Category: Short and Sweet

Short and Sweet

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Stuck in a fiat dollar world
for some time to come

“For all its problems, the current dollar-based non-system has been far more resilient than the Bretton Woods gold-exchange standard, which never operated as White intended. And the real alternatives — a classical gold standard, in which interest rates are driven by cross-border gold flows; or a supranational currency, like Keynes advocated at Bretton Woods — are likely to remain too radical politically. We are, therefore, almost surely stuck in a fiat dollar world for some time to come.” – Benn Steil, Council on Foreign Relations

Those of you who frequent this page will recall previous references to Benn Steil’s gold advocacy.  Steil, who is the director of international economics at the Council on Foreign Relations, sees central banks’ utilizing gold as a reserve asset to the offset the risks of holding national currencies as opposed to direct backing for the dollar.  In this respect, his thinking is closely aligned with that of Nobel Prize winner, Robert Mundell, who also proposed the use of gold for the same purpose to the European Union at the inception of the euro.

In the essay linked below Steil provides a brief but revealing history of the transition from the late-1960s, early-1970s gold-based system to the dollar-based system under which the global economy functions today. He includes a number of interesting stories about the countries and people involved.  Few people know, for example, that France dispatched a battleship in the early 1970s to New York harbor to pick up its gold deposited at the New York Federal Reserve.

In the absence of a gold standard, the best recourse for the average investor is to put one’s portfolio on the gold standard through a diversification in physical coins and bullion.  We agree with Steil: “We are almost surely stuck in a fiat money world for some time to come” with all its attendant risks.

Adopt a gold-backed dollar? This is what happened the last time we tried
Marketwatch/Benn Steil/8-11-2016

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The more things change the more they stay the same

In reading a recent piece of wayward analysis concluding that gold was headed below the $1000 level, I was reminded of an old Murray Rothbard quote that I first encountered when I entered the gold business in the early 1970s. He included it in the intriguingly titled pamphlet, What Has Government Done to Our Money:

“All pro-paper economists, from Keynesians to Friedmanites, were now confident that gold would disappear from the international monetary system; cut off from its ‘support’ by the dollar, these economists all confidently predicted, the free-market gold price would soon fall below $35 an ounce, and even down to the estimated ‘industrial’ nonmonetary gold price of $10 an ounce. Instead, the free price of gold, never $35, had been steadily above $35, and by early 1973 had climbed to around $125 an ounce, a figure that no pro-paper economist would have thought possible as recently as a year earlier.”

As you can see, even when gold was trading at $35, its adversaries were predicting lower prices ($10 per ounce), and even then under the flimsiest of arguments.  Its ‘industrial” nonmonetary price?  How is that different from its monetary price?  Ultimately in that first leg of gold’s long term bull market, it went well over  $800 per ounce – a far (very far) cry from $10!

The lesson in all this?  The more things change, the more they stay the same.  Gold’s critics have not changed their tactics over the years, and they are not likely to anytime soon.  Make your own assessment on gold and develop a strategy that makes sense for you.  The worst thing you can do if you don’t own gold, or don’t own enough, is to allow yourself to be sidelined by predictions that may or may not be based on a realistic assessment of the markets, gold and the economy.

— Michael J. Kosares

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Image courtesy of the Mises Institute
What Has Government Done To Our Money/Murray Rothbard/Mises.org/Pdf download

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Gold coins, hoofs found in 2,000 year old Chinese tomb

“Chinese archaeologists. . . discovered 75 gold coins and hoof-shaped ingots in an aristocrat’s tomb that dates back to the Western Han Dynasty (206 BC – 24 AD). The gold objects — 25 gold hoofs and 50 very large gold coins — are the largest single batch of gold items ever found in a Han Dynasty tomb. They were unearthed from the tomb of the first ‘Haihunhou’ (Marquis of Haihun) in east China’s Jiangxi Province. The coins weigh about 250 grams each, while the hoofs’ weights vary from 40 to 250 grams, said Yang Jun, who leads the excavation team.” – Xinhuanet/11-17-2015

USAGOLD note: These gold artifacts were found along with a portrait of Confucius, perhaps the oldest known. Wisdom and gold make easy company. Confucius once said something that has current applicability:  “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.”  Or at the very least, well-hedged . . . . . . . .

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“Bear markets are sneaky beasts. . .”

“Bear markets are sneaky beasts and they like to do their damage as secretly and as unobtrusively as possible. I hate to say it but somewhere ahead, the bears going to get it all together and the innocent little stream is going to turn into a waterfall. What can you do about it? Stay out of the market? Protect yourself by remaining in pure wealth, gold. For thousands of years, silver and gold have been treated as pure wealth. As the standard measures of wealth (stocks and bonds) have deteriorated, veteran investors have forgone profits and moved their assets into pure wealth.” – Richard Russell, King World News, 2016

USAGOLD note: King World News called the late, great Richard Russell – who regaled us with his wisdom in the Dow Theory Letter for nearly half a century – “the greatest financial writer in history.” A Mish Shedlock warning this past week that Americans should expect a “Lost Decade” and that the stock market rout is “just a start,” lit the memory banks and sent me off searching for this old quote. We can only guess what Russell would have had to say about the current state of affairs, but the quote above provides a clue.  Never predictable in his opinions, he was rock solid on one axiom throughout his career – the necessity and transcendence of gold as a permanent component of the well-balanced investment portfolio. As he said, so often, it helped him sleep at night.

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The stock market faces ‘unlimited downside risk’

“There is unlimited downside risk in the market right now and I don’t think it’s being respected. It’s not until afterwards that they ask, ‘what happened? The Fed, the Trump, the ebola, or whatever excuse du jour is being regurgitated on the various media outlets. The only one to blame is ourselves.” – J.C. Parets, All Star Charts, as reported by MarketWatch

USAGOLD note:  Especially if one fails to properly diversify. “We have met the enemy,” as Walt Kelly of Pogo fame once put it, “and he is us.”

Full article: The stock market faces ‘unlimited downside risk,’ warns veteran trader / MarketWatch / 10-24-2018

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‘Wannabes’ and ‘Gonnabes’  not the real thing

“Gold has often been referred to as a relic. But from a behavioural perspective, this may also mean it is ingrained in our subconsciousness and related actions. Put differently, as long as humans remain tangible, it is likely that they maintain a desire to hold real and tangible assets. Very few companies on the US stock exchange, for example, are older than 50 years. By comparison, gold has existed for thousands of years and any gold coin or gold bar will most likely outlive any company and their stocks and bonds. Put together, it is unlikely that a company that sells claims on gold, such as a gold ETF, will beat physical gold’s longevity.” – Dick Baur, Professor of Finance, University of Western Australia (Why ‘digital gold’ won’t ever kill off the real thing)

USAGOLD: Wannabe and gonnabe paper gold will never pass for history’s time-honored store of value – nor will it be mistaken for actual gold coins or bars stored nearby should the cold wind blow.  By the way, adding the word, blockchain, to a paper gold product might enhance its marketing appeal, but it changes nothing in terms of its usefulness to the investor.  The instrument is still paper gold and little more than a price bet.

Full article link

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America is overdue for another economic disaster

National  Review/George Will

“The durable market rise that began March 6, 2009, is as intoxicating as the Lehman anniversary should be sobering: Nothing lasts. Those who see no Lehman-like episode on the horizon did not see the last one.”

USAGOLD note:  This time around no one can claim that they weren’t warned or that they didn’t see it coming as was universally the case in 2008.  Now  the warnings come almost daily.


Repost from August 19, 2018

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This ‘prophet of doom’ predicts stock market will plunge more than 50%

MarketWatch/Sue Chang/7-31-2018

“In his most recent call, [John Hussman] argued that measured ‘from their highs of early-2018, we presently estimate that the completion of the current cycle will result in market losses on the order of -64% for the S&P 500 index, -57% for the Nasdaq-100 Index, -68% for the Russell 2000 index, and nearly -69% for the Dow Jones Industrial Average.’”

USAGOLD note:  Trees, as Richard Russell used to say, do not grow to the sky.


Repost from July, 2018

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Short and Sweet

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Gold’s transcendence in the fiat money era

Whenever you are concerned about gold’s price performance, please return to this chart. It restores one’s faith in the metal without reservations.  Many paragraphs could be written about what you see in this chart, but it speaks for itself. At a glance, it tells us why gold in the fiat money era (in which we are still firmly ensconced) is a good thing to own.  Simply put, it transcends. . . . . . .During the gold standard era, the chart is a flatline.  The day the United States severed the dollar’s tie to gold, it registered a pulse.

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Gold is deeply rooted in Chinese culture

“To anyone familiar with Chinese culture it is obvious that gold enjoys a very high status there. There are different theories explaining this phenomenon,  sometimes linking it to Taoism or Buddhism. Buddhist temples across Asia share the same passion for gold, just to name the Grand Palace located in Thailand or The Potala Palace located in Lhasa. The same can be witnessed in The Palace Museum located in Beijing, China. The complex used to serve as the home of emperors and their households for almost 500 years. Today it is a museum where its exhibitions showcase Chinese history and arts. One can see how golden elements were important throughout the past. It is worth to note that when the complex was being built (the process started in 1406) the floors of major halls were paved with ‘golden bricks’ baked with clay.” – Sylvester Majewski, Finance Magnates

USAGOLD note:   This quote offers an inkling of China’s deep, centuries-old attachment to gold  – a cultural standard likely to drive demand as long as there is savings and capital in that country that can be directed to ownership of the metal.

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Gold’s opponents can only win the occasional battle.
They can never win the war.

If the pressure exerted by the traders of gold paper were powerful enough to overcome the reality of a shortfall between production and supply in the physical gold market, the price never would have traversed the enormous gap between $250 per ounce in 2000 and $1850 per ounce in 2011, and roughly $1225 per ounce at present. So no matter how much we lament the impositions of paper traders, i.e., their corruptions of the market and restraints to the upside, gold’s opponents can only win the occasional battle; they will never win the war. With that in mind, the paper traders must equally curse the ever-present power wielded by physical buyers of the metal. Over the years, the true believers in the precious metals who understand these realities have only viewed episodes of price suppression as buying opportunities.

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