollar prepared by Europe
and triggered by China and
Russia can no longer be
10 stopped. And as a supra-
national reserve asset, gold plays
an important role in it.
0
1999
1993
1994
1995
1996
1997
1998
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Bloomberg, Incrementum AG 2016
@IGWTreport
Monetary Aggregates In US-Dollars Backed-Up Per Troy Ounce
Of Gold (1971-2017) 28
60,000
50,000
We have calculated a series of
shadow gold prices, by dividing the
40,000
stocks of the different monetary
aggregates by the amount of gold
holdings in their respective central
banks.
30,000
This helps to get a feeling of how
many units of each currency are in
20,000 fact backed by gold.
The amounts of such aggregates

10,000 backed up per troy ounce of gold
reserves currently stand at 5-figure
levels.
0
1971 1981 1991 2001 2011
M0 M1 M2
Source: ShadowStats, Federal Reserve St. Louis, Incrementum AG
@IGWTreport
US Monetary Base vs. US Gold Reserves At Market Prices (Log
29
Scale)
10000
Since the end of the classical

1000 gold standard, parity between
the US monetary base and US
gold reserves was already
restored on two occasions by
an upward revaluation of gold
100 (in the mid 1930s and in the
late 1970s).
Whether a potential dollar

devaluation will happen in the
10 framework of an international
agreement or in an
uncoordinated manner remains
to be seen.
1
1918 1929 1940 1951 1962 1973 1984 1995 2006 2017
US Gold Reserves @ Market Prices US Monetary Base
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US Monetary Coverage Ratio
Scenarios
120
100 Coverage Ratio 100%

= Gold price $14,000
Over the past decades, the
gold-backing of the US
US Monetary Coverage Ratio
80 Monetary Base is trending

down.
The monetary base (M0), has

60 seen its gold-backing dwindle
to levels below 10%.
Coverage Ratio 40% = One could also conclude that
40
Gold price $5,400
gold became significantly
cheaper because of this
Coverage Ratio 20% = unrestrained monetary
20
Nixon Shock Gold price $2,700 inflation.
Coverage Ratio 8.2%

0 = Gold price $1,174
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Source: BMG Bullion, Federal Reserve St. Louis, Incrementum AG
@IGWTreport
Gold-Backing Of US Monetary Aggregates 31
Gold-Backing of US M0 M1 M2 M3
Monetary Aggregates
20 % $ 2,712 $ 2,590 $ 10,144 $ 14,089
40 % $ 5,425 $ 5,180 $ 20,288 $ 28,178
100 % $ 13,563 $ 12,951 $ 50,720 $ 70,447
We may also project at which market prices a troy ounce of gold should trade to back up each of such US
monetary aggregates in larger proportions, namely 20%, 40% and 100%.
The alternative to revaluing gold to the levels discussed here is to force an outright contraction of the US
broad or possibly even narrow money supply, which would wreak havoc with the banking system and
economy, exactly the opposite of what is needed to restore a degree of monetary stability not only to the US
but also to the global economy. (John Butler, The Golden Revolution Revisited)
Source: ShadowStats, Federal Reserve St. Louis, Incrementum AG
@IGWTreport
US Debt, By Category, vs. GDP (USD trn.) 32
80
70 Throughout the 1950s, 60s and 70s,

productive debt to GDP averaged
just over 40%. Today that ratio has
60 risen to almost 75%.
Counter- Unproductive debt as a share of

50 productive GDP averaged somewhat higher, at
debt
USD Trillion
49%, between 1950 and 1980, but

40 has since exploded to reach a level
of 220% by 2009 before falling
Nominal GDP
down to a still elevated level of
30 165%.
Unproductive
Debt The liquidation of unproductive debt
20
in the aftermath of the financial
crisis was more than offset by
10 increases in counterproductive debt
levels which are today at a record
Productive Debt high of more than 130%.
0
1973
1955
1958
1961
1964
1967
1970
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
Source: Federal Reserve, Bureau of Economic Analysis, HFH
@IGWTreport
U.S. M2 Money Supply To Saving Ratio 33
Everything bubble
18
Q1 2017
16
14
M2 / Saving Ratio
12
Black Monday, S&L crisis
10 Q3 1987 Dotcom bubble
8 Q1 2001 Subprime bubble
Q1 2008
6
4
2
0
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
M2/Saving-Ratio
Source: US Bureau of Economic Analysis, Federal Reserve St. Louis, Atle Willems, Incrementum AG
Peaks in the MS/S ratio for the U.S. economy are regularly associated with the end of inflationary
booms and the onset of financial crises.
The higher the MS/S ratio and the longer it remains elevated, the greater the probability of an
economic reaction and hence the greater the chances gold, with its safe haven properties, will
appreciate.
@IGWTreport
4. The Portfolio Characteristics Of
Gold
It aint't what you don't
know that gets you in
trouble. It's what you
know for certain that just
ain't true.
Mark Twain
USD-Index: Indicator For Financial Crises? 35
40% Latin America

Strong Dollar
Debt Crises
Oil Price
30% Decay
Asia & Russia
DotCom Bust &
Crisis
20% Turkey Crisis Global
Japan Top &
US S&L Mexico Financial
10% Crisis Crisis Crisis
0%
-10%
Volcker FED
???
-20% US Recession
Drastic Tightening
-30% FED Tightens
"Black Monday" Weak Dollar
-40% 1987 Crash
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
USD Index (30mo chg.)
Source: FRED, Incrementum AG
USD Index (30mo chg.); Source: FRED, Incrementum AG
The US dollar remains the undisputed senior international fiat currency and with that a mirror image of
global events. This chart shows the thirty-month rate of change of the USD Index.
@IGWTreport
Correlation US-Dollar Index And Gold Since 1974 36
20%
In stress situations many investors still
have confidence in the US dollar and
regard it as a safe haven from external
threats a quality frequently attributed
to gold as well.
10%
Gold Price YoY One might be inclined to expect a
in Percent positive correlation between gold and
the US dollar. As the chart illustrates,
this is not always the case though.
0% Why?
-50% -25% 0% 25% 50% 75% 100%
In local crises, the dollar is seen as a
desirable asset by many market
participants because the survival of the
-10% fiat money system as such is not
questioned.
y = -0.0987x + 0.0098 It is different in the case of systemic

R = 0.1252 crises. In systemic crises, gold is
-20% perceived to maintain its value, while
paper money is in danger of becoming
US-Dollar Index YoY in Percent completely worthless.
@IGWTreport
Performance Of US Dollar Index And Gold 37
35
The traditional inverse
30 28.2
26.0 correlation between gold and
25.3
25 the US dollar is very helpful
in a portfolio context to
20 reduce volatility.
15.2
15 12.6 12.5
11.6 That applies specifically to
Return %
10 7.8 the current market

5.8 6.1
4.6 environment, since the US
5 2.8 3.1
1.1 dollar has been rising from
0 2011 to 2016 and seems to
be entering a bear market
-5 -3.6 -3.6 now.
-4.7 -4.6
-10 -7.1
-8.4 Not only the instability of the
-10.2
-15 monetary system, but the US
-15.5 dollar's high valuation should
-20
provide significant upward
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
potential for gold.
YTD
Gold (US$/oz) Broad U.S.Dollar Index
@IGWTreport
Negative Interest Rates Are A Perfect Environment For Gold! 38
2,100
11
1,800
9
Real Fed Funds Rate (%)
7 1,500
5 1,200
Gold
3
900
1
600
-1
-3 300
-5 0
Real Fed Funds Rate Gold

There are two conspicuous time periods that were shaped by predominantly negative real interest rates (in red).
Both phases clearly represented a positive environment for the gold price.
However, one can also discern that the trend of real interest rates is extremely important for the gold price. Thus
real interest rates have been stuck in negative territory most of the time since 2011, but were in an upward
trend. This increased the opportunity cost of holding gold, which created an unfavorable environment for the
gold price.
@IGWTreport
Copper, Silver, EURO, US-Dollar & Oil In The Currency Gold 39
1000%
Relatie Value to Gold
100%
Gold
US-Dollar
EURO
10% Copper
Silver
Oil
1%
1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
Source: FRED, Bloomberg, onlygold.com, Incrementum AG
This chart shows the gradual erosion of purchasing power of several currencies and commodities
versus gold since 1971. While the price of oil in terms of gold tends to be relatively stable over time, the
US dollar has lost more than 95% of its purchasing power relative to oil over the same time period.
Gold has a track record of successfully preserving value and purchasing power over thousands of
years. In the course of human history, the market has chosen gold as the best money based on logical
and rational reasons such as its high liquidity, indestructibility, high value density, fungibility, divisibility,
world-wide acceptance, etc.
@IGWTreport
Gold/Beer Ratio: How Many Ma Beer Does One Ounce Of
40
Gold Buy At The Oktoberfest?
250
200 1980:
227 Beer/Ounce
Litres of beer per ounce of gold
2017:
150 100 Beer/Ounce
87
1971: Beer/Ounce
48 Beer/Ounce
100
50
0
1950 1960 1970 1980 1990 2000 2010
Source: www.HaaseEwert.de, Historisches Archiv Spaten-Lwenbru, Incrementum AG
While a liter of beer (a Ma in German) at the Munich Oktoberfest in 1950 cost the equivalent of
EUR 0.82, the average price in 2017 was EUR 10.78.
Historically the average is 87 liters thus the beer purchasing power of gold is currently slightly
above the long-term average.
These examples illustrate that gold conserves or even increases purchasing power in the long term,
while it is once again made quite clear what a massive deterioration in purchasing power fiat money
has been subjected to.
@IGWTreport
6. Mining Shares
"Going in one more round when

you don't think you can that's
what makes all the difference in
your life".
Rocky Balboa, Rocky IV
Amex Gold Bugs Index (HUI): Bull And Bear Market Cycles
42
Since 1995
700
We want to highlight the
enormous volatility and inflation
600 sensitivity of the mining sector.
As the chart illustrates, gold
stocks are anything but buy and
500
hold investments and should be
actively managed.
400
The following quote confirms
this as well: Market and sector
300 forces together typically cause
80% of the price movement in a
stock. That means the company
200 fundamentals usually account
for less than 20% of a stocks
price movement. This is the
100
reason a companys stock price
sometimes seems to move
0 independently of the
1995 1998 2001 2004 2007 2010 2013 2016 fundamentals
The Latent Statistical Structure of Securities Price Changes,

Benjamin F. King
@IGWTreport
Apple vs. Gold Bugs Index 43
900
800
700
600
MCap (billions)
500
400
300
200
100
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Gold Bugs Index (HUI) Market Cap (bn USD) APPLE (AAPL) Market Cap (bn USD)
At the moment the entire HUI, which includes the 16 largest unhedged gold producers, is valued roughly USD
100 billion. This amount represents just 0.4% of the market capitalization of all S&P 500 Index members. The
market capitalization of Apple alone exceeds that of the 16 companies in the index by more than 700%.
One could use the cash hoard of Apple (AAPL) to purchase the entire Gold Bugs Index 2.5 times over, or
alternatively buy 6,500 tons of gold. If Apple did the latter, it would be the second largest gold holder in the
world.
@IGWTreport
Alphabet vs. Gold Bugs Index 44
950
800
650
bn. USD
500
350
200
50
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Market Cap World Mining Index Market Cap GOOGLE (Alphabet)
The World Mining Index, which comprises of the largest mining companies in the world, currently has a
significantly lower market value than Google.
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Historic Bear Markets In Mining Stocks 45
100%
08.1974 - 08.1976 03.1968 - 12.1969
02. - 11.2008 01.1996 - 10.2000
80%
10.1980 - 06.1982 01.1983 - 11.1986
03.1939 - 04.1942 04.2011 - 01.2016
Performance
60%
40%
20%
0%
1 41 81 121 161 201 241 281 321 361 401 441
Number of Weeks
Source: Nowandfutures, TheDailyGold.com, Barrons, Incrementum AG
While the fundamentals of the mining sector stabilized in the 2014-2015-period, early 2016 was the time of the
final capitulation. At the time, precious metals mining stocks exhibited the worst 5 and 10 year rolling
performance in 90 years.
During the final slump, they fell to an all-time low relative to the S&P 500 Index, and their price to book ratios
stood at the lowest level in 40 years (which is as far back as the data go). The chart also makes clear that the
preceding bear market was an historically unique event.
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Historic Bull Markets In Mining Stocks 46
800%
10/1942-02/1946 07/1960-03/1968 12/1971-08/1974
700% 08/1976-10/1980 11/2000-03/2008 10/2008-04/2011
01/2016-09/2017
600%
500%
Performance
400%
300%
200%
100%
0%
1 41 81 121 161 201 241 281 321 361 401
Number of Weeks
Source: Nowandfutures, TheDailyGold.com, Barrons, Incrementum AG
If one looks at all bull markets in the Barron's Gold Mining Index (BGMI), one notices that the current uptrend
is still relatively modest in terms of duration and performance.
Should we really be on the cusp of a pronounced uptrend in the sector which we assume to be the case
quite a bit of upside potential would remain.
Jordan Roy-Byrne, an analyst whom we greatly respect, describes the sector's status as bearish bull.
@IGWTreport
Free Cash Flows Of HUI Companies 2016 Higher Than In 2011! 47
6,000
4,000
2,000
in Million USD
-2,000
-4,000
-6,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Free Cash Flow
A clearly positive trend is detectable in terms of operating earnings. The gold industry has evidently
learned to live with lower prices.
In 2012 and 2013 the component companies of the HUI index still generated significant negative cash
flows. The situation brightened considerably in ensuing years. Last year the gold mining companies in the
index generated free cash flows totaling USD 4.8 bn., which exceeded the previous record high of 2011.
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The Case For Mining Stocks 48
We are convinced that due to their response to the four-year long bear market, the majority of gold
producers rests on a more solid fundamental basis.
A preview of the sector's asymmetric return potential and its greater gold price leverage was provided
in the first half of last year, when gold stocks rallied by 180%, while gold generated only a gain of
28%.
The industry must continue to deliver on the promises made in recent years and keep working on
rebuilding investor confidence.
We remain firmly convinced that the large valuation discount at which gold stocks trade relative to the
broader market is going to narrow over the long term.
The focus should be on conservatively managed companies which are not merely pursuing an agenda
of growth at any price, but are instead prioritizing shareholder interests.
In our investment process, we are currently focused on developers and emerging producers.
Based on the premise that the bull market in gold has resumed, we expect the gold-silver ratio to
decline over the medium term from its current elevated level. In such a scenario, particularly promising
investment opportunities should emerge in the stocks of silver mining companies.
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7. Conclusion
"There are about three hundred
economists in the world who are against
gold, and they think that gold is a
barbarous relic - and they might be right.
Unfortunately, there are three billion

inhabitants of the world who believe in
gold.
Janos Fekete
Conclusion 50
After years of zero interest rate policy, investors have become used to the
monetary surrealism created by central banks
Gold is currently seen as too low in calories for yield-starved portfolios.
Superficially, the current situation in financial markets appears promising. We

believe this perception, which is reflected in market prices and valuations, is
incomplete and highly inconsistent.
A certain type of fear is currently rife: the fear of missing out. Many skeptics
remain on the dance floor even if they remain close to the exit. The question is
whether the exit will be big enough to accommodate all of them?
Whether one fully agrees with our critical assessment of the system is one thing;
the question of whether one should hold an appropriate share of one's liquid
wealth in the form of a golden insurance reserve is a different kettle of fish.
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Scenarios For The End Of This Presidential Term 51
This Presidential Term Growth Monetary Normalisation Gold price

is characterized by in USD
Scenario A: Real growth Successful;

700-1,000
Genuine Boom > 3% p.a. Real Interest Rates >1.5%
Scenario B: Growth & Inflation

not completed 1,000-1,400
Muddling Through 1.5-3% p.a.
Scenario C: Growth & Inflation >

not completed 1,400-2,300
Inflationary Boom 3% p.a.
Scenario D: Growth / Contraction Normalization paused or

1,800-5,000
Adverse Scenario <1.5% renewed easing
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Disclaimer 52
This publication is for information purposes only, and 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 the 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, respectively the information
sources, made available, as well as any liabilities or damages, irrespective
of their nature, that may result there from (including consequential or
indirect damages, loss of prospective profits or the accuracy of prepared
forecasts).
Copyright: 2017 Incrementum AG. All rights reserved.
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Appendix:
About In Gold we Trust and

Incrementum AG
About Incrementum AG 54
Incrementum AG is an owner-managed and fully licensed asset manager & wealth

manager based in the Principality of Liechtenstein.
We evaluate all our investments not only

from a global economic perspective, but
by also taking into account global
monetary dynamics. This analysis
produces what we consider a truly
holistic view of the state of financial
markets.
We believe our profound understanding

of monetary history, out-of-the-box
reasoning and prudent research allows
Further information: our clients to prosper in this challenging
www.incrementum.li market environment.
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Ronald-Peter Stoeferle 55
Ronnie is managing partner of Incrementum AG and responsible for

Research and Portfolio Management.
He studied Business Administration and Finance in the USA and at the
Vienna University of Economics and Business Administration, and
also gained work experience at the trading desk of a bank during his
studies. Upon graduation he joined the Research department of Erste
Group, where he published his first In Gold We Trust report in 2007.
Over the years, the Gold Report has proceeded to become one of the
benchmark publications on gold, money, and inflation.
Since 2013 he has held the position as reader at scholarium in
Vienna, and he also speaks at Wiener Brse Akademie (i.e. the
Vienna Stock Exchange Academy). In 2014, he co-authored the book
Austrian School for Investors and in 2017 Die Nullzinsfalle (The
Zero Interest Rate Trap). Moreover, he is an advisor for Tudor Gold
Corp. (TUD), a promising explorer in British Columbias Golden
Triangle.
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Mark J. Valek 56
Mark is partner of Incrementum AG and responsible for Portfolio

Management and Research.
While working full time, Mark studied Business Administration at the
Vienna University of Business Administration and has continuously
worked in financial markets and asset management since 1999. Prior
to the establishment of Incrementum AG, he was with Raiffeisen
Capital Management for ten years, most recently as fund manager in
the area of inflation protection and alternative investments. He gained
entrepreneurial experience as co-founder of Philoro Edelmetalle
GmbH.
Since 2013 he has held the position as reader at scholarium in
Vienna, and he also speaks at Wiener Brse Akademie (i.e. the
Vienna Stock Exchange Academy). In 2014, he co-authored the book
Austrian School for Investors and in 2017 Die Nullzinsfalle (The
Zero Interest Rate Trap).
@IGWTreport
Testimonials (1) 57
I think it is the most comprehensive report

produced on the gold market - to me it is like the
Barclays Gilts Study in the UK - a must read to
understand the medium-term market view and
direction.
Marcus Grubb,
Former CEO World Gold Council
The annual In Gold we Trust report is the

most widely forwarded research piece in the
gold scene.
John Hathaway,
Manager Tocqueville Asset Management
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Testimonials (2) 58
It is a well-documented fact that Ronald Stoeferles In

Gold we Trust report was a widely read essay.
However, I believe that this report will be read in
future even more frequently, and that future
economic historians will mention In Gold we Trust
in their papers and books as an example of an
economist who dared to challenge the destructive
monetary policies of current central bankers.
Dr. Marc Faber
Author of the Gloom, Boom & Doom Report
The value of gold depends on three vectors - money,

mining and geopolitics. Most analysts look at only one
or two of these vectors. Incrementum's annual report
In Gold we Trust is the only research that looks at
all three in depth and in an integrated fashion. It is
the most eagerly awaited and closely read report in
the gold community. Don't miss it!
James Rickards,
Author of Currency Wars and The Death of Money
@IGWTreport
Testimonials (3) 59
In Gold we Trust is the gold research piece of

the year; to be honest its the only report that I
read.
Philip Barton,
President, Gold Standard Institute
Each report provides a thorough analysis of

the gold market, written by money managers
who understand the principles of Mises,
Rothbard and the other great thinkers of the
Austrian school of economics.
James Turk,
Founder GoldMoney.com
@IGWTreport
Many Thanks For Your Support!

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In Gold we Trust 2017

Ronald-Peter Stferle & Mark Valek

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The gold standard of gold-research: Extensive

Reference work for everybody interested in gold and

International recognition newspaper articles in

German and English versions, available in a

Published for the 11th time in 2017

Further information and old editions can be found at:

High expectations of Trumps reflationary growth policy

The normalization of monetary policy in the US is the

Mining stocks continue to be highly

Based on the premise that the bull market in gold has

"Doubt is not a pleasant

16,000 We live in an age of

Source: Bloomberg, Incrementum AG

The FED needs rising

Gold price in USD

Source: Federal Reserve Bank St. Louis, Incrementum AG

we have ever seen any

The end result of all of

Source: Incrementum AG, Jesse Felder, Federal Reserve St. Louis

2,000 World Gold Price Gold Price in USD

The comparison of the

Source: Federal Reserve St. Louis, Incrementum AG

Average Annual Gold Price

1970 1971 1972 1973 1974 1975 1976 1977 1978

The bear market

since 2011 has been

Source: Federal Reserve St. Louis, Incrementum AG

160% We consider the strength

120% We can see that the

Source: Federal Reserve St. Louis, Incrementum AG

6 In relation to the S&P500,

2 Following the notion of

Source: Bloomberg, Incrementum AG

Annualised rate of change of central bank balance sheets vs.

Gold BoJ ECB BoE FED SNB PBoC

"The two main risk factors for the average

5 A potential recession in the US,

Source: Bloomberg, Incrementum AG

Should the current economic

Source: Federal Reserve St. Louis, Incrementum AG

US Recession Fed Balance Sheet

Inflation Signal (1 to -0,5)

Inflation Signal Silver Gold Bloomberg Commodity Spot Gold Miners

Influence on Expected Influence Expected Influence

Stagflation Depreciation positive inflationary

Credit crisis in China Appreciation positive uncertain

Political crisis in the US Depreciation positive uncertain

Geopolitical escalation Uncertain positive inflationary

Hyper deflation Appreciation negative deflationary

Inflationary boom Depreciation strongly positive inflationary

Monetary reset Depreciation strongly positive inflationary

S&P 500 Gross Tax Receipts

S&P 500 Net Corp. Tax Receipts

Source: https://www.fms.treas.gov/dts/index.html, Mac Overton, Incrementum AG

There is a good case to be made that a

Gold has always played a decisive

1400 1500 1600 1700 1800 1900 2000 2100 2200

Source: Incrementum AG, based on a chart by JP Morgan Michael Cembalest

At the G8 meeting in 2008 Dimitri