Short and Sweet
Novice precious metals owners must decide where they stand on this important issue

visualization of gold as a stratgic move in portfolio planning

“Precious metals are and always have been the ultimate insurance,” says Pro Aurum’s Robert Hartman in an interview with Claudio Grass. “They provide protection both against state failures and against mistakes in the monetary policy of the central banks. Every investor who looks into the history books sees that both have happened over and over again in the past centuries. From that perspective, investing in physical gold and silver is a common-sense precaution and a necessary part of any wealth preservation plan. Investors and ordinary savers ignore this at their peril and the failure to include precious metals in one’s portfolio is pure negligence.”

There are essentially two broad schools of thought alive and well in the gold market. The first holds that crisis is around the corner and, as a result, precious metals should be owned to profit from the event. The second holds that crisis is a permanent fixture in the market dynamic and that the portfolio should always include precious metals as the ultimate safe haven. The first buyer sees precious metals as investment products, i.e., buy now and sell later when the time is right. The second sees gold and silver, like Hartmann, as insurance products to be held for the long run. Some combine the two, allocating one part of their precious metals portfolio for trading purposes and another as a permanent, or semi-permanent, store of value. The novice precious metals owner must decide where he or she stands in this regard because it determines, in turn, which products to include in the portfolio and to what degree.

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Short and Sweet

headline for nine lessons from prosperous investors

We first introduced our readers to these nine lessons all the way back in 1999. They were passed along to us by the legendary commodity market analyst R.E. McMaster, formerly editor of The Reaper newsletter. The original source for the nine lessons was a highly regarded money manager who handled accounts for wealthy Greek and Mexican merchant families.

1. It is easier to make a fortune than keep it.

2. Intelligence is an inadequate substitute for wisdom. Wisdom fears, respects the unknown and fosters humility. Intelligence can lead to self-destructive arrogance and ultimate failure.

3. Risk must have premium, and we must understand it well.

4. There is no order. There is no formula. There is no equation that works all of the time. It works just long enough to fool just a few more of us just a little longer.

5. What we fail to remember is that a paper gain is just that. Paper. Worth nothing. Not until we say sell, and not until we get cash. Anything less is just that.

6. When the Bass Brothers in Texas write a check for real money, their money, to buy 25% of the Freeport McMoran Gold Series II, we take notice. When the Fidelity Magellan Fund buys a fifty-million in Dell computer, we yawn. So, should you. It is other people’s money.

7. Slick advertising budgets, powerful computers and few slabs of marble do not, by themselves, make a great financial institution.

8.  Never invest in anything you do not feel comfortable with or understand well.

9.  When a thousand people say a foolish thing, it is still a foolish thing.

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Short & Sweet
Beware the Black Swan
‘There’s no clean way out.’

photograph of two black swans on pond with many white swans

“The clan over the years’ matured and turned unruly,” writes Credit Bubble Bulletin’s Doug Noland. “Myriad severe development issues are increasingly on full display. The halcyon sandbox days are over for good, replaced by a confluence of insecurity, greed, and now constant infighting. To be sure, rich Uncle’s years of lavish generosity fostered a bunch of spoiled malcontents. The lax benefactor has come to realize he can no longer finance all the dysfunction and is desperate to craft a plan for exiting the relationship without unleashing mayhem. Some have structured their lives to stand on their own, while others’ very survival is at stake. All have developed bad habits, with some succumbing to deadly addictions. One camp says, ‘it’s time to get on with our lives without being further warped by all this charity money.’ Another is threatening to do harm to themselves. There’s no clean way out. Uncle fears calamity and harbors serious regret.”

Heightening the sense of impending danger, we would add our own observation that financial markets are full of eddies, crosscurrents, and strong undertows driven by excessive leverage and machine-based trading wherever the Fed might care to look. Today, the potential madness of machines is just as big a worry as the madness of crowds – their programming subject to the same frailties as their human creators. In fact, with algorithmic trading accounting for 60%-73% of U.S. equity trading, an argument could be made that machines now comprise the crowd.

“Since these automated strategies typically use artificial intelligence programs to analyze and react to market momentum, rather than economic fundamentals per se,” writes Gillian Tett points in a recent Financial Times editorial, “this tends to exacerbate a herding effect, not just in commodity markets but in any asset class. And since the institutions selling these derivatives bets need to hedge their own risks with other instruments, extreme robo-herding creates distortions across market niches that can suddenly unravel, causing wild volatility.” To make a very long story short, credit markets have a history of reacting unpredictably, and sometimes violently, to rising rates: Beware the Black Swan …… 

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Short & Sweet
Waiting for the Fed

photgraph of a rostrum awaiting the arrival of a spokesman for the Federal Reserve

“The biggest buyers in bond markets are poised to become sellers,” writes Tommy Stubbington and Kate Duguid in a recent Financial Times article, “as central banks that have bought trillions of dollars of debt since the 2008 financial crisis start trimming their vast portfolios.” If the Fed follows through with its quantitative tightening program, it will overturn a monetary policy regime in place for thirteen years. One London trader quoted in that FT article says the bond market is now trading in “cloud cuckoo land” – that investors have not in any way priced the impact of quantitative tightening. So what will be the outcome when QT-Day actually arrives? When push comes to shove, will the Fed become truly hawkish (as roughly half the financial world now believes), or will it, in reality, remain dovish (as the other half of the financial now believes)?

Either way, Bleakley Advisory Group’s Peter Boockvar sees a bullish outcome for gold and silver. “Today’s CPI was hotter than expected and February’s print could be as well but again, it’s to what extent does it slow from here that should matter for markets,” he says in a Bloomberg update posted recently at YahooFinance. “I’ll use this as another opportunity to express my bullishness on gold and silver. From here, either the Fed will tighten too much and growth slows that results in the Fed backtracking, and that will be bullish for gold or the Fed will still be too slow in tightening, real rates will remain firmly negative and that will be positive for gold.”

As shown in the chart below, there is some historical precedent for Boockvar’s bullish “backtracking” scenario. The Fed attempted to pare its bond holdings in late 2017. By 2019, though, it was forced to abandon the program when severe liquidity problems threatened a credit market meltdown – a situation not dissimilar to the challenges the Fed faces today. Gold held its own in the early stages of the program but sold off about 15% as it gained momentum. Then, after the Fed indicated it might change direction in on QT early 2019, it soared 25% and climbed to all-time highs ($2050 per ounce) after the Fed finally halted the liquidations altogether and resumed quantitative easing.

Gold and the Fed Balance Sheet
(2016-2021)
overlay line chart showing gold and Fed balance with notations for quantitative tightening and quantitative easing
Chart courtesy of TradingView.com • • • Click to enlarge

Perhaps the more likely scenario, though, is Boockvar’s second alternative – a Fed that purposefully remains behind the inflation curve by raising rates and liquidating its bond holdings cautiously – very cautiously. In short, what if, in the end, the Fed talks like a hawk but walks like a dove by keeping real rates deeply in the negative? The point about Waiting for Godot, Samuel Beckett’s oft-referenced play, is that Godot never shows up. What if the world is waiting for a Fed that never shows up? You do not need to be a Paul Volcker to appreciate the implications. 

(As published in the March 2022 edition of News & Views – Forecasts, Commentary & Analysis on the Economy and Precious Metals)

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Short and Sweet
‘No one questions its value. . .’

image of a Croesus Lydia stater“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve


Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC


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Short & Sweet
Gold’s secular bull market: 2003-2022
‘Each price correction and consolidation period has been a buying opportunity’

Veteran commodity analyst  Andrew Hecht recently revisited an instructive chapter of gold history to point up the metal’s long-term value as a portfolio inclusion for both governments and private investors. “The last government to doubt gold’s value got burned,” he says in a report posted at Seeking Alpha. “At the turn of this century, the United Kingdom decided to part with one-half of its gold reserves. Ironically, London is the hub of the international gold market, so the UK sent a signal that gold had seen better days. In a series of auctions, the UK sold around 300 metric tons at prices mainly below the $300 per ounce level. Since 2003, gold never traded below $300 per ounce. Since 2010, the price has not ventured below $1,000, and since 2020, the price has remained above $1450 per ounce. … In 1999, gold reached a bottom at $252.50 per ounce. Since then, each price correction and consolidation period has been a buying opportunity in gold. The over two-decade-long bullish trend continues to take gold to higher highs.”

Gold price
(Weekly prices, 2000-2022)
line chart showing the gold price 2000 through July 23 2022
Chart courtesy of TradingView.com

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Sunday In Depth
Socialist mousetopia regresses to dystopia and finally, extinction

artist rendering of a well-cared for mouse

In a piece written for IFL Science, James Felton offers a riveting account of what exactly happened in the mousetopia of Universe 25. John B Calhoun, a medical doctor at the National Institute of Health, says Felton, “set about creating a series of experiments [in 1973] that would essentially cater to every need of rodents, and then track the effect on the population over time.” It yielded some very unexpected results. Calhoun’s socialist utopia (or, in this case, mousetopia) evolved to a chaotic dystopia and finally an apocalypse, as the norms of mice behavior in the wild completely broke down in what can only be called social chaos. “Soon,” writes Felton, “the entire colony was extinct.” In the opening paragraph to the study, Dr. Calhoun says, “I shall largely speak of mice, but my thoughts are on man, on healing, on life and its evolution. Threatening life and evolution are the two deaths, death of the spirit and death of the body.”

It is difficult to read Felton’s account of what happened in Universe 25 without thinking about the still-developing response to the crisis-related government support programs on all levels of our society, i.e., the distressing social, psychological, economic, and political upheaval it has induced. Calhoun, according to Felton, “believed that the mouse experiment may also apply to humans, and warned of a day where – god forbid – all our needs are met.” Moreover, Calhoun wrote, “For an animal so complex as man, there is no logical reason why a comparable sequence of events should not also lead to species extinction. If opportunities for role fulfillment fall far short of the demand by those capable of filling roles, and having expectancies to do so, only violence and disruption of social organization can follow.”

By all of this, we do not mean to suggest that contemporary society is headed for a dystopia – though some troubling signs are already present. On the other hand, it would be foolhardy to believe that there will not be modifications to the way our society operates, unintended consequences, and renegotiation (perhaps even radical alteration) of the standing social contract. The general effects on the economy – and ultimately financial markets – are likely to be ongoing with the ultimate results still to be determined. The wise will prepare for the unexpected.

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Short and Sweet
Inflation is a process not an event
But history, as we are learning now, shows runaway inflation can come suddenly and without warning

graphic image showing decline of the denarius over 200 y ears

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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Short and Sweet
The more things change, the more they stay the same

In reading some of the analysis of late predicting that gold was headed back to the $1500 mark, 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 secular bull market during the 1970s, 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. So make your own assessment of 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 hold 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.

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

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Short and Sweet
Blinded by the Money Illusion

graphic image of a pile of green money

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.” – Janet Yellen, Former Federal Reserve chairwoman

With those words, Janet Yellen, now the Secretary of the Treasury and facing an even worse crisis than the one referenced above, put investors around the world on notice, though probably not in the way she intended. In the past, such smug assurances from public officials have been enough to send contrarian villagers heading for the safety of the nearby woods. The informed student of financial history knows that panics, manias, crashes, and collapses are as common to investment markets as hurricanes to Caribbean beaches. To think that suddenly we have banished their recurrence for ‘our lifetimes’ smacks of the kind of misguided hubris that contributed directly to the 2008 meltdown and subsequent untold financial hardship. Just about the time most everyone comes to the conclusion nothing could go wrong, everything goes wrong …… and in a hurry, as we have discovered over the course of the past two years.

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Short and Sweet
Of 17th-century tulips, 21st-century stocks and ageless gold

antique painting of a fool trading his gold for tulip bulbs

During the Dutch Tulipmania, the price of one special, rare type of tulip bulb called Semper Augustus sold for 1000 guilders in 1623, 1200 guilders in 1624, 2000 guilders in 1625, and 5500 guilders in 1637. Shortly thereafter, the bottom fell out of the market and prices plummeted to 1/200 of their peak price – a mere 27 guilders. In the artwork above an individual, portrayed in fool’s garment, is shown trading a hefty pouch of gold for a handful of tulip bulbs. It is no mystery who got the better part of that bargain. History teaches us that no era is immune to financial mania including our own. As a matter of fact, a good many believe that we are fully immersed in a stock market mania (wherein many include bitcoin) right now.

Since the earliest days of the USAGOLD website (the mid-1990s), we have enshrined a quote from Thomas Bailey Aldrich at our home page: “The possession of gold has ruined fewer men than the lack of it.” Aldrich’s axiom has held true down through the ages. It applied in ancient Greece and Rome, in 11th century China, in the time of the Medicis, the Dutch Tulipmania, the South Seas Bubble and French fiat money mania, during the long string of panics in the late nineteenth and early 20th centuries (Aldrich’s time), the spate of post World War I and II hyperinflations (Austria, Germany, Greece, Hungary, et al)  and it still applies today.

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Short and Sweet
Two legendary central bankers embrace gold

Image of one-time central bank heads Mervyn King and Alan Greenspan

In The End of Alchemy (2017), Mervyn King, the former governor of the Bank of England, writes of central banks’ frustration in dealing with the persistently stagnant global economy. “Central banks,” he says, “have thrown everything at their economies, and yet the results have been disappointing, Whatever can be said about the world recovery since the crisis, it has been neither strong, nor sustainable, nor balanced. . . [W]ithout reform of the financial system, another crisis is certain – sooner rather than later.”

“Our problem,” Alan Greenspan once said, “is not recession which is a short-term economic problem. I think you have a very profound long-term problem of economic growth at the time when the Western world, there is a very large migration from being a worker into being a recipient of social benefits as it is called. And this is legally mandated in all of our countries.” The western world, he concludes, is headed to “a state of disaster.”

It is interesting to note that both Greenspan and King, two of the most respected central bankers in modern times, have embraced gold since leaving their respective posts. The former Fed chairman has consistently suggested that gold is “a good place to put money these days given the policies of governments.”

The former governor of the Bank of England says that he is “very struck by the fact that over many, many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio…[W]hen unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.”

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Short and Sweet
Howe says this Fourth Turning will go to 2030

graphic image of walk in a deep, fearful wood

“To be clear, the road ahead for America will be rough,” writes Neil Howe, author of the modern classic, The Fourth Turning (1997), in a recent analysis posted at Hedgeye. “But I take comfort in the idea that history cycles back and that the past offers us a guide to what we can expect in the future. Like Nature’s four seasons, the cycles of history follow a natural rhythm or pattern. Make no mistake. Winter is coming. How mild or harsh it will be is anyone’s guess, but the basic progression is as natural as counting down the days, weeks, and months until Spring.”

For those who, like me, buy into Howe’s notion of a Fourth Turning, the problem is to get to the other side of the woods with our assets reasonably intact. “Currently, this period began in 2008,” he points out, “with the Global Financial Crisis and the deepening of the War on Terror, and will extend to around 2030. If the past is any prelude to what is to come, as we contend, consider the prior Fourth Turning which was kicked off by the stock market crash of 1929 and climaxed with World War II.” Eventually, he says, we will find our way to a first turning – a time of renewal – but we will be sorely tested before we get there. The precious metals have offered solid protection through the first half of the Fourth Turning. Gold is up 145% since the collapse of Lehman Brothers in September 2008 – the event most analysts associate with the start of the crisis. Silver is up 165%. In both instances, the greatest price acceleration occurred in the early years of the crisis.

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Short and Sweet
Gold Relativity
Do not take your eye off the prize

blindfolded seeker can't see lighted room

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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Short and Sweet
How much gold is enough?

graphic design of gold coins as part of pie to show idea of diversification

Investors often ask about the percentage commitment one should make to precious metals in a well-balanced investment portfolio. Analyst Michael Fitzsimmons offered an interesting take on that subject in a recent Seeking Alpha editorial, “Assuming a well-diversified portfolio (which does include cash for emergencies),” he says, “my belief is that middle-class investors (net worth under $1 million), should own at least 5-10% in gold. I also believe that as an American investor’s net worth climbs, the higher that percentage should be because, in my opinion, he or she simply has more to lose by a falling US$. For instance, an investor with a net worth of $2-5 million might have a 15-20% exposure to gold; $10 million, perhaps a 30-40% exposure.” USAGOLD recommends, as it has for many years, a diversification of between 10% and 30% depending on your view of the risks at large in the economy and financial markets.

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Short & Sweet
Hello, Mr. Gold Bullion, have you noticed what they’re doing?’
Grant weighs in on the fiftieth anniversary of the fiat money system

image showing the blur of high speed money printing press running at full tilt

The retrospectives on the Nixon shock continue to poured in at the end of August 2021 – the month fifty years earlier when the Nixon administration severed the link between the dollar and gold and ushered in the fiat money era in which we are still immersed. The repertoire, though, would not be complete without a few words from James Grant – one of the great critics and chief chroniclers of the era through his highly recommended newsletter, Interest Rate Observer. The following are excerpts from an interview of Grant published by Sprott, the Canadian gold firm, in mid-August. Grant ends the exchange hosted by the firm’s Ed Coyne with an admission: “I think I spilled my entire bits of wisdom here on the counter!” We want to thank Sprott for permission to quote the interview at length. The full exchange is available at the previously highlighted link.

James Grant –

“It’s immensely frustrating, right? Because where you see heterodoxy posing as the gospel truth, we see heresy wrapped up as sound policy. And you keep on saying, ‘Hello, Mr. Gold Bullion, have you noticed what they’re saying and doing? Have you noticed that the Fed’s balance sheet doubled during the pandemic? Have you noticed that the Fed is talking about nurturing a rate of inflation higher than its target in the midst of evidence accelerating inflation? Have you noticed any of this?’ We address this new thing called gold bullion and gold bullion keeps on slumbering …

“Gold has a way of disappointing its most devoted adherents. In 2008-09 it broke people’s hearts and went down. ‘This is a crisis!’ Gold is an ancient medium that appears in the periodic table. I didn’t invent it. Some people think I invented it! It appears in the periodic table, it’s an old thing and it takes its sweet time, right. It has a kind of a geological time set, that’s its clock: geological. Over the sweep of a reasonable investment horizon, it protects against the depredations of the stewards of our currencies. That’s what its purpose is. And that’s what it mainly does. Over the course of fiscal quarters and even some years, it will disappoint, but over the course of a reasonable investment, long-term horizon, it will spare you the punishment that our central bankers so willfully are meting out.

[Y]ou really have to take these things in with a great grain of salt and just say, all right, what I have here in gold, and very cheap gold equities, by the way, what I have here is an investment in monetary disorder, not a protection against it. We have it (monetary disorder) already. Monetary disorder is in fact the monetary system. It is an inherently disorderly system. In gold, you have an investment in that you do well, the more disorderly it becomes and especially well when the world recognizes the essential chaos of our monetary institutions.”


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Short & Sweeet
‘The world is being tested to the extreme.’
Protecting and building wealth in a new financial era

“Remember what we’re looking at. gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” – Alan Greenspan, November 2014

graphic image of gold coins stacks and green arrow ascending

Interest Rate Observer’s James Grant referred to the current period as a “wild time in money.” Credit Suisse’s Zoltan Pozcar warned that “this crisis is not like anything we have seen since President Nixon took the US dollar off gold in 1971.” Mohamed El-Erian likened the Fed’s current monetary policy to that of a developing country central bank. “The Russian invasion of Ukraine and the corresponding Western sanctions and seizure of Russian FX reserves,” said long-time market analyst Lawrence Lepard, “are nothing short of a monetary earthquake.” Larry Fink, who manages BlackRock, the world’s largest investment fund, said the invasion marked “a turning point in the world order” and the end of globalization. Finally, George Soros went to the dark side calling Russia’s invasion of Ukraine “the beginning of World War III with the potential to destroy our civilization.”

If we have indeed embarked upon a new and turbulent financial era, as the above suggests, investors will be tasked with protecting and building their wealth under extraordinary and unpredictable circumstances. “History,” says James Grant, “would counsel us to be humble, prepared to listen and interpret correctly.” Swiss-based investment analyst Claudio Grass took a similarly philosophical approach (and one that we have counseled over many years). “It really does go a lot deeper than a comparison between gold and stocks, or considering the better ‘play’ for one’s portfolio performance,” he said. “The real counter-question now is ‘What is your peace of mind worth?’” Long-time money manager Stephen Leeb believes “the world is being tested to the extreme…Right now, as individuals, the best thing you can do for yourself is to buy protection, and that means investing in gold. Even under the best scenarios, a lot of turmoil lies ahead before we reach the other side, and gold will be the best way to get through it in good shape.”

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Short and Sweet
Yap stone money inflation

photo of yap stone money in various sizes
Monetarily speaking, everything progressed smoothly on the island of Yap, where large stones weighing hundreds of pounds were transported around to serve as money. That is until something unforeseen happened to the value of the money. For centuries, the stones served in exchange because there wasn’t much of this type of rock on Yap itself.

The depreciation of the stone money began when an enterprising Western businessman realized he could produce stone money cheaply and in copious quantities on a neighboring island and transport it to Yap, where it could be used to procure goods in demand elsewhere. In other words, this oceanic cousin of John Law printed Yap stone money to buy his wares at what might be called a “favorable” discount. By this process, the yap stone money was debased until it became worthless. Little did the citizens of Yap know that they were deprived of their wealth and their money destroyed, by the process of monetary inflation.

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

Image of Confucius, old, black and white“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

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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Short and Sweet
Only real intrinsic money survives the test of time

photo of stacks of gold and silver coins

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 showing gold outperforming all major currencies since 1900
Chart courtesy of the World Gold Council
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