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Wells Fargo Cries Uncle, Conceding to Gold

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Institution-speak. It’s about giving just enough information to keep someone partially uninformed.

Sort of like political spin. You keep the “messaging” aligned with your agenda.

And if something goes against it–an unfavorable event, an error, a counterargument, or anything of the sort–you find a way to reduce it; relegating the opposing message to the margins.

Take Wells Fargoinfamous for its “trustworthiness” and “customer-oriented service.”

Let’s assume that Wells Fargo’s majority clientele are comprised of conventionally-minded, risk-averse investors and depositors.

Risk-averse because anyone who would trust Wells Fargo after all of the company’s numerous scandals would have to be hanging on due to fear of change (plus a strong dose of denial).

Wells Fargo clients, many of whom are worried about a potential recession, have asked their Wells Fargo bankers and financial advisors about gold–as in, should we begin investing in gold.

Most Wells Fargo clients probably do not own gold, as asking such a question, particularly to a banker (let alone a Wells Fargo banker), would mean a) you have an average understanding about the economy, b) you don’t realize your asking the right question to the wrong people, and c) you don’t have the critical capacity to understand a) or b).

Wells Fargo’s tailored response, via John LaForge, their head of real asset strategy, can be summed up as follows: invest in some gold, but don’t buy too much of it, and be wary.

Market volatility is on the rise—and as history would suggest—investors are flocking to gold … The problem is that some investors do not understand gold, which can be dangerous. Flock to gold at the wrong time, and it can be painful—possibly for years,” said LaForge.

He just reduced legitimate concerns over the global economic slowdown, negative interest rates, the US-China trade war, and the largest volume of central bank gold buying to one word: volatility.

Market volatility can be on the rise for various reasons. October jitters, sentiment-driven corrections, fake news, etc.

Market volatility also has a duration–from short-term to long-term. Wells Fargo addresses none of this. Instead, the bank gives you a narrative statement: “market volatility (which says close to nothing) is on the rise (which also says close to nothing).

If you “flock to gold at the wrong time,” you may be making a mistake. So, when is it the “right” time? Or better yet, might now be the right time, considering the looming economic turmoil on the horizon.

Instead of an answer, LaForge gives you a general principle. But he does eventually connect the general (principle) to the particular (our situation now).

“Timing is key with gold. We do believe that gold has a place in a well-diversified portfolio most of the time. As investors just witnessed, gold can offer upside and help reduce the downside during volatile times. Predicting these times is next to impossible—so owning some gold can be smart. As for today, we do recommend holding some gold, but we caution investors not to own too much,” LaForge wrote in a note to clients.

Sure, timing is key, mostly for investors who aim solely for capital appreciation. LaForge knows that most of Wells Fargos’ clients don’t view gold as a “sound money” asset.

But here’s the thing: LaForge acknowledges that gold can “help reduce the downside during times of volatility.”

Of course, it’s not the “volatility” that matters as much as the fundamental factors contributing to that volatility–some volatility factors (e.g. a sentiment-based correction) are less serious than others (e.g. a potential economic slowdown).

LaForge also recommends holding gold. But he does it in a way that reduces gold’s importance to a mere diversification tool. Here’s where the spin comes in.

Gold is a means to diversify a portfolio. But it also matters as to “who” is saying it. To say that gold = diversification is a denotative statement.

But it’s also a connotative statement in that it implies what’s not explicitly being said.

What’s not being said? Wells Fargo has no choice but to recommend holding gold (as it would look stupid for not doing so) but they want their clients to minimize their gold holding so that more clientele money can go into the bank’s investment products from which they can generate fees.

Despite this, we have to give LaForge some credit for the following statement:

“Gold can be a good investment signal at times, but it has not been perfect, and it is not always understood correctly … Gold’s rally reflects mounting investor fears over: 1) collapsing global interest rates, 2) swelling amounts of global negative-yielding debt, 3) inverting yield curves and central banks that are “behind” the curves, 4) heightened equity volatility, 5) slowing global growth, 6) volatile currency exchange values, and 7) escalating global trade disputes.”

Negative-yielding debt and inverting yield curves are currently the most pressing “fear drivers.”

He goes even further stating that “The reason is that gold can become a good alternative to bonds when their yields are negative…Investors now pay to invest in German government debt. On the other hand, gold is not tied to a particular government … this eliminates the risk that a government may act irresponsibly,” he wrote.

This last few statements advocated solid sound money principles.

But remember, he’s a Wells Fargo employee, and no “true” statement can ever go “unskewed”:

“While we do expect additional trade dispute escalation, we anticipate stabilizing economic growth in the coming year…(he just said earlier that “predicting these times is next to impossible,” and yet he’s making a prediction aimed to “manage” the way clients invest their funds)…

“Owning some gold in a diversified portfolio can be a good thing…(again, minimizing gold’s function to a mere diversification tool)…

“we just don’t recommend owning too much at these levels.”…(by saying “at these levels,” he’s implying that the fundamental forces pressuring the global economy are all short-term factors).

After every reason he just enumerated above–reasons to own gold–LaForge (or Wells Fargo) just neatly resolved the burden using a statement of optimism (“we anticipate stabilizing…”) and a prediction of near-term resolution (“in the coming year…”).

But half-true narratives won’t change fundamental reality.

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