Interpreting Gold’s Recent Move | Jim Bianco

A lot of people are worried about inflation right now, with gold prices going up significantly. There's also some major changes in the economy and a lot of AI companies are getting really high valuations. Our guest today is Jim Bianco, who has looked into the movements in gold and analyzed them. He also tells us what he thinks about AI and where the economy is headed in the U.S. Congress mouths the words, right, we don't like the deficit, we think we're spending too much money, they don't do anything about it, but one day the bond market will force them to come to reckoning with this. There is no Jefferson or Hamilton out there that's about to get elected that's going to say, here's how we fix this problem. It's going to be somewhere down the line chaotic from the bond market's perspective. I'm Siamak and this is Market Insider. Jim, it's great to have you on, welcome. Thank you. Can you tell us what you see right now happening in the economy? If you look at the U.S. economy, I think if I was to take one step back to go forward, I've operated under this principle that whenever you have a financial crisis or recession, and we had both in 2020, you change the economy. Now, I want to be careful on that word, change. I didn't say worse, it's different. And this economy coming out in what's called the post-COVID economy is different. The biggest things that have changed in this economy is de-globalization, crackdown on immigration, and probably remote work are the three biggest things that have changed the economy. The thing that has really come from that change has been we've got higher inflation. Since 2020, we've averaged about 4% in inflation. The cumulative rise of inflation has been, according to CPI through October, the latest data we have is something like 27%. That's unusual. You have to go back 40 years to see a number like that. I don't think that that's a mistake. I don't think that that's being reversed. I don't think that that's going away. This is the world we live in, a three-ish percent inflation world. Now, with that, you get stronger growth than you would normally get. We had 4.3% GDP growth in the third quarter. I've been one that has been arguing that the economy is going to stay stronger than people think. Inflation is going to stay a little bit higher than people think. The biggest concern I have with that is in interest rates, that they're going to stay elevated and to move up. I've been critical of the Federal Reserve cutting interest rates because I don't think that in that type of environment, we need to stimulate the economy more. What I'm afraid is what we're going to do is we're going to stimulate more inflation. There is a big movement in gold and people are looking at inflation and a lot of people are wondering what's going on with gold, what's going to happen to dollar. You've done a lot of research on gold. Can you tell us what's happening with gold and is it connected to the inflation you're talking about? Somewhat. I understand when gold makes a big move and silver makes a move similar to what gold, actually greater than what gold has been doing, that people will then ascribe disaster scenarios. We're going to have hyper inflation. The dollar is going to crash. We're all going to be eating bugs soon because of what's happening with gold. That is conceptually right in a narrow place, Asia. Gold is about 3% or so of world financial assets. It's not big compared to stocks and bonds and real estate. If you compare it to stocks, bonds and real estate, it takes up about 3-ish percent of the value of all of those combined worldwide. It doesn't take much money to move it. The money that is going into gold is coming from Asia and primarily out of China. I think what's happening in Asia, primarily China, is their economies are weakening. Their economies are struggling. Their investors are looking for ways to protect themselves. Their investors are plowing into gold. All the statistics have shown tremendous buying coming out of Asia. That's why the price of gold has been going up. The problem is Americans go, oh, it's the dollar. The dollar is going to crash or it's the hot money on Wall Street. No, they're stunned as everybody else because it's not them that's driving it. They're maybe riding the wave. Some of them are. But what's driving it is the concerns we have about the Chinese economy, the broader Asia economy and investors there. The public there knows about those problems and is seeking to protect themselves. That's why you've seen massive buying of gold. And how did you find this out? Looking at the data from deliveries in gold and looking at the data of jewelry demand, looking at the data from the derivatives markets like the futures markets, where is the buying coming from? Remember, there's more than one gold. There's a gold exchange in London. There's a gold exchange in New York. There's a gold exchange in Shanghai. There's gold exchanges all over the place. And it's the gold exchanges in Asia that have been showing much more volatility, bigger volumes. The movement of gold, if you were to track the movement during the day, where does gold make its move? It's usually overnight. I'm talking about from the U.S. perspective. When it's Asia business hours, that's when it moves as well. And by the way, the same thing is happening with Bitcoin, too. Almost all the movement in Bitcoin does occur in Asian hours, telling you that it's a lot of Asia. And it's largely for the same thing. They're looking for a way to protect themselves. They're unsure about their economies, their currencies. And some of them are buying cryptocurrencies, but a lot of them are also buying gold and silver. So the trading is happening in those exchanges right now. Most of the volume is happening. So it doesn't have much to do with the dollar. It doesn't as of this point. I mean, the dollar would benefit from that because the Asian currencies would presumably weaken. But if the question is, gold is going up because the Western economies are falling apart, or it's a warning sign to the Western economies that they're in trouble. Well, yes, the Western economies have issues. I'm not denying that. But I don't think the indicator that the Western economies are having issues is gold. That's the Asian issue. I think the issue that the Western economies are having is more in their interest rate markets and in their inflation markets, being that we've got elevated inflation and much higher interest rates than we did, say, from 2010 to 2020. That's what I'm measuring it against. In terms of the economy and the markets, you said we're going to grow and the economy is going to grow faster. And we're going to have more inflation. But at the same time, the economy is going to grow faster. What do you see in the economy right now? Well, the biggest thing I see right now is the structural shift around the labor market. And that this is a very difficult thing for people to kind of get their head around. A year and a half or two years ago, if you were to look at the monthly payroll report that the government puts out, it was saying that we were producing 200,000, 250,000 jobs a month. Today, it is saying that we're producing somewhere around 30,000 or 40,000 jobs a month. And we've had a couple of months in the last six where it's had negative jobs. It's actually lost jobs. Economists have been correct to say, look at all these trends. They're going down. We're producing more jobs. How could you say the economy is getting stronger when the job market is clearly weakening? And that's true. However, there's a big caveat to that. And that is what economists refer to as labor supply. How many jobs does the U.S. economy need to create? And the answer to that is all about population growth. The biggest driver of population growth is not fertility, because we are producing about 1.7 children per woman. That is below the replacement rate of about 2.1. Where we get our population growth has been immigration. And under the Trump administration, immigration has come, especially undocumented immigration, has come to a crashing halt. And we've now seen an uptick in deportations. What that means is that the population growth of the country might be at its lowest level in 2025 in 100 years. The only time in American history that we've ever had negative population growth was 1918. That was the Spanish flu that killed 20 million people at the end of World War I. And the population shrank from one year to the next. It came close in COVID. It didn't in the Civil War because the fertility rate was six kids per woman. And so even though 8% of the population was killed in the war, we were producing more children than we were actually killing during the war. But we might be at zero population right now because of what we've seen with immigration. Now, what does that mean? Maybe we're producing 11,000 jobs a month and we were producing 250. How many do we need to produce? Well, if we have no population growth, the Dallas Federal Reserve has an algorithm that they've put together, which I think is as good as anybody else's, and you plug the numbers in, and it actually works out to about 10,000 to 20,000 jobs a month is all the U.S. economy needs to produce. We used to produce 200,000 jobs. Now we produce 20,000 jobs. And the answer is that's good. That's okay. That's all we need. If we're not, if the border's not open and people are not coming into the country, we don't need any more jobs than that. If you want 200,000 jobs a month without that population growth, then you're going to have to have massive wage inflation in order to drag people. Because people are going to be jumping from jobs to jobs to get... Or about a third of the working age, about a working age is defined as 16 to 64 year old. About a third of them don't work. Now, for good reason. A lot of them are students because it starts at 16. They're in the military. They're housewives. They're independently wealthy. They're on disability. They're incarcerated. There's lots of reasons that people don't work within that cohort. Well, if you want 200,000 jobs a month growth without population, you've got 160 million people in that cohort of 16 to 64 that are working. You've got 60 million that are not working for all those reasons I stated. Well, you need to drag those 60 million people into the workforce. Well, they've already decided at current wage scales, they're not interested in working. So you need to offer them more money in order to come into the workforce. And then the existing workers are going to say, oh, you're offering more money. I'll take more money too. So if you want 200,000 jobs a month consistently without immigration, it will only come about if you have big inflation in wages. And wage inflation is usually the primary driver of all inflation. So you have seen this for a few months. How long do you think it will take for this, your theory to be proven correct? For other people to look at it and say, this is it. We need only 10,000 to 20,000 jobs a month. This is the right number. I would argue that it already has been. The problem is, is that they can't come to grips with it. And what I mean by that is that Jay Powell, the Federal Reserve Chairman, at his press conference in September said that there is data that suggests that the labor supply means that the labor break-even rate might be close to zero. He said that in September. Other economists at the Federal Reserve and others have stroked their chin and said, yeah, I think that that's right. The problem is he can't go the next step. He can't say, so therefore, we're producing 10,000 jobs a month. We used to produce 200. We're fine. I don't need to raise interest. I cut interest rates. Economy's okay. 10,000 jobs is enough. He can't say that because if he says that, it sounds like he doesn't care that we used to produce 200,000 jobs and now we produce 10. And the argument that Powell uses is, but maybe we're wrong. Maybe we went from 200,000 to 10. And in a year, we're on our way to minus 50 and that we should be stimulating the economy to stop that decline in jobs. Okay. You're talking about the future. Will Roger say predictions are hard, especially about the future? That could be the case. That could be the case that we are on our way to minus 50 and that as an insurance, we should stimulate the economy to make sure we have enough jobs. Fine. But the result is if you're wrong and we didn't need that stimulation, you're going to make the affordability crisis that we've had worse. And people are already hopping mad already about affordability and they're going to get even madder if you're going to make it worse. In terms of the stock market, the valuations in the stock markets are at their highs. There's a lot of tech companies, AI companies that have really skyrocketed. Their valuations are very high. Some people say it's justified. What are your thoughts on all that? So two things. I'll talk about the valuations in the market. Valuations are very high in stocks overall right now. Valuation is not a timing tool. Oh, the stock market's overvalued, so therefore it has to fall. No, that's not the case. It was overvalued a year ago and went up 17%. It was overvalued, I would argue, two years ago and was up 20% and then 17% in 2024 and 2025. But it is an expectations tool. Over the next 10 years, what should you expect the stock market to do at these high valuation? Struggle. It doesn't mean it's going to crash. It doesn't mean it's going to fall. It means it's going to give you suboptimal returns, maybe somewhere in the low single digits, thereabouts, or it will match the inflation rate. If the inflation rate, if I'm right, and the inflation rate's going to be about 3% a year, stocks will return about 3% or 4% a year over the next 10 years. Over the intermediate term, I've been using the acronym of this is the four, five, six markets. I think that cash will return you four. I think bonds will return you five. And I think stocks, and let me say non-AI stocks, will return you six. Now, six is not that bad if we're going to have a 3% inflation. Problem is when people hear six, no, no, the stock market's supposed to give me 20 every year because that's what it always does is it goes up 20 every year. It has. But that's why we have this overvaluation on it. AI stocks is a different story. They've been running probably around 28% to 30% last year higher, and they could continue to run, but they're very, very risky. A quick word about AI. I am a big believer in AI. I think it is the biggest thing we've seen bigger than the internet itself, and that it is something we should be looking forward to, we should be embracing, and it will be a job creator. I know there's very few people that are as optimistic about AI as I am. But I also think that Silicon Valley has done a criminally bad job of explaining what AI is. Let me give you an example of why I'm so bullish on AI. In 2026, our life is digital. Everything we do in our life, whether it's entertainment, it's business, transportation, is all around computers networked together. Because we have such a reliance on them, it's difficult to use them. Look at the airport. All the airport is, every job at the airport is a database administrator. I go to the airport, I have to get scanned in to go through security. I have to be properly in a database. And if I am not, I go to the counter, and they have to fix me in the database. Once I do that, I get my boarding pass, I have to be properly in the database in order to get a boarding pass. Otherwise, back to the counter, fix the database. We have made modern jobs, soulless database operator jobs, customer service, everything is about our overlord is the database. Why can't I get my pay-per-view? Why isn't this work? Why don't I have my ticket? Because you're not properly in the database, and we need to fix that. That's where AI will come in. AI will, when I walk into the airport, scan me, facial recognition, it's already there, facial recognition. So for those of you worried about government, it's already there. It's going to say, oh, here's Jim. He must be going on a flight. Oh, good. There's a flight. I see why he's here. I don't see a flight. Well, fix it without asking me a question before I get to security. Just fix it. Figure out why I'm there and get me fixed in your database. And it will. And it'll make our life a lot easier. And we'll just go through life. Whenever I want something from my computer, I don't need to remember, go file this, edit, you know, compatibility, check off these boxes, turn off these boxes, and then do this. None of that. Just turn on your microphone and say, hey, computer, give me this. That's what AI will do. And it will produce that output. That is what we need in modern life. Now, Silicon Valley will tell you, oh, it'll cure cancer. Yeah, I understand how it's going to cure cancer. Because what does a cancer researcher do? And I'm going to be simple and kind of humorous at the same time. They look in a microscope for an hour to see what they see. And then they spend two weeks trying to program a computer to tell them what they just saw on the microscope. Let AI look at the microscope and program it in four seconds. And then they could move on to the next thing and the next thing. And they could make research go a lot faster and find a cure for cancer. That's why we need AI. But is it going to eliminate all those jobs when they look into the microscope? Are they getting, you know, there was all these people that worked with them to spend two weeks to make the computer simulate what they just saw on the microscope. Yes, those jobs will be eliminated. But AI will lower costs. It will open up new opportunities that don't exist now because the cost structures don't work. All technological advances throughout history have been net creators of jobs. This is going to be a net creator of jobs. Look at the dominant companies today. Who are they? Did the Mag7? Did the AI companies? Technology is half the capitalization of the New York Stock Exchange. 30 or 40 years ago, most of those companies didn't exist. We created a tool that revolutionized the economy, changed the cost structure to make things like podcasting. Simple. 30 years ago, if you wanted to do this interview with me, 40 years ago, if you wanted to do this interview with me and get it out to the reach that Epoch Times has got it out to right now, you would have had to spend billions of dollars to buy NBC News. That was the only way you were getting this out. Now, as long as you pay your electricity bill, everybody can get this because everybody's connected on the internet. So it lowered the cost of information and it's been a creator of millions of jobs associated with that. This is what AI is going to do. Now, I understand that the concern is I see the jobs that's going to go away. These jobs that it's going to create, these are conceptual ideas that once you lower costs, there's going to be new jobs. Yes. That's scary for a lot of people. I know who's going to lose their job. I just don't know what's going to replace it. But trust me, something will because when you lower costs, there will be something else. And the way I would argue it with what I see AI is we've had this big rally in AI stocks, but they've been largely centered around NVIDIA and the infrastructure build out in AI. And that is what Wall Street likes to call the picks and shovels play. Chips and building out AI and data centers and large language models and all this other stuff. I'll channel my inner Jeff Bezos because he pointed it out and he was talking about we did the same thing in 2000, 99, 2000. It was centered around Cisco and JDS Uniphase and global crossings. And it was switches and routers and putting in the internet. And then in March of 2000, the internet infrastructure and the NASDAQ fell 77%. And he said that was a good bubble. And what does he mean by good bubble? Because when it blew up, it left us the internet. So thank you to all the investors of the internet in 2000, you wrecked your financial careers so I could do stupid memes on my computer. But you left us with this enormously powerful tool called the internet. We then had a second wave of companies come. That was Uber, Facebook, two, Google, Twitter, that were basically, okay, now that we have this tool, what do we do with it? And that's what we got. And that's half the stock market today. So what do I see with AI? Those companies rally a little bit more. And then there's a big correction in the infrastructure companies, but it leaves us with AI. Then somewhere down the line, people start to say, we've got this incredible tool. Let's build companies around this incredible tool. And I could see in 30 years or 40 years, half the stock market capitalization will be, again, companies that don't exist today, that will come from that. And they will employ tens of millions of people doing jobs that we never thought they could do. Just like 40 years ago, we never thought that people would be sitting in their underwear with a shirt on in their bedroom, doing podcasts that millions of people watch every day. And we never thought that long-form podcasts would be popular, that we would have three-hour podcasts that they would be watching. But they are, because we didn't realize that that was going to be a tool, because 40 years ago, there was no outlet for a three-hour podcast or a three-hour interview, because you only had four network stations. The cost was so much. Yeah, the costs were just prohibitive to the point no one even considered it. And because the costs were so high, that's why all the interviews are always four minutes long, because they're always so expensive and they got to move on to the next subject. So it will fundamentally change this and create opportunities. I embrace my AI overlord. I want him to come. I think it's going to be a good thing. I think it's going to be especially a good thing for the younger people, because they're going to be engaged in new jobs and opportunities. But I am wary that that loss of initial jobs, that creation of new jobs, might not be seamless. I'll give you one example. One of the biggest technological changes was the Industrial Revolution. By 1900, 50% of the people worked on farms. By 1950, it was 4% of the people worked on farms. Everybody left the farm to go work in industrial factories. That was not seamless. There was a pushback. The pushback was known as communism. And that was the anti-capitalist pushback. That transition can be ugly. The risk with this is the transition could be very ugly. I think a lot of people are cognizant of that and they're maybe working. So it might take years for those jobs to appear. And before those jobs appear, people that lose the opportunities, they might get into something like socialism or communism. Maybe not socialism or communism, but some kind of a pushback against this movement. Actually, it's referred to in Silicon Valley as the decelerationist movement, where you want to slow down the growth of AI. That's really where it could come at that point. That's what I worry about is that transition from those jobs going away. And the last thing I'll mention is Brian Moynihan is the CEO of Bank of America. And Brian Moynihan likes to say that Bank of America is spending more on the technology and AI than any other financial services company in the world. True. And he sees enormous gains from it. True. And he argues, if I was to summarize the argument, he argues, we're going to get rid of a lot of middle... He doesn't say it in these terms. I'm saying it in these terms. So I just want to make sure I'm not... We're going to get rid of a lot of middle management jobs. We're going to replace them with a large language model. No, Brian, we're going to replace the entire business model of Bank of America is what we're going to do with a large language model. And the most unqualified person to lead that will be the current head of Bank of America. I'm not saying anything negative about Brian Moynihan. What I'm saying is you're about to see the business model of your bank go in a direction you have never seen in your career as the leader of the bank, and not just him, the leader of a lot of these businesses. It's going to go in... So it isn't just, here's our business model. It doesn't change. We'll just take all these people out of the middle, replace them with a computer, and our margins will go up. No, your whole business model will change. The business of broadcasting has changed because the cost changed. It wasn't that NBC said, God, this YouTube thing is great. We could get rid of all these producers and all these executives and all these cameramen, and we could just replace them with a hundred-dollar Logitech camera, and we could do this for pennies on the dollar. We'll put it on our network, make billions in advertising costs, and our margins will be huge. It completely changed the business model. So there'll be competition, different kinds of players coming in... Right, in different ways that they'd never considered before. And the problem is when you get to be 60 or 70 years old, and you've done it for 40 years a certain way, it's very difficult for you to say, here's how we've been successful for decades, and now we need to just throw that in the trash and go in a different direction. I'll give you one quick example. I think one of the greatest business pivots in history was Bill Gates in late 1995. They came out with Windows 95. It was tremendously successful. And by late that year, Bill Gates basically went to his board and said, and the board is like applauding him, what a brilliant move with this Windows 95. Great. We're making money hand over fist. Everybody loves it. Forget it. It's done. We have to make a pivot. We have to go off into this internet thing. We're doing fantastic with this new product. That's the history. We have to go in that direction. And his force of will forced them into that direction. That is a tremendous pivot. That is the exception that proves the rule. Most people would say, we don't need to change anything. We're doing fine. Or worse, I'm 64 years old. I think you're right. But can I just do this for six more years, get my gold watch and my pension and leave this to the 40-year-old to figure out? Usually it doesn't work that way. It comes on you a lot faster than you think. People argue that the national debt is at record now. What are your thoughts on that? $38 trillion. It's over 100% of our GDP. The only time it's been higher than this in American history was the end of World War II. But that was episodic. What I mean by that was we were financing a war. And then the minute the war ended, the debt levels went right back down. This is more structural, permanent. We're financing higher levels of government. Again, what I just said, the debt is a signal of government. It's more government, is what it means. When the government borrows money, what's it doing? It's funding its agencies. It's funding its programs. What do those agencies and programs do? They go out and consume goods and services. It's the government. They consume them inefficiently. What does that mean? They make it scarce for everybody else. And that drives up the price. And that's inflation. So the more debt we accumulate, the more deficit spending we have to accumulate that debt, the more we are creating inflation. And that's another argument for why I think that in the post-COVID environment, we're in a higher inflation environment than we've been in the past. So do you think that government spending is going to continue the way it's been after COVID? Yes, because what you do as a politician is you say, government spending is awful and terrible, and we need to break it under control. Take a breath and then say, but we must spend more money on all these programs. So no one's going to fix it. There's only going to be one way it's going to be fixed, because we've seen this in other countries, most famously in the UK three years ago. It will be the bond market that will stop it. As long as the government mouths words about, we have to do something about the deficit, but then actually not do anything about it and continue to spend, the government's budget right now is $7 trillion or 23% of GDP. A quarter of our economy is government spending. That's the highest non-crisis number we've had in American history. The only times it's been higher have been the Civil War, World War I, World War II, the Great Depression, the financial crisis, COVID. Those are the only times it's ever been higher than 23% of GDP, or a quarter of our economy has been government spending, because those were specific crises the government was trying to attack, World War II or the COVID shutdown. Now we just do this as happenstance. The only way this is going to change, and this is where I don't like it, is that the bond market will put its foot down. It will eventually say, you're borrowing too much money. You're demanding too much from investors to buy your securities, government securities. We need higher yields and higher yields. Then the government says, well, if you do that, then our interest costs go up. Then that makes it harder for us to fund our programs. Then the market says, well, you're not talking about ending this program, so you're even higher in interest rates. We'll play this game until you stop spending. That's what happened in 2022. Liz Trust was the Prime Minister in the UK. She proposed a budget that was going to cut taxes, increase the deficit, increase spending, and the bond market blew up and sent interest rates soaring. It forced Parliament, their Congress, to change the policy. They didn't want to. They said, you're going to starve poor people. The bond market said, well, if you want to do that, this is what it's going to cost you. It forced them to change it. What I'm worried is Congress mouths the words, we don't like the deficit. We think we're spending too much money. They don't do anything about it. But one day, the bond market will force them to come to reckoning with this. I don't know when. Maybe it's later this year. Maybe it's in 15 years. But there is no Jefferson or Hamilton out there that's about to get elected that's going to say, here's how we fix this problem. It's going to be somewhere down the line chaotic from the bond market's perspective and how it's going to fix the problem. What do you recommend to people who are thinking about investing and they're looking at their careers and investments and retirement? What are your thoughts on that? Be flexible. Be nimble. Things are going to change. Embrace the change. It's not a bad thing. I've heard a lot of people say, I spend a lot of time with AI learning how to do the prompts, learning how to understand AI. Do you use it at work? No, but I think it's going to be the next thing and I want to understand it. I think that kind of mentality I think is very good. From an investing standpoint, I think two things can be true at once. Current market's overvalued. It could struggle. 4, 5, 6 could be the market. I think the next big move is going to be that there will be some opportunity to play the infrastructure play, the NVIDIA's and the Microsoft's and everybody who's building out data centers and the power companies that are playing them. There's still some play left in that, but then I think when the correction in that comes, the next big play is going to be in all of the startups and all of the new ideas. We've got this tremendous life-changing tool called artificial intelligence. What do we do with it? There's going to be companies that are going to come out of the woodwork that are going to be making new things. I was at an investment conference and somebody was telling me, he said, you're absolutely right about this. He says, but the problem is the people that are going to invent those new companies, they're in seventh grade gym class right now. So it's going to be a while before they get there to make those companies, but they will. It will happen. So I think that we need to understand what we're doing right now. We're putting in place the good bubble as Bezos called it, right? Buying NVIDIA chips, building data centers, getting up the latest large language model. Eventually that will get overdone and then we'll be left with those. And then we'll be, what do we do with them? And that will be the whole next leg. All of our jobs are going to change. And that's not necessarily a bad thing. Where it becomes a bad thing is when you say, no, it's not going to change. I'm going to continue to do this. I'm going to be like the Hollywood writers. I'm going to strike and say, stop changing things. And everybody's going to pass you by. If you wind up thinking that way. Jim Bianco with Bianco Research. It was great to have you on Market Insider. Thank you. Thank you. Let us know what you think about what's happening with gold prices and the situation with macroeconomy. Do you agree with our guest Jim Bianco today? You can always comment. We read all of them. And I'm Siamak. This is Market Insider. We'll see you next time.