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Gold in six easy lessons
1. Don’t buy it because you need to make money; buy it to protect the money you already have.
2. Don’t look at price as a barrier; look at it as an incentive.
3. Don’t buy the paper pretenders; buy the real thing in the form of coins and bullion.
4. Don’t fall prey to glitzy TV ads; do your due diligence instead.
5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.
6. Don’t forget the golden rule: Those who own the gold make the rules!
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The next great monetary experiment
Daily Reckoning’s Brian Maher warns of the potential consequences of modern monetary theory. “This MMT sounds like a recipe for immense inflation, even hyperinflation,” he says. “You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.” [Link to full article]
Modern Monetary Theory (MMT), we would add to Maher’s observation, is neither modern nor a theory. John Law, the Scottish financier, tried a version of it almost exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. MMT entails, simply put, a federal government fiscal policy without spending limits coupled with the power to print whatever money is required to finance any deficits. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.
In The Story of the Greatest Nations (1900), Edward S Ellis and Charles F. Home tell of the public mania that engulfed the French people and led to ultimate financial ruin for thousands:
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.”
That snippet provides a hint as to the steps taken by those who survived Law’s version of modern monetary theory. For those to whom all of this has a distinct ring of familiarity, perhaps a judicious hedge makes some sense. A number of analysts have made the argument that we do not have to wait for the formal launch of modern monetary theory. It is already here.
* Please see this link for a summary of Law’s Mississippi Company land scheme.
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USAGOLD
Quality service & portfolio guidance since 1973
USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the gold industry’s oldest and most respected names. The firm’s unblemished, zero-complaints record and solid reviews with the Better Business Bureau testify to the exceptional customer service and professional excellence which sets it apart from the competition.
USAGOLD specializes in gold and silver coins and bullion delivered to our client’s safekeeping. For over 49 years, we have resolutely advocated owning precious metals for asset preservation purposes rather than speculation. Admittedly, this philosophy does not resonate with all prospective gold and silver owners, but if it does with you, we think you will find our firm a kindred spirit.
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Short & Sweet
Tytler’s Cycle
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” – Alexander Fraser Tytler, Scottish historian, (1747-1813)
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To end right, start right.
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Image attribution: J4lambert, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>,
via Wikimedia Commons
Short & Sweet
Computer software gone mad
With respect to the growing dominance of machines on Wall Street, I recall the old Star Trek episode that involves a visit to a planet where the inhabitants seem to be living in a state of perfect bliss. Captain Kirk knows that this cannot be right. There is no such thing as perfect happiness. As it turns out, the population is controlled not by a loathsome dictator who has drugged the population into compliance, but by a computer that has evolved sufficiently to somehow gain control of their minds. Something must be done, concludes Kirk, to break its hold. Spock comes up with the solution by instructing the computer ‘to resolve the value of pi’ – an impossibility because its resolution, as we all remember from high school math class, is infinite. The computer spends all of its time and devotes all of its resources trying to achieve the impossible and the dictatorial hold it has on the population is released – a trick we might want to keep in mind for the day computers complete their mastery of Wall Street.
Similarly, in early 2017 Financial Times told the story of the textbook, The Making of a Fly: The Genetics of Animal Design. It started out selling for $113 per copy at Amazon – that is until the governing algorithm misfired between two third-party sellers. The price then skyrocketed to $23 million before someone took note and fixed the problem. We forget that computer software, and this applies to Wall Street’s trading apparatus as readily as it does the Amazon pricing platform, is only as reliable and intelligent as the code by which it is instructed to operate. The practical equivalent to Mr. Spock’s solution in the financial realm is to store sufficient capital in the form of gold and silver coins detached from potentially rebellious electronic circuitry.
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Short and Sweet
Gold Relativity
Do not take your eye off the prize
Gold’s value is relative. It doesn’t really matter how many digits it takes to express the price. Its true value lies in what those digits represent in terms of purchasing power. During the post-World War I hyperinflation in Germany, for example, a 20-mark gold coin in 1918 purchased the equivalent of twenty marks worth of goods and services in the marketplace. By 1924 that same 20-mark gold coin (weighing roughly one-quarter troy ounces) provided the purchasing power of nearly 25 billion paper marks.
By pointing out this example of gold’s constancy, we do not intend to imply that the United States is headed the way of the Weimar Republic. What we do mean to say, though, is that those who track the nominal value of gold by itself without taking into account the current and future value of the currency in which it is measured take their eye off the prize.
What are the intentions of the central bank and federal government, we should ask ourselves, and what will be the likely effect on the purchasing power of the currency?
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The Investment of Kings and the King of Investments
From the small investor just starting out to the high-net-worth individual hedging a multi-million dollar portfolio, we have helped many thousands add precious metals to their holdings in our nearly 50 years in the gold business – safely, economically and with the investor’s goals in mind.
No matter the size of your investment kingdom, we can help!
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Short & Sweet
Super-rich doomsday preppers ahead of the times
And the not-so-super-rich are following in their footsteps
“Survivalism,” Evan Osnos once wrote in an article for The New Yorker, “the practice of preparing for a crackup of civilization, tends to evoke a certain picture: the woodsman in the tinfoil hat, the hysteric with the hoard of beans, the religious doomsayer. But in recent years, survivalism has expanded to more affluent quarters, taking root in Silicon Valley and New York City, among technology executives, hedge-fund managers, and others in their economic cohort.”
We have always taken exception to the mainstream media’s portrayal of the ordinary gold owner as “the woodsman in the tinfoil hat”. . . etc. Many among the media are utterly amazed to learn that people like Steve Huffman (Reddit, CEO), Peter Thiel (PayPal founder), and the long roster of other luminaries mentioned in this New Yorker article are identified as “preppers” in one capacity or another. They would probably be even more amazed to learn that many of this same group are likely to be gold and silver owners. We say “likely” because precious metals owners by and large are a group reluctant to advertise their ownership.
As it is, they take a place alongside a wide range of Americans who own precious metals – physicians and dentists, nurses and teachers, plumbers, carpenters, and building contractors, business owners, attorneys, engineers, and university professors (to name a few.) We know because that is the description of our clientele here at USAGOLD. Gold ownership, in short, is pretty much a Main Street endeavor. In a 2020 Bankrate survey, one in seven investors (14%) chose gold or other precious metals as the best place to park money they wouldn’t need for more than ten years – making it the fourth most popular category. Similarly, a 2020 Gallup poll found that 17% of American investors rated gold the best investment “regardless of gender, age, income or party ID. . .” One might assume that if Bankrate or Gallup took a similar poll today, even more investors would give the precious metals a thumbs up given what has occurred over the past year.
Those well-to-do preppers, as it turns out, were uncannily ahead of the times. Over the years, large numbers of the not-so-super-rich followed in their footsteps – setting up “bugout” retreats in the countryside and small-town America (though for reasons unforeseen in the article) while a good many fled the big cities permanently for safer environs. That mindset – the general flight to safety – has echoed loudly in the precious metals markets. The World Gold Council reports global retail gold investment demand running at record levels in 2022. As for silver, the Silver Institute, a research organization not given to hyperbole, recently reported an eye-catching 36% increase in physical silver investment for 2021.
Bankrate Survey of Investors
Chart courtesy of BankRate.com • • • Click to enlarge
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NEWS & VIEWS
Forecast, Commentary & Analysis on the Economy and Precious Metals
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Inflation is a process not an event
But history, as we are learning now, shows runaway inflation can come suddenly and without warning
Image courtesy of Visual Capitalist • • • Click to enlarge
We sometimes forget that inflation is a process rather than an event. One of the better-known examples of that axiom is the nearly two centuries-long debasement of Rome’s silver denarius. The Roman citizen who had the wisdom to hedge that process by going to gold at nearly any point along the way ended up preserving some portion, if not all, of his or her wealth. Those who did not suffered its debilitating effects. In the inflationary process, the line between cause and effect is not always a straight one, and its timing difficult to discern. History teaches us, though, that when runaway inflation does arrive, it comes suddenly, without notice, and with a vengeance. That is why it pays to view gold as a permanent and constantly maintained aspect of the investment portfolio. “A change of fortune,” Ben Franklin tells us, “hurts a wise Man no more than a change of the Moon.”
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(Related please see: News & Views Special Report / March 2020 / Hedging the decline and fall of a currency – The baseline case for gold hasn’t changed much in 1700 years)
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Favorite web pages
What you need to know before you invest in gold
Initial guidelines for first-time investors from one of America’s top gold experts
New to the idea of including gold in your investment portfolio?
If so, this is the page for you.
If you are new to the idea of gold ownership, you might be looking for a little guidance. We, at USAGOLD, have been in the gold business for a good many years, and the one thing that stands out to us in working with so many over the years is how often investors, for one reason or another, get off to a bad start.
That is why we developed a question and answer page many years ago that delves into the subject of GETTING OFF TO THE RIGHT START. We update it regularly as things can change rapidly in the gold and silver markets. The page is linked above, and we recommend that newcomers spend the few minutes it takes to get through it.…
This page receives considerably high-ranking from Google on a number of important searches, and we like to think it’s because of the cause it serves – providing some positive direction to investors trying to get off to a solid start in their pursuit of gold ownership.
Short & Sweet
‘He clung to that which he could really trust, really own, really control’
In an analysis posted at Daily Reckoning, Jeffery Tucker offered an opinion on inflation shared by a good many economists and investors. “Gradually,” he writes, “we’ve come to see the light. There will be no rolling back those price increases in general. There will be declines in the pace of increase here or there but overall prices have shifted upward, permanently.” With that in mind, he shares some family history: “There is nothing we can take for granted in this inflationary crazy economic environment, no rules of thumb that can really guide us. My father was a thrifty man, a truly great man, but also a believer in long-term value and truth. Yes, he loved gold and silver coins too, and very much so. He accumulated them throughout his life. As I look at that today, it is extremely obvious that this was one of his best financial decisions. He was never a day trader or a rah-rah techno champion. He clung to that which he could really trust, really own, really control. That seems like a good way to think even now.”
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Only real intrinsic money survives the test of time
Here is a timeless observation from the now-deceased Richard Russell (Dow Theory Letter):
“Paper money is now being created wholesale throughout the world. Stated simply, all paper currency is now valued against each other. But more important, ultimately ALL paper is ultimately valued against the only true, intrinsic money – gold. In world history, no irredeemable paper currency has ever survived. Since all the world’s currency is now irredeemable (in gold), this means that in the end, the only form of money that will survive is real intrinsic money – gold. It’s not a question of whether gold will survive, it’s a question of when the world’s current paper money will deteriorate and finally die. I can tell you that irredeemable paper will not survive – but obviously I can’t tell you when it will die. The timing is the only uncertainty.”
The chart below from the World Gold Council speaks to Russell’s point. It shows the performance of various currencies – past and present – against gold over the long term. When the end comes, as the chart illustrates, it can come abruptly and without warning. For those who stick to the proposition that gold is not really an inflation hedge, or that it is not really a safe-haven against currency debasement, the chart offers instruction. For those who already own gold as a safe-haven, it provides justification. For those who do not own gold, it serves as an incentive. As the old saying goes: All is well until it isn’t.
Chart courtesy of the World Gold Council
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Of wheelbarrows and runaway inflation
As Crescat Capital’s Kevin Smith and Tavi Costa point out in a client alert, the U.S. government issued $4.4 trillion of debt in fiscal year 2020, and $2.4 trillion, or 54%, was purchased by the Federal Reserve. They believe that $300 billion per month in quantitative easing will be needed to cover the upcoming tab as opposed to the current $120 billion per month. “Global central bank money printing is one of the primary drivers of the gold price,” they say. “Our current valuation target for gold based on the level of central bank assets and the inelastic supply of above-ground gold is $3,200/oz. Note, this is a rising target.”
“Really smart investors,” says Morning Porridge’s Bill Blain, the London-based commentator, “are increasingly hedging their wealth created from financial assets (stocks and shares) by putting much of their allocations into Alternatives: outright real assets or cash flow driven assets, assets that are likely to retain value while still paying attractive returns. (The cost is lower liquidity). The idea is that if crisis ever comes, then owning the wheelbarrow might be better than owning the mountains of worthless cash it’s carrying (to cite the classic example of inflationary danger from Weimar Germany…)” If runaway inflation truly does materialize, a wheelbarrow full of gold and silver might be an even better option ……
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The true nature of inflation
Cartoon courtesy of Michael P. Ramirez.com
“The nature of inflation is widely misunderstood and misinterpreted,” writes analyst Dave Kranzler in an Investing.com overview, “‘Inflation’ and ‘currency devaluation’ are tautological—they are two phrases that mean the same thing. … Dollar devaluation has been occurring since the early 1970’s. The value of the dollar relative to gold (real money) has declined 98%. In 1971, $40,000 would buy a 4,000 square foot home in a good suburb. Now it takes $700,000 on average to buy that same home. Price inflation is the evidence of currency devaluation. The CPI is not a real measure of price inflation. The CPI is methodically massaged – starting with the Arthur Burns Federal Reserve (it was his idea) to hide the real degree of currency devaluation from all of the money that has been printed since 1971.”
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Past gold bull markets have begun with a surge in the money supply
If the Fed looks for inflation, it will find it in the money supply – something that did not occur with authority in the aftermath of the 2008 credit crisis. From June 2019, the money supply has grown by $7.1 trillion. During the financial crisis that began in 2008, the Fed sterilized its money creation by routing liquidity back to its coffers in the form of commercial bank excess reserves. This strategy kept the inflation rate from running out of control. Now, the additional infusions associated with the pandemic combined with the earlier money creation is feeding into the benchmark inflation rate. Since 2020, prices have risen 26.4%. The Fed’s recently launched bank rescue plan could also eventually feed into the money supply and more inflation down the road.
“Every gold bull market over the last 50 years has begun with a catalyst that propelled significant growth in the money supply,” writes Manning & Napier, the money management firm, in a report posted at Seeking Alpha titled The Value of Gold in a Portfolio. “Each of those prior bull markets was proceeded by substantial US dollar money supply growth, making monetary expansion a key indicator. It is important to note that this alone does not guarantee a gold bull market, as there are many other variables at play. … We see the status of each of these economic factors, money supply growth, inflation, and real interest rates, as supportive of higher gold prices ahead. Policymakers have been remarkably forceful in responding to Covid-19, resulting in substantial recent money supply growth in the US, and they appear willing to continue to throw money at the crisis in the year ahead.”
Gold and the money supply
(1971 to present)
Chart courtesy of TradingView.com • • • Click to enlarge
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