We talk a lot about buying gold for safety. To protect your wealth, with governments out of control, running huge deficits and printing money like crazy, we recommend people move to safety with gold, the world’s most enduring form of money.
After all, the world has been through governments and episodes like this countless times. We know from experience that gold always come out on top.
But people buy gold for a lot of different reasons.
Many of our clients buy gold and silver for good old-fashioned profit!
They have had a great year! And we think next year will be even better!
Now we’ve had a pullback in both gold and silver prices, one we welcome. Since we are in a primary bull market that promises much higher prices ahead, we look at any correction or pullback as a gift, a buying opportunity.
But first, let’s look at how both gold and silver have done over the last 12 months.
Gold finished on Friday (11/8) at $1463. A year ago, it was $1200. Over the last 12 months gold has gained almost 22 percent.
Silver finished Friday at $16.82. A year ago, it was 14.25. That’s an 18 percent gain.
For comparison, the DJIA closed Friday at 27,681. That’s a 5.7 percent gain for the past 12 months. The S&P 500 has done a little better, up about 10 percent. But note that neither have shown the appreciation over the past year of gold and silver, and both stock market indices are at all-time highs.
We think it makes much more sense to invest in gold and silver, both in new bull markets and both well below their earlier highs, than to buy stocks at the top of a long and exhausted expansion.
The price of gold is well below its high of $1900 set eight years ago; it will have to climb an additional 30 percent just to reach its prior high.
Silver will have to almost triple before it reaches its prior high of $50.
Gold has retraced almost exactly one-third of the powerful summertime breakout that took it to $1566 in September. That would be a rather typical correction and creates an attractive entry level for buyers.
There are a lot of reasons that people buy gold, not the least of which is for profits. The fundamental of debt, deficits, international de-dollarizaition, and renewed and aggressive “money printing” remain the background upon which gold will chart far higher prices. But for those positioning for profit opportunities in 2020, now less than eight weeks away, we recommend taking advantage of this pullback in gold and silver prices.
Negative interest rates, the enthusiasm of central bankers near and far, are so self-evidently deranged, so utterly nuts, that we don’t feel obligated to say anything more about them that what we have already said here, here, and here.
But what else is crazy? How about cutting interest rates more than ten years into the longest economic expansion in history? With the stock market at record highs? And with unemployment at long-term lows?
We’ve always said that spend-your-way-to-prosperity economics – the ruling dogma of Keynesian economics, the official religion of our ruling classes – is batty. But even in by its own terms, loose money, lowering rates, and deficit spending are tools to be used in a downturn. In times like these the Keynesian catechism calls for paying down deficits and an end to “stimulative” monetary policies.
Everywhere you turn, the authorities are demonstrating their idiocy.
We’re not the only ones noticing it. Ray Dalio, billionaire founder and CEO of Bridgewater Associates, the world’s largest hedge fund, has written a new piece called “The World Has Gone Mad and the System Is Broken.”
We cite a few of Dalio’s points as evidence of the malady:
“Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up.”
“At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps.”
“At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long.”
“At the same time, pension and healthcare liability payments will increasingly be coming due while many of those who are obligated to pay them don’t have enough money to meet their obligations. Right now, many pension funds that have investments that are intended to meet their pension obligations use assumed returns that are agreed to with their regulators. They are typically much higher (around 7%) than the market returns that are built into the pricing and that are likely to be produced. As a result, many of those who have the obligations to deliver the money to pay these pensions are unlikely to have enough money to meet their obligations.”
So, says Dalio, “This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.”
So say we. That big paradigm shift means far higher gold prices, as the world makes the shocking discovery that the fantasies and manipulations of our monetary geniuses are a recipe for ruin. As the late Henry Hazlitt noted long ago, “The monetary managers are fond of telling us that they have substituted ‘responsible money management’ for the gold standard. But there is no historic record of responsible paper money management … The record taken, as a whole is one of hyperinflation, devaluation and monetary chaos.
The productive people, responsible people, savers, investors, the self-reliant and those not easily fooled by the central bankers and the Washington whack jobs, can protect themselves and their wealth from chaos with gold, the preferred money of the ages.
The trade association says central bank gold buying remains “healthy.” Although this year’s third quarter fell short of the blistering pace of the third quarter last year, in the first nine months of this year central banks have purchased 547.5 tons, an increase of 12 percent over the same period last year.
More on Deutsche Bank
We aren’t fixated on Deutsche Bank and its problems except to the extent that they could be the straw that breaks the over-leveraged and indebted financial system as did Lehman and Bear Stearns a little over 11 years ago. See more here and here.
But it doesn’t have to be Deutsche Bank. There are other candidates for a triggering event that can disclose deep and systemic global solvency issues far and wide. As Warren Buffett put it, “when the tide goes out you find out who has been swimming naked.”
The tide could be receding in China as well. China’s banks are awash in bad loans, yet the central planners keep policies in place that assure more and more building of apartments for which there is no demand, shopping districts without shoppers, and mega-transportation projects with too few users. Those aren’t brand new malinvestment problems in China, but with growth slowing there, serious problems may become visible. Meanwhile, Hong Kong has slipped into a recession which doesn’t help Beijing.
Still, Deutsche Bank is worth keeping a close eye on. If you are interested in knowing more, here’s a link to an article by Michael Snyder called “The Deutsche Bank Death Watch Has Taken A Very Interesting Turn.” Snyder has followed the bank closely and suggests that “the final collapse could happen sooner rather than later.”
Buy the Break!
Central bank gold buying and solvency issues in sovereign nations and global banks, not to mention highly “accommodative” monetary policies from the Fed, are the kind of fundamentals that drive gold higher. Because we share the view that we are in a primary gold bull market, we advocate aggressively buying any break in gold prices. Speak with an RME Gold professional today about the latest developments and opportunities.
We don’t like to be suspicious. We prefer to be able to take people at their word. But there seems to be more going on in the economy than meets the eye.
Let’s start a long time ago.
When the US was wracked with ruinous double-digit inflation, the new chairman of the Federal Reserve, Paul Volcker, decided to do something about it. He raised rates fast and furiously until inflation was mostly wrung out of the system.
Whether or not you were harmed by his policies, and even if you disagreed with Volcker, you knew he was taking extreme measure in response to extreme conditions.
Last week, the Federal Reserve lowered its policy interest rates for the third time this year. They lowered rates to Fed borrowers below the rate of inflation. That means the real interest rate for Fed borrowers is below zero.
We have to ask why.
The stock market is cruising along around all-time highs. The economy, we are told, is doing great. In fact, we are in the longest economic expansion in history, we are told. On Friday we learned what the Fed would already have had a peek at, that employment was strong, with “blowout” numbers.
But if everything was hunky-dory, why did the Fed feel it was necessary to cut rates three straight time in a row? Especially since this time last year they told us they would be raising rates.
If that’s all there were to it, we might set our skepticism aside.
But wait! As they say in the infomercials, there’s more!
In September the Fed began providing billions of dollars to the repo market, the overnight and short-term borrowing market among financial institutions, banks and hedge funds, which found itself in a “liquidity event.”
The Federal Reserve has tried to soft-pedal it, but in October it launched a massive new money printing program.
I mean a big one!
Early on, in the depths of the housing bust and Great Recession with millions of people losing their homes, the Fed launched a money printing operation called Quantitative Easing. It was “printing” $30 billion a month to bail out banks and fund US debt. Before long that ratcheted up to $40 billion a month. Soon it was $85 billion a month.
Now the Fed has quietly started its new round of QE at a rate of $60 billion a month. That’s twice the rate that QE started with a decade ago. And they say that they intend to keep it up through next June. We’ve written about it here, calling it a “backdoor bailout” of somebody, somewhere. At the same time, the money supply is growing at double-digit rates as we recounted here.
So, again, we ask “why?” Why the extreme Fed interventions? If we are in an economic expansion of unequaled duration, then why the serial interest rate cuts usually reserved for a crisis?
They don’t do this because they think everything is just fine.
Nor was QE money printing a policy option created for times when everything is alright, either.
There is more to all this than meets the eye. Extreme measures are being taken. Extreme measures imply extreme conditions. The Fed is acting like something big is brewing.
And that is usually time to move to the safety of gold.
Sometimes even otherwise bright people have a big gap in their common sense. Absent-minded professors are the stuff of legend, while “pointy-headed intellectuals” have been accused of not being able to park a bicycle straight.
Robert Shiller is a pretty bright guy. He’s a Yale economics professor (we don’t automatically discount him for that; we prefer to judge him on the merits of what he professes), a Nobel Laureate, and the author of the book Irrational Exuberance.
That book, published right at the top of the dot.com market bubble, made a cogent case the stock markets were over-valued. A 2005 edition of Irrational Exuberance made the case that the real estate bubble would soon burst.
We think Shiller is pretty capable, at least more so than the Keynesians and Modern Monetary Theorists found in most college economics departments and on the pages of the New York Times. So we’re not accusing anybody of anything or calling any names here… just helpfully pointing out where something obvious might have been overlooked.
Shiller is back on bubble patrol, sounding out new warnings. “I see bubbles everywhere,” he says. The stock market is a bubble, he says. The bond market is a bubble. Shiller even thinks the housing market is in a bubble again.
Using a long-term valuation measure (the CAPE ratio) for stock prices, Shiller says we’re in a market bubble that “you know is going to decline.’ The bond market is just as threatening, he says. “It seems to be related to people not paying enough attention thinking through the simple logic … this can’t keep going and it’s going to end badly.”
We share his views about both the stock and bond markets. We have written about the bubbles in both many times. And without a doubt, when the bond market crashes, it will mean interest rates have risen, which will have a negative impact on real estate.
So what is our problem with Shiller? It is simple this: Shiller doesn’t know where to go to escape the carnage of these inevitably bursting bubbles.
“There’s no place to go,” he says. “You just have to ride it out.”
This is the second time in recent weeks that we have encountered this meme (see Nowhere to Hide, Part I here). We aren’t sure yet, but are beginning to grow suspicious that this may be a new focus group-tested talking point or meme contrived by Wall Street: “Sure, the stock market is grossly overvalued, but you have to stay invested in it since there is nowhere to hide.” We’ll be interested to see if the phrase starts showing up often in the financial press
We’ve had two stock market crashes already in this very young century. This time, though, the stock and bond bubbles are bigger than ever. That means the bust will be bigger than ever.
In any case, Shiller is too despairing when he says that you have to invest in the stock market, “even though you expect the price to decline.”
That is simply bad advice. It took decades for the market to recover from the 1929 crash. It took the Nasdaq market 15 years to recover from the dot com crash.
Michael Shedlock of Mish’s Global Economic Forecast also takes a caustic view of Shiller’s advice, that you have to ride it out, that there is no place to hide.
Number one on Mish’s list of places to go is gold. He says, “I do not care about books or past predictions. I care about logic of the moment.”
“It is absurd to say there is no place to go,” says Mish. “Choose wisely where to hide.”
We agree. Let the professionals at RME Gold tell you about gold and the logic of the moment before the bubbles burst.
What Have We Learned from Investment Bank Failures like Lehman Brothers and Bear Stearns?
If you wanted to watch the world economy collapse into a nightmare depression of currency failures and bankruptcy, you would start by looking for the failure of a major financial institution.
And when that happens, you would be glad to own gold.
Few people today know of the 1931 failure of Credit Anstalt, the Viennese banking giant founded by the famous Rothschild family of international financiers. The conventional wisdom was that Credit Anstalt was impregnable. When the bank teetered and fell, shockwaves were felt across Europe and around the world. The ensuing panic made the Great Depression a worldwide calamity.
Not everyone was blind to the unsound practices that brought Credit Anstalt to its knees. Seeing that it was actually bankrupt, the great free market economist Ludwig von Mises refused several executive positions with the bank. It is said that when Mises would walk down the street by the bank’s huge building edifice, he would tap it with his umbrella, saying, “You’ll be coming down soon!’
The failures of Bear Stearns and Lehman Brothers, the fourth largest investment bank in the United States, ushered in the Panic of 2008 and the bursting of the mortgage bubble.
In each of these examples, central bankers and government authorities quietly scrambled to provide liquidity and bailouts to the so-called “too big to fail” banks.
Now the Federal Reserve has begun moving a monetary heaven and earth of liquidity into the banking system to deal with issues that are shrouded in mystery.
We don’t claim any special insight or inside knowledge about what may be underway, but we have a good alarm system that tells us all these Fed machinations mean something is up in the financial world. Back in July we asked if Germany’s Deutsche Bank could be ‘the key log in the log jam.”
“That’s the log that, once moved, sets the whole destructive torrent of all the other logs loose to destroy everything downstream in their path,” we wrote.
At that time Deutsche Bank announced it was cutting 18,000 jobs; its share price cratered. A week later we reported that its clients were pulling a billion dollars a day out from Deutsche Bank.
We’re not the only ones wondering if all this hyperactive Fed money printing is an attempt to “paper over” problems cascading down from Deutsche Bank. MarketWatch reported in the summer that the bank had created a book of $53 trillion in derivatives instruments, although the bank claimed its own exposure was only $22 billion; we take that with a grain of salt having heard understatements of their own exposure from the banks last time around . Last month Deutsche Bank invited bids to auction off some of its interest rate derivative contracts.
Deutsche Bank may not be the next Credit Anstalt, or Bear Stearns or Lehman. It’s just as likely, perhaps even more so, that the US government’s voracious borrowing appetite is running into supply troubles. Perhaps Deutsche Bank’s troubles are simply pulling the curtain back on something larger. We say larger because the Fed’s latest liquidity measures and Quantitative Easing are huge. It appears that a backdoor bailout is underway somewhere.
The Federal Reserve has quietly launched a massive new round of money printing.
We hope you will take time with this very important piece. It should be shared widely. It describes a new phase of Fed monetary management, a turning point that people will look back on as a crucial moment in the US economy, and one that will drive gold to new heights.
The Fed has quietly launched a new round of Quantitative Easing (QE), the most outrageous monetary experiment in American history. QE began in 2008 with the Fed’s frenzied purchase of US treasury bonds and toxic mortgage and other troubled bonds. (It was mostly another example of crony capitalism; the Fed bought worthless mortgage paper from the banks, taking it off their books, and putting it on the books of the American people.)
The spree lasted until 2014, by which time the Fed had acquired about $4 trillion in assets.
Where did the Fed get $4 trillion to buy all those bonds? It just made it all up. We call it money printing, but that is an old-fashioned term. It’s mostly just made-up digital money. Bookkeeping entries.
There were three rounds of QE, known as QEI, QEII, and QEIII. The madness more or less came to an end in 2014. But all that made-up money is still out there. It represents a sort of Sword of Damocles hanging over the US economy.
Recognizing the danger that all that made-up money would find its way from the Fed’s balance sheet into the hands of the commercial banks, setting off a nightmare rise in consumer prices, the Fed tried to mop up some of this crazed money with a program called Quantitative Tightening. That necessarily involved higher interest rates, but when the stock market had a tantrum, the Fed apologized and stopped at once.
So, most of that QE funny money is still out there, an unresolved problem that can drive consumer prices (and gold) to the moon when it leaks out into the banking system and the general economy.
That’s all history, and it is bad enough. But now the Fed has begun a new round of money printing. They don’t like to call it Quantitative Easing, but it is.
Fed Boosts Amount of Liquidity Offered to Financial System
Besides bailing out crony institutions, flooding the overnight markets with Fed money, these “liquidity operations” in all their variety are aimed at driving down interest rates and keeping the stock market artificially high. To that end, Fed Chairman Powell recently announced a new program to buy $60 billion of Treasury bills each month through the end of the second quarter of 2020.
Powell objected to calling it what it is, but we’re more direct. Welcome to QE IV!
A couple of paragraphs ago I said that made-up Fed money seriously threatens the consumer economy with higher prices when it leaks out of the Fed’s hands and into the general economy. That’s when the money supply starts growing. And gold starts to take off.
And that is just what is now happening.
The peerless Doug Noland, who blogs at Credit Market Bulletin, observed recently that US money supply is at last beginning to explode.
Noland writes, “Let’s focus on the extraordinary $575 billion M2 expansion over the past 22 weeks (that receives zero attention). This was the second strongest (22-week) monetary expansion in U.S. history, trailing only 2011’s “QE2” period (Fed expanded holdings by $600 billion) where M2 expanded as much as $616 billion over 22 weeks. M2 growth peaked at $530 billion (over 22 weeks) in February 2009 during the Federal Reserve’s inaugural QE operation.”
Factoring in other money fund liquidity growth, Noland discovers that we are experiencing “a blistering 11.9% annualized growth rate” in the money supply. This is monetary inflation such as we haven’t seen for a very long time.
And it is very bullish for gold.
We admit that all this is a little wonkish for some of our readers, so we have prepared a chart using Fed data that illustrates what we are talking about.
It shows money supply growth (M2 – a measure of cash and cash-like liquidity such as checking deposits, savings accounts, and money market funds) taking off earlier this year. And just as you would expect, gold responded, surging powerfully throughout the summer. Please note that while gold has been consolidating its gains around $1,500 an ounce, the money supply (the blue line) continues to climb.
Here’s the way the Wall Street Journal headlined a story about the Fed’s new policies on Friday, 10/25:
This money supply growth and the new QE is a policy error that must result in serious consequences for the general economy, as well as much higher gold prices.
The Fed can create more dollars with a computer keystroke, but it can’t print more gold.
That’s why gold goes up.
It’s vital that you find out more. Call or stop by and visit with an RME Gold professional. Because this is a pivotal moment in monetary policy, feel free to share this post with family, friends, and colleagues.
They may appreciate learning that the Fed’s money printing has gone wild. They must not wait before protecting themselves and their families with the safety of gold, because the Fed is finally letting the much-feared inflation genie out of the bottle.
It’s impossible to separate three of the most powerful drivers of the new gold and silver bull market. They are joined at the hip and travel together.
First is the dangerous trajectory of geopolitical events – trade and currency wars, and their usual accompaniment, hot wars. From the Persian Gulf to Hong Kong and the South China Sea, which we wrote about that in our last post, Global Tensions, to other hot spots few people are watching, international confrontations will play a key role in driving gold prices much higher.
Next, we look at the US dollar. Nothing is as fundamental to the bull market as the mismanagement of the dollar, on the fiscal and monetary fronts. The government’s spending and debt, and the Federal Reserve’s monetary schemes grow more unhinged with each passing day. They are on a collision course with reality. We have written about them often and intend to update you soon on the Fed’s latest bond-buying program.
This new move of desperation, Quantitative Easing IV, is another round of what we call for convenience “money printing.” Were it not for out-of-control US borrowing and spending, the government would never have had to abandon the gold standard, to begin with. The Fed provides the means for the government to pull off its money-printing sleight of hand with schemes like this new QE.
The third of the trouble triplets is the deterioration of the global dollar reserve standard. We have written about the movement of foreign central banks away from maintaining their own reserves in US dollars, which has been the almost universal global reserve currency since the end of WWII. Now central banks are falling all over themselves to replace their dollar reserves with gold. This, too, we have written about before. See here, here, and here.
Much of the reporting we have done on central banks moving out of dollars and into gold has focused on China and Russia. But now, ominously, Germany has gotten into the act, adding gold to its reserves for the first time in more than two decades.
Bull markets are born in fits and starts. But this new gold bull market is already underway. These three factors – worsening geopolitics, the government’s dollar debt and monetary mismanagement, and the ending of the global dollar standard – are a pretty heady fuel for our gold bull market.
We knew Germany had gotten the message when it announced in 2013 that it would call home the gold it had stored with the US. That was like an alert depositor making withdrawals from a troubled institution before the bank run gets going in earnest. But now Germany is making it respectable for purported US allies to begin moving from dollar reserves into gold.
We hope you’ve gotten the message, too.
If not, speak with an RME Gold professional today. They are prepared to help you make gold and silver a part of your portfolio in a safe and secure way that will provide you with peace of mind.
It’s a dangerous time for traditional investments and established financial institutions. The headline from an October 20 Wall Street Journal story tells the tale:
Financial Markets Face Fresh Wave of Political Uncertainty:
‘There’s Literally Nowhere to Hide’
Investors spooked by widespread turmoil are seeking havens
The story highlights the battle over UK Brexit as “highlighting the extreme levels of uncertainty that some investors worry isn’t being properly accounted for with U.S. stocks near all-time highs.”
But the challenges are bigger than Brexit:
“The U.S.-China trade war, Britain leaving the EU and impeachment proceedings in the U.S. are just some of the major political obstacles facing investors. Adding to the uncertainty is the Turkish military operation in Syria, attacks on Saudi oil production, and social unrest spanning from Hong Kong to Barcelona.
“In response, some investors are boosting holdings of cash and other assets that tend to hold their value when markets turn rocky. Others are recommending strategies that could protect against a swift downturn.
It is an era of financial challenges, most of which we detail in our blog posts and briefings. The Wall Street Journal tells us investors are “spooked,” need to “hide,” and are seeking “havens.”
Those of us that have made a lifelong study of these periods of “political uncertainty” and “turmoil” know that the haven they seek is real money, gold.
But, predictably, it is not until the 21st paragraph, the next to the last paragraph, that the word “gold” finally appeasers in the WSJ story. And even then it is in the typically disreputable company: “Esty Dwek, head of global market strategy at Natixis Investment Managers, said she favors gold and the Japanese yen given the ever-changing geopolitical backdrop.”
The Japanese yen? They lump gold in with the Japanese yen, another notoriously troubled, unbacked, massively emitted, destined-for-worthlessness paper currency?
Oh well. The establishment financial press can not help itself, any more than central bankers can stop responding to every problem with another round of “liquidity operations,” money printing under its endless variety of names: monetary injections, quantitative easing, debt monetization, interest rate management, reserve adjustments, and more.
For those not mesmerized by the mainstream media and the failing institutions it serves, there is a haven of safety and place to profit. We know, because this isn’t our first rodeo. It’s not the only time the world has experienced political uncertainty and widespread turmoil.
Find out more about gold’s place in your portfolio. Contact an RME Gold professional today.
With global tensions running high, we think it is important to remember the role geopolitical standoffs and the outbreak of hostilities play in driving gold prices higher.
When we say we’re keeping a sharp eye on the market, it includes tracking important developments on the international front. One of the best examples of that kind is the role the 1979 Iranian revolution played in fueling one of history’s most powerful gold and silver bull markets.
Let me pepper you with a few such things that are on our radar screen today:
Old alliances shifting. The Pentagon reported that US forces “came under artillery fire from Turkish positions” on October 11. The gravity of this event cannot be overstated. The US air base at Incirlik, Turkey is universally believed to host some 50 US nuclear weapons. Since tensions are high enough that US military spouses and children have been relocated from the base, it is clearly not a good idea to leave dozens of B-61 hydrogen bombs in Turkey.
The unrest and street rebellion in Hong Kong. Incursions by the People’s Armed Police from Shenzen into Hong Kong and the fate Hong Kong dollar are things to watch for. In any case, the Hong Kong protests have been going on for months now, just as disturbances went on in the streets of Iran persisted for months before the Shah was driven out and the rule of the Ayatollahs was established.
Vital waterways crowded with warships. The Ronald Reagan Carrier Strike Group, maneuvering in the South China Sea, has been tailed by Chinese warships. This is nothing new, but territorial claims in the South China Sea are being asserted ever more vigorously and the crowed waterways can quickly lead to an accident or incident.
The renewed US military buildup Saudi Arabia. 11,000 troops were sent to Saudi Arabia, a purported ally, in May. Now another 3,000 have been added, along with two new fighter jet squadrons. The most recent addition to US forces there also includes two Patriot anti-missile batteries and one high altitude area defense system. US forces in Saudi Arabia have long been a powder-keg issue in the Islamic world.
These are all fuses that can ignite an explosion in gold prices. Dangerous geopolitics drive gold prices higher. Don’t wait for an international incident to invest in gold. Protect your wealth before it happens. A month too early is better than a day too late.
The Federal Reserve’s Open Market Committee meets again at the end of the month. This is the arm of the Fed that votes on, and sets, interest rate policies.
In a healthy economy, prices of things (including interest rates, which are the prices of money) are set by supply and demand. This alleviates shortages and prevents surpluses, helps business prioritize production and compare resources, and enables consumers to make informed choices about real costs, spending, and savings.
But the Fed pretends that it can do better. And so, with each interest rate intervention it distorts people’s perception of reality. For example, in the Fed’s housing bubble artificially low interest rates convinced homebuilders that there was much more real demand and ability to meet mortgage payments that there actually was. The Fed sent false signals to the economy. When the bubble burst, 500 banks went under; nearly 10 million Americans lost their homes.
Probably the most irritating thing is the way that the Fed dresses all this up as though there is something scientific about what they do. They are awash in high-priced economist and expensive consultants. They gather a never-ending flood of statistics.
Observing all this, James Grant says that instead of a gold standard, the US operates on “a Ph.D. standard.”
Still, for all the academic pretense, there is nothing scientific about what the Fed does. No board or body argues about the freezing or boiling point of water. 32 degrees and 212 degrees Fahrenheit respectively. That’s science. In electronics, Ohm’s law is science. In chemistry, the periodic table of elements. In astronomy, Kepler’s laws.
But the Fed just apes the language of the physical sciences and makes up money supply and interest rate policy to serve favorite constituents, like Wall Street, money center banks, or powerful politicians.
The Open Market Committee meets on Tuesday and Wednesday, October 29 – 30. It voted to lower the Fed funds target interest rate to 1.75-2 percent during its September meeting, and many suspect it will cut rates again this month.
The analysts at Bretton Woods Research are level-headed and, believe there is a bias for lower rates:
“Odds of a rate cut later this month are presently greater than 65 percent. Although there is just a 22 percent probability that the Fed will bring the policy rate down to 1.5% by December — completely rolling back Powell`s rate hikes from 2018 — we suspect the likelihood of further easing is greater than what futures markets currently suggest.”
The following chart represent the Fed fund rate and the gold price over the last year. The Fed made plain that it was intent on a tightening policy until the stock market had a terrible temper tantrum in the second half of 2018. With stocks falling hard, the Fed reversed its policy course and began cutting rates (blue line).
As you can see in the following chart, gold surged as the Fed cut rates:
We expect more of the same. Especially since the Fed has now quietly embarked on a new fourth round of Quantitative Easing. More on that in days to come but suffice it to say that the Fed has quite simply gone off the edge. It will collapse entire sectors of the economy in steaming, smoldering piles of wreckage. Just like it did with the housing bubble.
Let us help you through the bubble-blowing of the Fed’s Ph.D. standard. Speak with an RME Gold associate today about owning real gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
“If the Entire System Collapses, Gold Will Be Needed to Start Over.”
De Nederlandsche Bank, Central Bank of the Netherlands
If we said something like, “Gold is the perfect piggy bank – it’s the anchor of trust for the financial system,” you would not be at all surprised.
We’ve said things exactly like that many times.
But this time its not us saying it. The statement comes from a central banker! Spoken by someone in that community, it amounts to a stunning admission!
This surprising candor is from the central bank of the Netherlands, the sixth largest economy in Europe. Its central bank, De Nederlandsche Bank (DNB), holds more than 600 metric tons of gold. It explains, “A bar of gold always retains its value, crisis or no crisis. This creates a sense of security. A central bank’s gold stock is therefore regarded as a symbol of solidity.”
For all their money-printing shenanigans, many central bankers (although not all!) know exactly what they are up to. There is no better example of this than Alan Greenspan, the Federal Reserve’s longest serving chairman. Before he joined the Fed, Greenspan wrote quite lucidly about gold as real money and fiat, made-up central bank money as a path to economic peril. After he left office, he returned to that view. It was only while he wielded the power to boom and bust the economy at the Fed that he forgot what he had espoused. And so, boom and bust the UUS economy he did for 19 years!
Now the Fed is booming the economy again, but this time on a bigger scale than ever before. That means that the next bust will be bigger than ever before.
De Nederlandsche Bank says, “In times of financial crisis, DNB’s physical gold stock functions as an ultimate reserve asset and as an anchor of trust. The gold stock serves to cover ultimate systemic risks. To ensure a wide geographical distribution, the gold reserves are held at different locations in the world.
“Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. That is why central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank – it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”
We could have said the same thing. But sometimes its nice when their own man says so!
As last week ended, stocks jumped on reports that on-again, off-again trade deals were perhaps on-again.
We don’t know if the fact that he is besieged from within and without the White House has made the President any more eager for a deal or any more conciliatory. Nor do we pretend to know what will happen with the impeachment movement. In that regard please see out recent post Impeachment and the Stock Market. We agree with Trump that if he is impeached the stock market will go down. But we believe the stock market will go down in any case.
Although we don’t know what will happen with the impeachment, we do know that powerful forces are lining up against Trump.
For all this agnosticism on our part, candor about what we do and do not know, we do know that Elizabeth Warren is polling better than ever. Even considering the prospect of a Warren presidency has us wanting to share a thought with you about what the socialist juggernaut will mean. And you can be sure that the socialist juggernaut is not just found in the presidential campaign. It is very much alive in elsewhere in Washington.
Let us make it simple: Experience from many places and many times makes clear that when the socialist state wants money, it intends to get it… at any cost. If that means a capital destroying wealth tax, it will do it. If that means tanking the stock market, it will do it. If it means destroying the dollar and private businesses, it will do that, too. If it means robbing your pension plans, bank accounts, or retirement funds, it will do it.
It will kill the goose that laid the golden egg. It will get the money.
To fund their something-for-nothing, free money schemes, the socialists look first to the money in institutions. They do that for the same reason that the bank robber gave when asked why he robs banks: “Because that’s where the money is!”
Whether it is socialists in the courts, congress, or the White House, it’s hard to miss the growing popularity of this wealth-destroying philosophy. We’ll keep a close eye on its advance and update you from time to time. In the meantime, let us repeat our warning:
They will get the money. They will turn to the visible institutions first. The paper and digital-bookkeeping dollar, made up out of nothing. Stock markets, businesses, banks, retirement accounts. Savings. Visible wealth.
The best wealth haven as this wealth-crushing juggernaut rolls along is your investment in physical gold and silver.
Once or twice a year we check in to see what Jim Rogers says about things. Rogers thinks the worst bear stock market of our lifetimes is headed out way.
We sample Jim’s opinion for several reasons, not the least of which is that he has a stellar track record. During the brutal bear market of the 1970s, the Quantum Fund, which Rogers co-founded, beat the S&P by an incredible 4,150 percent, making it one of the best performing hedge funds ever.
Since there is no substitute for up-close and personal real-life experience, Jim Rogers has twice driven around the world, once by motorcycle, crossing primitive frontiers and backwater boundaries in search of investment opportunities.
So, what does Jim say about the US stock market? The “worst bear market in my lifetime is coming,” he says. “It has been over 10 years since we had a serious bear market in the United States. I would suspect by the end of this year or next year, it will start,” Rogers says. “These things always start small, where people are not looking and then they work to the major markets, and then you see them on the major news.”
Although he says he’s the “worst market timer in the world,” Jim keeps his eyes on the fundamentals. He puts his money where his mouth in and says that he doesn’t own any US stocks now.
Despite headlines to the contrary, all touting the stock market as the place for investors to be, that’s a pretty wise position. Especially from the perspective of those of us that understand gold.
Measured by gold, the Dow has lost half its value since the turn of the century. That’s according to newsletter writer Bill Bonner, who notes the US hasn’t gotten off to a very good start in the new millennium:
“Our guess is that America peaked out at the end of the last century. Since then, with Dubya’s $5 trillion war against Iraq… Obamacare… quantitative easing and a negative real fed funds rate for 10 years… transgenderism, the Kardashians, Lee Greenwood, trillion-dollar deficits, $22 trillion in federal debt, fake money, fake interest rates, and fake wars – it has been all downhill.”
“The Dow – the flower of American capitalism – has lost more than half its value (measured by gold).”
Speak to your RME professional today about a sensible plan to protect your wealth from the next crisis. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver authorities.
The term was popularized in a 2007 book by author and market trader Nassim Nicholas Taleb called “The Black Swan: The Impact of the Highly Improbable.”
Before the discovery of Australia, he writes, it was universally believed that all swans are white. But all it takes is the sighting of one black swan to invalidate what was commonly believed. Taleb uses the term now to represent events of low predictability and outsize impact. He says that just about everything going on in our world can be explained by Black Swan events.
What was widely understood about the world in 1914 didn’t help to explain the wars and carnage that followed the Black Swan assassination of an archduke. The demise of the Soviet Union. The rise of Islamic fundamentalism. These are Black Swan event.
9/11 was a Black Swan event.
So, what will the next Black Swan events be? It’s hard to say because they are unexpected.
It seems more than likely that some kind of economic/monetary calamity will be next, despite the fact – or maybe even because – the authorities insist everything is just fine. But sudden, unexpected, high impact economic/monetary calamities occur often throughout history, thanks to the same economic practices and folly that our authorities persist in today.
Almost every economic/monetary Black Swan event is a persuasive reason to own gold (and silver} coins and bars.
Making a list of the possible trigger events for such a calamity is an inexhaustible exercise. We write often about the financial possibilities since they loom larger and more certain with each passing day: the ending of the dollar reserve system; unpayable sovereign and other debt; cascading government and private bankruptcies; bank failure; foreign dumping of US treasuries; runaway inflation and crippling stagflation.
But we need to allow for even less predictable Black Swans that can trigger these economic/monetary calamities. Those include everything from the sudden outbreak of war, widespread crop failures, and the spread of disease like the flu epidemic of a century ago, to uncontrollable civil turmoil, power grid failures, earthquakes, volcanic eruptions, and even less likely events like an asteroid impact.
Unexpected? Unlikely? Precisely the qualities of the Black Swan events that order and reorder just about everything in our lives.
The gathering in Armenia this week of 200 technology and security officials from 70 countries at the World Congress of Information Technology includes special attention to Black Swan events. Organizers ask attendees, “Are we doing the kind of hard-nosed vulnerability assessments that are necessary of our increasingly complex and fragile infrastructure systems?”
Are you doing the kind of hard-nosed vulnerability assessments of your exposure to an increasingly fragile economic and monetary system? Owning physical gold and silver is the single most important thing you can do to protect yourself from low predictable events that carry outsize impacts.
Speak with you RME Gold and Silver professional today.
Will Rogers offered this advice for making money. “Take all your savings,” he said, “and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”
Rogers was a humorist and could get away with giving that kind of advice. We, on the other hand, take your money and wealth (and our own!) more seriously. And we have never seen better advice than this:
“Buy low, and sell high.”
Not many people do that of course. Too often they do the exact opposite. They buy high and sell low.
If you would like to buy low and sell high, we can’t think of better advice than to sell stocks now. And buy silver.
That’s because silver is low. And stock are really, really high.
The all-time high of Dow Jones Industrial Average was 27,359 points. That was last July.
As you can see, the Dow keeps bumping up against resistance in the neighborhood of 27,000, and can’t break through. That stands to reason, since there is ample evidence that a slowdown is on the horizon. September was the worst month for US manufacturing since the Great Recession; global growth has slowed; political turmoil worsens by the day, and the trade war is spreading.
Please make sure you see the report we featured recently here that corporate insiders are selling their company stock at a furious rate, on pace for a record not seen since the dot com bubble. It reads in part, “Executives across the United States are shedding stock in their own companies at the fastest pace in two decades, amid concerns that the long bull market in equities is reaching its final stages.”
Think about this a moment: Instead of paying dividends to their shareholder, they are using company earnings to buy back their stock and thus run the share price up, so they can exercise options and sell their own stock at higher prices. What it should tell you is that corporate managers engaged in such practices have very short time horizons for their companies. And they have their own best interests at heart. Not yours.
So, if the stock market is high, you know what to sell.
But what is low? What should you be buying? Something that is not subject to corporate mismanagement and can’t be printed into worthlessness.
What is low right now that has proven itself as both a monetary and an industrial commodity? Is there anything that stands up to government debt and bankruptcy? Prized for wealth preservation and financial privacy?
The answer is silver. It meets all those important qualifications. And silver is just over a third its price of 40 years ago. Think about that a moment. How many other investments are less than a third the price they were almost 40 years ago?
Forgive us for repeating the point we made not so long ago. “Today, everywhere you look, things are higher. In 1980 the median price of a US home was only $47,200. Today it is $226,800.
“Oil stopped out a $40 a barrel back in 1980. Today it is $53.
“At the beginning of 1980 the Dow Jones Industrial Average was 824. Today it is around its all-time high of 26,500.
“Everything is higher today. Everything except silver.”
Call or visit an RME professional today.
By the way, Will Rogers also said, “Remember, write to your Congressman. Even if he can’t read, write to him.”
As September was winding down, we warned you about the risk of a coming sell-off in stocks, the seasonal danger known as the October Effect: “We believe the stock market is being floated on Fed policy and not on economic reality. Indeed, the level of corporate debt is so high that there is a real risk of a prairie fire of defaults and bankruptcies sweeping corporate America in the event of an economic downturn.”
“In any case, as September comes to an end, we want to warn stock market investors of the October effect.” Read the rest of the piece, Beware the October Stock Market.
As it happened, October blew in like a bear for stocks! On Tuesday, October 1, the Dow Industrials lost 343 points on news of the economy contracting.
As we write this in the middle of the trading day on Wednesday, October 2, the Dow continues to plummet, down another 558 points! [Update: The Dow closed down 494.42 points on 10/2]
Gold and silver are up.
We don’t read tea leaves or crystal balls, but we do look closely at the economic fundamentals and what is going on behind the scenes in the markets. Here’s an example of the sort of thing that goes into our assessments, Corporate Kingpins Are Dumping Stocks: “Executives across the United States are shedding stock in their own companies at the fastest pace in two decades, amid concerns that the long bull market in equities is reaching its final stages.”
“Corporate insiders — typically CEOs, chief financial officers and board members — sold a combined $19 billion of stock in their companies through to mid-September, according to data from Smart Insider, a U.K.-based group.”
“That puts them on track to hit about $26 billion for the year, which would mark the most active year since 2000. That year executives sold $37 billion of stock amid the giddy highs of the dot-com bubble.”
We’re not going to load this commentary down with a raft of numbers that would leave your head swimming, but you should know that consumer spending growth is weak, weak, weak, as are exports and other revealing components of the economy.
Our advice today is exactly the same it was last week when we wrote, “We have made the case repeatedly and the evidence confirms that we are in a long-term gold bull market. Because markets never move in a straight line, we advise our friends and clients to use any price corrections or pullbacks to add to their portfolios.”
Gold and silver are below their September highs, but showing great strength in the face of trouble in the stock markets. This is evidence that the smart money is moving out of stock danger and into the safety of gold.
We recommend you do the same at once! Speak with your RME Gold professional today!
President Trump says that if he is impeached, the stock market will crash.
We think that he is right.
We also think the stock market will crash even if he is not impeached.
That is because stocks are kept aloft by monetary policy. It is a neat trick, to appear to levitate the entire economy by monetary magic and the printing press, but that is an illusion that will shatter.
We have made the case for the illusory stock gains conjured by the Federal Reserve many times and in many ways. See here, here, and here.
In the last few days, a few Wall Street professionals have been trying hard to make the case that the impeachment of the president could actually be good for stocks. We think they are trying too hard to lipstick the pig. The economic fundamentals still apply as time goes by; uncertainty and turmoil are good for gold, not for stocks.
Interest rates fell sharply throughout 1974, the year the Nixon impeachment proceedings began and the year of Nixon’s eventually resignation. Lower rates didn’t help the stock market. In fact, there is no nice way to put it: Hard on the heels of Nixon repudiating the US promise to redeem dollars in gold, the stock market basically collapsed in 1973 and 1974. It didn’t matter what the Fed did. It desperately tried everything from sharply higher rates to sharply lower rates.
The Clinton impeachment took place in a qualitatively different period. By the beginning of 1998 the scandal was racing along. Clinton had denied his affair with intern Monica Lewinsky and had urged her to file a false affidavit and had coached his secretary to lie about related events. In September, the Clinton report by Independent Counsel Ken Starr was released. By October, the House had initiated formal proceedings.
The stock market had suffered substantially already by the time of the Clinton impeachment in 1998, thanks to a variety of major financial developments: the 1997 Asian Crisis, the Russian default and the 1998 collapse of the hedge fund Long-Term Capital Management. In late August 1998 the Dow Industrials suffered its second worst one-day loss ever. It fell 512 points that day, and was more than 19 percent below its all-time highs.
In the fall of 1998, the Fed funds rate was over 5 percent. Unlike today, there was meaningful room to cut rates more. The Fed obliged.
It is true that the market rallied in the final months of the Clinton proceedings, which wound down with his acquittal in January 1999. But the Dow peaked nonetheless a year after the Clinton proceedings, in January 2000. The dot com Nasdaq bubble also peaked early that year, crashing from 5,000 to 2,000, a 60 percent collapse.
Since the Fed had been relentlessly forcing interest rates down almost without interruption for nearly twenty years, the crashes of 2000 were inevitable. Household debt to GDP climbed higher and higher. As David Stockman wrote, the 90s boom was rooted in a massive credit bubble.
Like today, the easy credit of the era was powerful fuel for stock bubbles. In fact, the dot come crash at the end of the Clinton presidency was only the first of three $5 trillion crashes in less than ten year. It was followed by the housing bubble and the stock market bubble that burst in 2008.
All evidence and precedent suggest another stock market crash is inevitable. We urge you to avoid the risk and to move to the safe havens of gold and silver – no matter what happens with the impeachment.
And remember that although Nixon left the presidency amidst the proceedings, while Clinton remained and finished his second term, the years following both Nixon and Clinton saw the birth of powerful gold and silver bull markets that lasted for years.
Protect yourself from the fundamentals of this biggest-of-all bubble. Protect yourself and profit with gold. Contact your RME Gold professional today.
If you watch the news about government spending and debt closely, you’ll understand why you need to own gold.
This is the end of one government accounting year and the beginning of another. So in Fiscal Year 2019 the federal government added well over a trillion dollars to the national debt.
And nobody who knows anything about anything thinks next year’s debt will be any less. Quite the contrary, if the widely expected recession materializes, tax revenue will fall thanks to slowing business conditions, while the government’s social welfare spending will skyrocket. And we’ll be looking at little old trillion-dollar deficits in the rearview mirror.
Same thing when interest rates normalize. The interest on the federal debt will explode, exacerbating a situation that already is beyond control!
Ten years ago, the total on-the-books federal debt was less than $12 trillion dollars. Now its $22.6 trillion, so we’ve been adding a trillion dollars a year to the debt for a decade now.
In fact, you may remember when the Tea Party came together to yell, “Stop!” to the exploding debt. Anybody hear much about the Tea Party these days? Do you hear anything much about the debt in the presidential debates? Or do you hear promises about the next big government giveaways?
The following chart is one we have shown several times. It is easy to understand and it tells the whole story. The nation’s productivity – called GDP – is represented by the blue line. The red line represents the visible, explicit portion of the national debt.
As you can see the dollar value of government debt has passed the total dollar value of the nation’s productivity. And it is climbing at a steep rate. This is a very dangerous situation. The government is spurting red ink from every vein and artery.
$22.6 trillion is an incomprehensible amount of money, more than the government will ever be able to pay. The government must borrow every year just to pay the creditors that it borrowed from last year. And just like someone taking cash advances from Visa to pay their MasterCard bill – it can’t go on forever.
The government can only hope to print its way out of this mess. If you listen carefully you will hear the drums beginning to beat already for new money printing. It’s just what you would expect in the end-game. Printing more paper money will devalue the dollar. And make more people realize that they need gold and silver.
Because you can’t know exactly when the government’s spending and debt game of chicken will end, you must take steps now to protect yourself with gold and silver.
Before it is too late.
We have made the case repeatedly and the evidence confirms that we are in a long-term gold bull market. Because markets never move in a straight line, we advise our friends and clients to use any price corrections or pullbacks to add to their portfolios.
America’s economic growth has been the envy of the world. From the earliest days of the Republic, foreign observers could foresee the prosperity powerhouse that American would become.
A dependable monetary system based on gold and silver was a central component of America’s success. This should have been no surprise. An honest precious metal coinage has been the basis of economic success stories throughout history, from the Golden Age of Greece, to the Byzantine Empire, the Florentine Renaissance, and the British Empire upon which the sun never set.
The abandonment of gold and silver in America has likewise been accompanied by a diminishing economic vitality.
The founders of the new American Republic understood this and wrote into the Constitution gold and silver’s central role in the nation’s monetary system.
Unfortunately, gold and silver disappeared from out monetary system in two steps, in the 1930’s and 1970’s. There was still some powerful forward momentum, but our growth trajectory has mostly slowed ever since.
Now the American middle class is being wiped out.
Here’s the evidence:
HEADLINE: Income inequality in America the highest it’s been since Census started tracking it, data shows
(Washington Post, 9/26/19) — Last year, income inequality in America reached its highest level since the Census Bureau started tracking it in 1967, according to federal data released Thursday.
In the midst of the longest economic expansion the United States has ever seen, with poverty and unemployment rates at historic lows, the separation between rich and poor from 2017 and 2018 was greater than it’s ever been, federal data show.
HEADLINE: Census: US inequality grew, including in heartland states
(Associated Press, 9/26/19) — The gap between the haves and have-nots in the United States grew last year to its highest level in more than 50 years of tracking income inequality, according to U.S. Census Bureau figures released Thursday.
Income inequality in the United States expanded from 2017 to 2018, with several heartland states among the leaders of the increase, even though several wealthy coastal states still had the most inequality overall, according to the figures.
The nation’s Gini Index, which measures income inequality, has been rising steadily over the past five decades.
It’s too bad that American is giving up its economic preeminence and marginalizing the middle class. A strong middle class in vital to the freedom and prosperity of a country. The wealth gap need not have grown as it has, but the governing classes convinced the people that they could spend their way to prosperity and print their way to riches.
What is to be done? It is not clear that there is any pathway to restoring our former state, not if the people believe they are entitled to live at the expense of someone else.
You and I working together cannot restore America to fiscal prudence and monetary integrity.
I wish we could, but we cannot.
Even so, you can take powerful steps to protect yourself and your family. You can do this by giving gold and silver a central role in your own monetary system: in your personal savings and investing.
If the nation won’t reclaim its dynamism with gold and silver, if the US refuses to return to gold and silver, even as other countries like Russian and China are doing so, you can do it for yourself.
Speak to your RME Gold representative today about a sensible plan to make real money a part of your future.
Even if your country won’t do what the Constitution requires it to do.
P.S. As we write, we are seeing a pullback in the gold price from recent highs of about $50 an ounce, as well a similar correction in silver. In a bull market such as this, pullbacks from a recent run-up generally represent excellent buying opportunities.
After two rate cuts in three months, billionaire hedge fund founder Leon Cooperman has fired a shot at the Federal Reserve’s interest rate policy. The Goldman Sachs veteran and founder of Omega Advisors says the Fed is “screwing savers” with the rate cuts.
He joins others who wonder why rates are being cut while the economy remains in a record-long economic expansion. Financial writer Michael Snyder asks, “Why does the Federal Reserve keep slamming the panic button over and over if everything is okay?”
Reports that Elizabeth Warren poll numbers are rising has Cooperman warning that “They won’t open the stock market if Elizabeth Warren is the next president. You don’t make the poor people rich by making rich people poor.”
Cooperman may have been exaggerating for effect, admitting that they will still open the market if Warren wins, but it will be “a helluva lot lower. It would be a bear market and they go on for a year and go down 25 percent.”
Meanwhile, when the monetary authorities war on dollar savers with currency destruction, gold and silver represent superior alternatives for real savings.
Still More on Negative Rates
Denmark’s second largest bank has announced that beginning later this year it will introduce negative interest rates for its largest depositors. Jyske Bank will charge 0.75 percent per annum for corporate and private client depositing more than 750,000 Danish kroner ($111,100 US).
Why, exactly, anyone would pay someone else to borrow their money, is more than a mystery. It is a symptom of monetary manipulation that has gone completely off the rails.
Switzerland, long a paragon of monetary and financial prudence, has gone off the rails as well. Its UBS ban will charge the same negative rate on deposit more of more than 2 million Swiss francs.
When Japan began imposing negative interest rates, hardware stores reported a run on safes. It stands to reason: if cash in the bank is a wasting asset, avoid the banks.
But bear in mind that paper money still carries a much larger risk of depreciation no matter where you store or save it.
Beware the October Stock Market
On the evidence we believe the stock market is being floated on Fed policy and not on economic reality. Indeed, the level of corporate debt is so high that there is a real risk of a prairie fire of defaults and bankruptcies sweeping corporate America in the event of a and economic downturn.
In any case, as September comes to an end, we want to warn stock market investors of the October effect. Goldman Sachs is warning about October volatility, which is says runs 25 percent higher than other months dating back to 1928,
The October 1987 crash saw the market fall almost 23 percent in a single day. Goldman Sachs tells its client that “October volatility is more than just a coincidence. We believe it is a critical period for many investors and companies that manage performance to calendar year-end.”
As we wrote last year, “If things get hot over the Strait of Hormuz, it will realign the major powers of the world, creating explicit new alliances and sorely test America’s geopolitical dominance. It will change the dollar’s role in international trade and send energy prices to crippling highs.”
And it will send gold prices to uncharted new highs.
That’s because gold is the world’s currency of choice in times of crisis.
Our point is simply that you can’t know exactly when someone will launch a deadly attack and start a war.
Or decide to close the world’s shipping lanes.
Last year, there was a close encounter between the US and China when a Chinese ship came within 150 feet of a US destroyer in the South China Sea. Such events are becoming uncomfortably common. Last week, China mobilized forces after it accused a US destroyer of penetrating its territorial waters in around the disputed Paracel Islands.
Shipping in the South China Sea has grown increasingly crowded, an unavoidable result of China’s economic rise. The area is also crowded with conflicting territorial claims that a Solomon could not fairly sort out.
The point is that you cannot know when an accident or other incident will escalate and draw in the US.
Speaking of China, you cannot know when China will dump a trillion dollars of US Treasury notes and tank the dollar. But we know that weaponizing its dollar portfolio remains an ever-present trade war option in the eyes of China’s officialdom.
If you watch the news closely, you’ll understand why you need to own gold, the world’s currency of choice, in a crisis.
Rather than simply watching events begin to spin out of control, we urge you to take steps to protect yourself and your family now.
RME gold professionals are always only a phone call away.
The Fed’s latest interest rate cut has us contemplating the insanity of negative interest rates. Trillions of dollars of sovereign debt instruments around the world now bear negative interest rates.
Imagine what that means.
You work hard and save. Your savings represents capital, which is the lifeblood of economic growth. Your deferred consumption allows for future prosperity. Didn’t we all learn this as children in the tale of the grasshopper and the ants?
But in a negative interest rate regime, the ants are penalized for saving for the future. Buy a negative interest rate bond for $1,ooo today and get $900 back at maturity. In such a never-before-seen, topsy-turvy world it makes sense to consume today since saving for the future is a guaranteed loser.
Yet observers from Alan Greenspan to Ron Paul tell us that negative interest rates are on their way here to the US. We know that the Fed even considered implementing negative interest rates during the last financial crisis.
Since rational people would just hold on to their money themselves instead of lending it for a guaranteed loss, what is going on? If it is so economically unnatural and unprecedented in human history, why is the world awash in trillions of dollars of negative yield bonds?
In short, it is the work of central banks like the Federal Reserve.
In the financial centers and trading desks of the world’s banks, funds, and brokers, traders and fund managers are buying negative yield bonds precisely because they are speculating that there will be more foolish central bank intervention.
Remember that bond prices are like a teeter-totter. When interest rates go up, the market price of bonds go down; when interest rates go down, the market prices of bonds goes up.
So in the major financial centers traders think that central banks will force rates even lower allowing them to profit by selling the negative yielding bonds to another sucker at higher prices.
But they are walking on the razor’s edge. And they have taken the entire world’s financial system along with them.
Here’s Deist: “Of course, it must be noted that rational purchasers of negative-yield bonds hope to sell them before maturity, i.e., they hope bond prices rise as interest rates drop even lower. They hope to sell their bonds to a greater fool and generate a capital gain. They are not ‘buying’ the obligation to pay interest, but the chance of reselling for a profit. So purchasing a negative-yield bond might make sense as an investment (vs. institutional and central bank bond buyers, which frequently hold bonds to maturity and thereby literally pay to lend money).”
That’s fine. And it works according to plan. Until interest rates rise.
Then instead of capital gains, the holders of trillions of dollars of negative yield bonds will suffer huge capital losses. The losses, says Deist, of those holding trillions of dollars of bonds could be staggering.
It is, in other words, exactly what Ron Paul called it, a bond bubble – the biggest bubble in history. Massive. Global.
And when it pops it will take everything with it: bonds, currencies, stocks, real estate…
Fed Cuts Rates: We Think of Ron Paul and Negative Rates
The Federal Reserve Open Market Committee ended its September meeting with a decision to lower interest rates again. The policy cuts the Fed funds rate by 25 basis points to a new target range of 1.75 to 2 percent. The announcement on Wednesday afternoon (9/18) was accompanied by a broad hint that rates may be cut again before the end of the year.
As we watched the Chairman Powell’s announcement – which amounted to not much more than reading and repeating well-worn talking points — our thoughts turned to Ron Paul’s recent comments about negative interest rates.
We’ll get to that in a moment, but first, we recently wrote (here) about Ron Paul’s prediction that gold would double by the end of 2020.
We don’t mention it because we think it is a particularly bullish prediction. Quite the contrary. We could highlight many economic observers and technical analysts whose price target for gold are higher.
Some are much higher.
We thought you should see Dr. Paul’s prediction because it is unusual for the former congressman and Presidential candidate to voice such a specific prediction to begin with.
The suggestion that gold could reach $3,000 by the end of next year is not overstated in the least. It is a cautiously moderate forecast. As we would expect from Dr. Paul.
Indeed, Dr. Paul himself acknowledges that when the monetary crisis strikes, his call may prove to substantially understate the case.
We agree. In fact, alert market watchers are already feeling the hot breath of the approaching monetary crisis breathing down their neck. After all, we are now in an era of Quantitative Easing, trillion-dollar deficits, and hundreds of trillions of dollars in unfunded US government liabilities.
Not to mention an era of negative interest rates.
Negative rates are such a profound anomaly that they remind us of every catastrophic economic scheme that has ever gone before. Things like the South Sea Bubble and John Law’s Mississippi Bubble, both schemes of the 18th century. Only this is the biggest bubble of all time.
Dr. Paul thinks that the US government and Federal Reserve will have us following much of the rest of the world into the negative interest rate abyss.
“We will join the rest of them and go to total negative rates in hopes that that will be the solution,” Paul said on CNBC last week. “We’ve never had as many currencies in negative interest rates. $17 trillion worth of bonds [are] in negative interest rates. It’s never existed before. And, that’s a bubble.”
“So, we’re in the biggest bond bubble in history, and it’s going to burst.”
When confronted with the choice between real money – gold – and paying the government a fee to let it use your money, like Dr. Paul we believe that in a crisis rational people will opt for gold. After all, as Dr. Paul asks, “How do you sell a bond that pays a negative rate? Who’s going to jump up and down?”
The long-term consequences of negative interest rates are incredibly destructive and immeasurable bullish for gold and silver.
The US government keeps its book not on the calendar year, but on a “fiscal year” (FY) that begins on October 1 and ends on September 30. That means its FY2019 will end in just over two weeks, and then FY2020 begins.
Some of the financial press is reporting that it looks like FY2019 will result in a one trillion dollar federal deficit.
But there is no need to wait until the end of the year to see. Treasury debt for the year passed a trillion dollars earlier this month. Already, in the middle of the eleventh month of FY2019, the deficit is $1,023,500,000,000.
At the same time, the visible portion of the US debt has risen to $22,539,500,000,000.
How will all this debt ever be paid?
It won’t be paid. In fact, the only way the US bonds (the government’s I.O.U.s) that come due today can be paid is by the issuance of new I.O.U.s tomorrow.
It’s like paying your VISA card by borrowing on your MasterCard.
Obviously, this can’t go on forever. So, historically governments attempt to rid themselves of their debts in one of several ways.
One of the most common means that governments employ is to simply print more currency. As long as the monetary system consists of government-issued money unbacked by anything tangible like gold, it can print as much money as it takes to pay its debts.
It wrecks the functioning of the economy when it does so. It destroys capital and enforces financial ruin on its citizenry along the way. But governments choose this path over and over again.
And in fact, this old approach to the government’s spending and debt problem has been dressed up in new garb for 21st Century Americans. If you watch the debates and the promises of the presidential candidates, and if you read the position papers of their supporters you will run across the term “Modern Monetary Theory.”
Modern Monetary Theory asserts that debt doesn’t matter, and governments can spend endlessly as long as they have a monopoly on the money system. To mix the metaphors, it’s the same old snake oil in new bottles.
Another popular alternative of governments is to simply refuse to pay its debts in whole or in part. Sometimes a government will admit candidly that it can’t pay its debts and that it is very sorry.
That’s when the people sharpen their pitchforks, grab torches, and head for the castles.
At other times governments announce that their debts aren’t actually debts at all. If its debts aren’t real obligations, they need not be repaid.
Already government apologists say this about the promises the government has made about things like Social Security. They say these aren’t “real” debts. But of course, when they create these programs, they employ language that if used by a private business would be considered nothing less than actionable fraud. For example, our government uses terms like “insurance,” “reserves,” and “trust funds” for Social Security. But the money has all been spent.
I suspect that if you have paid into Social Security all your life on the promise that your benefits will materialize when you need them, you damn well consider it an actual debt.
But just so you know, the government looks at it differently.
With these prospects in mind, it’s good that more Americans are thinking about owning gold. We are in an era of churning stock markets, free-stuff-for-everybody politicians, and rumors of wars.
You need to protect yourself and your family with gold and silver. The government can default on its debts. It can destroy the value of your dollar savings by printing more dollars.
But it can’t print more gold and silver.
So, where do you start?
Start with us. Call or stop by. We’re here to help. We’ve been here a long time. Our professionals will take time to answer all your questions and help you get started.
“Russia’s Huge Gold Stash is Now Worth More than $100 Billion”
Russia decided some years ago that it wanted more gold and fewer US dollars. It was a smart move, as Bloomberg reported this week:
“The country quadrupled gold reserves in the past decade as it diversified away from U.S. assets, a move that has paid off recently as haven demand sent prices to a six-year high. In the past year, the value of the nation’s gold jumped 42 percent to $109.5 billion…”
Today Russia owns 2,219 tons of gold. At the same time, Russia began adding gold to its central bank holdings, it began dumping US dollars. In other words, it was selling dollars to buy gold. Russia concluded correctly that the future of gold was brighter than the future of the dollar.
Ten years ago, Russia held $180 billion in US Treasury securities. Now the Treasury Department reports Russia’s dollar holdings as so low they are down in the asterisks, below the holdings of countries like Iraq and Columbia, and less than one percent of what both China and Japan own.
But the de-dollarization move is not limited to Russia. It is a global phenomenon. Countries like Kazakhstan and Poland are moving out of dollars and into gold. Turkey, Mexico, and India are buying gold as well.
China’s central bank has been buying gold aggressively all year long, adding 100 tons since December, while its dollar holding has fallen some $70 billion over the last year.
Gold’s strength has been a windfall for gold owners. Both China and Russia saw the dollar value of their gold reserves jump by $7.5 billion between July and August.
The US still has the largest gold reserves, but, of course, its gold holding has not been audited since the Eisenhower administration. Actually, because that audit was never completed, it is probably more accurate to say that US gold reserves have never been audited.
In May, Congressman Alex Mooney (R-WV) introduced a bill in the House calling for a “full assay, inventory, and audit of all gold reserves, including any gold in ‘deep storage,’ of the United States at the place or places where such reserves are kept.”
A real audit is more than just an inventory. It is not enough to count bars. The title to our gold must be verified. In that respect Mooney’s bill is thorough. Because we know the propensity of governments to try to operate in secrecy – note how vigorously the Federal Reserve has resisted an audit – Mooney’s bill seeks to discover if the title to any US gold has been impaired or encumbered. It mandates “a full accounting of any and all sales, purchases, disbursements, or receipts… a full accounting of any and all encumbrances, including those due to lease, swap, or similar transactions presently in existence or entered into [in the past 15 years, and] an analysis of the sufficiency of the measures taken to ensure the physical security of such reserves.”
Assuming the gold is all present, accounted for, and with clear title, the $400 billion in US gold reserves is a very small base of liquidity upon which to rest a $23 trillion dollar national debt.
One of the most important reasons to own gold and silver is to avoid major risks common to stocks, bonds, banks, and other financial assets and transactions: the risk of insolvency and default.
All these financial markets and institutions carry a risk of insolvency and default. Those are risks that grow more threatening with each passing day.
But gold and silver are monetary commodities in their own right. They are not claims to something else somewhere else down the road. The value of an ounce of gold or silver is utterly indifferent to the issuer’s total debt, or the wisdom of its political leaders. An ounce of gold is an ounce of gold no matter whose image or national motto is engraved on it.
Its value is not contingent on someone else’s integrity.
That’s why it is such a high compliment to say that someone’s word “is as good as gold.” It is claiming that there is no risk of their failure to abide by their word; there is no risk of default.
When investment advisors, money managers, and stockbrokers reluctantly agree that owning gold makes sense (a conclusion they often try to avoid), they try desperately to steer their clients into gold stocks or gold exchange-traded funds (ETFs). They do so because it means that they still have control of their clients’ funds; their money stays in an account at the financial institution.
But with this advice, they deprive their clients of one of gold’s chief virtues. All these “paper gold” investments still have a risk of default.
The Only Real Gold is Gold
What about Gold stocks? Governments nationalize mines, expose them to wars, appropriate their profits with taxation. At the same time mining companies can be guilty of fraud, mismanagement, and subject to disasters.
…or Gold ETF’s (Exchange-Traded Funds)? Bank holidays, risk of institutional mismanagement, insolvency, title challenges, and counter-party risk, hypothecation and re-hypothecation, outright fraud, government failure, and nationalization are among the risks that may impact paper claims to gold.
It’s Time to Put the Security of Your Wealth in Your Own Hands
In times like these, times of currency wars, unpayable debt, interest rate anomalies, sky-high government and business debt, central bank volatility and confusion, cultural stress and political polarization, state corruption, abuse of power and betrayal of trust, institutional failure, and widespread social and moral recklessness, protecting yourself and your wealth demands avoiding unnecessary risk.
You have probably heard it said that gold and silver are unique in the financial world because they are not someone else’s liability, they are not dependent on someone else’s promise or performance.
Make sure that you take advantage of these virtues. Use gold and silver to protect yourself from default and insolvency risk. Especially in times like these when those risks are heightened.
But you can only accomplish this risk avoidance with real, physical gold and silver that you take into your actual possession.
The new gold bull market is off to a powerful start. According to gold expert and former Congressman Ron Paul, it will move sharply higher by the end of next year.
He confidently predicts that gold to reach $3,000 an ounce by the end of 2020.
Actually, says Dr. Paul, that’s a cautious prediction. Especially since gold has already risen $500 from its 2016 low.
We are in a period of a disintegrating monetary system, he says, “Warning signs are all around us!”
The endpoint of these monetary and debt problems can come upon people suddenly, as though in the dead of night when some event occurs that causes them to panic.
In the meantime, Dr. Paul asks skeptically, “If you have savings, are you going to put it in a C.D?” He points to the trillions of dollars of negative interest rates bonds proliferating around the world. At some point, people will rush out of those instruments and want to buy real things.
That is what the great economist Ludwig von Mises called “the crack-up boom.” It’s the sudden awakening of the public that the currency itself is corrupt and headed toward worthlessness. They become anxious to exchange their currency for anything tangible. When that happens, prices will go up all over. And liquid monetary assets like gold and silver are especially prized.
In that event, says Dr. Paul, when the big crisis hits, it is conceivable that his prediction of $3,000 gold will prove to be far too modest.
Dr. Paul is the author of Gold, Peace, and Prosperity, End the Fed, and The Case for Gold.
Watch Ron Paul’s discussion, “Where Does Gold Go from Here?” on the Liberty Report.
The dollar’s share of central bank reserves is falling. In 2000 the greenback represented 70 percent of foreign central bank holdings. Today that has fallen to 60 percent. And it continues to fall as central bank’s gold holdings rise.
Now even our “best friends” are admitting that the dollar game is up. At Jackson Hole, Wyoming, where many of the world’s central bankers gather each August, Mark Carney, the governor of the Bank of England, called for the dollar’s international role to be supplanted by “synthetic hegemonic currency . . . provided . . . perhaps through a network of central bank digital currencies.”
By that, of course, he means another monetary flim-flam.
Would you like one more? Okay, here goes:
PREPARING FOR A FINANCIAL APOCALYPSE: INSIDERS ARE SELLING $600 MILLION OF STOCK PER DAY IN AUGUST
Your stockbroker may be trying desperately to keep you from withdrawing money from the market, but a lot of corporate insiders are getting out while the getting is good.
“August is on track to be the fifth month of the year in which insider selling tops $10 billion. The only other times that has happened was 2006 and 2007, the period before the last bear market in stocks.”
As we repeatedly observed, the price of silver was historically low compared to the price of gold. As it so often does in a bull market, we expected silver to surge and outperform even gold itself!
And it did! In blockbuster fashion!
How did we know that? By tracking a simple metric called the Gold/Silver Ratio.
The ratio is simply the gold price divided by the silver price. It tells you how many ounces of silver you can buy with one ounce of gold.
As your RME precious metals professional will explain, employing a simple strategy of trading from gold to silver and then back as the ratio changes is a time-tested and powerful strategy for increasing the total number of ounces of gold and silver you own without making any additional investments!
As you can see from the chart, the Gold/Silver Ratio has been high, above 80 to one all year… and kept trending higher!
Then the ratio spiked in July to almost unprecedented 95 to one. In our radio messages and here on our blog we wrote again in July (here) about the profitable opportunity it presented to trade gold for silver and take advantage of the superior outperformance we expected from silver.
As forecast, silver’s price performance has been explosive. It is now knocking on the door of $20 an ounce.
Let’s look in more detail. Silver had a low last fall of $13.86. It’s 2019 low, recorded in May, was $14.27. Since then it has traded as high as $19.69. That’s a gain of more than 40 percent in a year, and up almost 38 percent from its May low.
What Should You Do Now?
The Gold/Silver Ratio remains above 80 to one and still suggests that silver’s gains should continue to outpace gold. Experienced gold and silver investors and professionals want their portfolios to emphasize the precious metal poised to move up the most. At this ratio, they will trade and adjust their portfolios to emphasize silver. Do as they do. Take advantage of this strategy and increase your precious metals holdings without making any additional purchases.
See our post from last March How to Acquire More Gold with Ratio Trading, It illustrates the power of this simple trading strategy using a ratio like today’s of 80 to one to trade gold for silver, and then targeting a ratio of 50 to one to trade back into gold.
Your RME Gold professional will explain this powerful strategy for profit in detail, answer your questions, and then alert you as the strategic ratio changes develop in the future.
Maybe you’re like a lot of people who always meant to buy gold but never got around to it.
Marketing experts tell us that there are two times that people become especially focused on their affairs, their business, and the opportunities before them. One of those time is right after the Christmas holidays when people make resolutions for the New Year.
The other time is now. Right after Labor Day. Summer is over, beach vacations are becoming memories, and kids are back in school. Like the New Year, it’s a great time to make changes for the future.
If you, like many people, always meant to protect yourself and your family with gold, but you still have not gotten around to it, this is the time to do so.
You probably already know a lot of important reasons to buy gold. Like its thousands of years of history as the world’s preferred money.
Let us give you one more reason. It is the unfortunate but unchanging trajectory of American prosperity.
The American middle class is hanging on by its fingernails. That is a very bad thing, even if you are not a member of the middle class. That’s because the bulwark of freedom is a robust middle class.
Here are a couple of paragraphs from a recent Wall Street Journal story, as cited by writer Bill Bonner:
The median net worth of households in the middle 20% of income rose 4% in inflation-adjusted terms to $81,900 between 1989 and 2016, from the latest available data. For households in the top 20%, median net worth more than doubled to $811,860. And for the top 1%, the increase was 178% to $11,206,000.
Put differently, the value of assets for all U.S. households increased from 1989 through 2016 by an inflation-adjusted $58 trillion. A third of the gain – $19 trillion – went to the wealthiest 1% according to a Journal analysis of Fed data.
The point is further illustrated by the observation noted by financial journalist Lance Roberts that in 1981 the top 1 percent of US adults earned 27 times what the bottom 50 percent earned. Today, the top 1 percent earn 81 times what the bottom 50 percent earn.
That explains why there is a socialist juggernaut loose on the land. It explains whatever traction Elizabeth Maduro Warren and Bernie Fidel Sanders and Alexandria Ocasio-Chavez have today. They can thank the Federal Reserve and its fiat dollar for their success.
That’s because the things that are destroying America’s widely-based prosperity are all rooted in a corrupted and manipulated monetary system. But for the Federal Reserve and the fiat dollar, there would have been no housing bubble, a calamity that saw 10 million Americans lose their homes to foreclosure!
But for the Fed there would have been no meltdown, no bank bailouts. Neither Ben Bernanke nor Goldman Sachs alumni in Washington could have stovepiped trillions of taxpayer dollars to the money center banks and to the Wall Street cronies. But for the funny money system, there would be no $22.5 trillion national debt. But for central banks, the world would not be bouncing around in an economic house of mirrors based on $15 trillion in negative interest rate debt.
But for the Fed running the pumps, a third of all the asset value increase over the last 30 years wouldn’t have ended up in the pockets of the top one percent.
Before you read any further, let me note that this is not some screed against the rich. In fact, we consider it part of our job description to help the rich and everybody else protect their wealth, and to help all of our clients become prosperous, too. But we can’t defend people who use government connections and political influence for special favors, sweetheart deals, and crony gains.
We just want you to be aware of what has happened over the past few decades. One more metric: The Fed has destroyed m lore than 96 percent of the dollar’s purchasing power over the last one hundred years.
The destruction of the dollar, the explosion of debt, and the polarization of wealth are trends in force. And a trend in force remains a trend in force until something changes it. There is nothing on the horizon – nothing short of a complete reboot of the monetary system – that will change these trends.
This is a good time to assess our national trajectory as well as your personal trajectory. Let us show you how gold and silver can help you.
If you have always thought about owning precious metals, call on us now. Don’t wait for New Years’ Day to focus on what you have already resolved to do now.
The world is awash in negative interest rate government bonds. Basically, you loan the governments money by buying its bonds, and at maturity you cash is your bonds for less than you paid.
How crazy is that? You pay the government for the privilege of letting them waste your money for a few years.
The folly at the heart of our times is clear. Money is not supposed to work like this. Thousands of years of economic progress make the record clear: borrowers are supposed to offer to pay to borrow our money. And the more of a credit risk they are, the more they have to pay us to offset the risk.
Negative interest rates are a sign of a topsy-turvy world. None of it makes sense. And we can assure you that we, like most rational people, will never pay some spendthrift good money to borrow money from us.
There are about $15 trillion of negative interest rate government bonds out there. You can’t see it yet, but it represents a world-class economic calamity hurling down the tracks.
That is why gold and silver are moving higher. The smart money wants to get out of the way of the coming monetary train wreck.
Jim Grant, the editor of Grant’s Interest Rate Observer agrees. He told CNBC’s Rick Santelli the other day that these radical policies beget other radical policies. So this monetary drama ends with a much higher gold price, says Grant.
Meanwhile, the President is at war with the Fed, and the Fed is at war with the President. Bill Dudley, the former president of the New York Fed has explicitly called for the Fed to pursue policies that put Trump’s reelection at risk.
In the meantime, is the trade war on or off? Some days it appears to be both on and off. Some days the US and China are both talking and not talking. All we can say is that we’re glad we’re not soybean farmers wondering before the next planting season if we are losing an important market to Brazil.
We advise our clients to get out of the way of this uncertainty and madness, by moving to the safe-haven gold and silver.
You don’t need a Ph.D. in economics to recognize the causes of the gold and silver bull market! Take steps to protect yourself and your family. But do it now. Don’t be left behind!
Of course, banks don’t like gold. Burger King doesn’t like McDonald’s. Ford doesn’t like Mercedes.
Similarly, banks see gold as a competitor.
We get that. They have seen their clients walk in to pull out money and head straight to the gold desk.
That’s why it’s amusing to watch Bank of America fall all over itself trying to explain why gold is rising, even though it doesn’t really want its customers to own gold. A recent piece by BofA analysts makes the obvious admission that central bank monetary policies, with all their interest rate machinations, currency manipulation, and money printing scams – “quantitative failure” says BofA– “make gold an attractive asset.”
So we have been saying.
The bank warns of a stock market sell-off, thanks to ultra-easy monetary policies that have floated equities to unsustainable levels, prevented needed corrections and even kept “zombie companies” alive.
But the key observation, at least in our view, is that the inevitable stock market sell-off will prompt central banks to increase liquidity operations (money printing) even further. So “a sell-off,” says BofA, “may prompt central banks to ease more aggressively, making gold an even more attractive asset to hold.”
So we have been saying.
We don’t have too much sympathy for the banks, especially those that remain afloat today thanks to taxpayer bailouts. BofA got more than $150 billion in bailouts and guarantees from unwilling American taxpayers.
And then there is Wells Fargo…
Wells Fargo is another major bank that has stood silently by and profited while the Federal Reserve engineered one bubble after another. And then when the bubble popped, it, too, got a bailout from the taxpayers. Theirs amounted to $25 billion.
Wells Fargo, no doubt kicking and screaming, has now conceded that “we do believe that gold has a place in a well-diversified portfolio”
“The reason is that gold can become a good alternative to bonds when their yields are negative…Investors now pay to invest in German government debt. On the other hand, gold is not tied to a particular government … this eliminates the risk that a government may act irresponsibly …”
So we have been saying. And in the face of reality, with gold racing to catch up with years of foolhardy monetary policy, the banks can hardly say otherwise.
Fiat is derived from a Latin term that translates to “let it be so.” Fiat currency is paper money printed and guaranteed by a government without the backing of a physical commodity, such as silver or gold. In other words, fiat currency is worth something simply because a government says so, and the people who hold and exchange that currency agree to it.
Here’s everything you need to know about hyperinflation, fiat currency, and how you can protect yourself in future depression periods that could be punctuated by hyperinflation.
What is Hyperinflation?
Hyperinflation is a period when prices rise uncontrolled while the value of the local currency plummets, often due to reckless currency-printing by the government, far beyond what it makes with tax revenue.
While there is no magic inflation number that marks the start of hyperinflation, many experts consider 50% inflation during the course of a month to be a hyperinflation scenario.
How does hyperinflation affect fiat currency?
In a hyperinflation scenario, paper money is rendered almost useless. After World War I, Germans famously burned Reichsmarks to stay warm because it was more cost-effective than buying wood. Another example is America during the Civil war. The Confederate government printed “Greybacks” to finance their war effort, and began with a matching value to the US dollar in January 1961. By May of 1965, it took 1200 Confederate dollars to equal one US dollar.
A more recent example we can look to is Venezuela. Over the course of several months, prices of goods skyrocketed while the value of the Venezuelan bolivar tanked. Now you can buy a chicken for dinner in Venezuela for about 14.6 million bolivars, or $2.20.
How Can You Protect Yourself During Periods of Hyperinflation?
Precious metals such as gold have been proven to be a smart hedge against depressions and hyperinflation.
Gold prices tend to shoot up during depressions as investors scramble to buy up gold reserves. Then in the depression recovery period, people sell off their gold as prices ease downward. Studies show that gold prices beat inflation rates about 54% of the time, and if you can wait out the inflationary period, gold is an extremely stable investment that holds its value better than just about any other commodity.
In 1913, America all but abandoned the gold standard in favor of the Federal Reserve Banking system. While the dollar remained partially gold-backed, this was the start of America’s fiat currency. Dollar supplies outpaced the gold supply within a couple of decades, and as a result, the US devalued its own dollar by 41% in 1934.
In 1971, the dollar was in a similar situation again. Foreign governments started selling off their USDs for American gold, until President Nixon put a stop to it. At that point, the American dollar was officially a fiat currency, totally unsupported by gold.
The most recent policy, called quantitative easing, will have a lasting impact on the dollar for years to come. From 2008 to 2014, the Fed added $4 trillion to the money supply by taking out credit from member banks and printing more money to add to the economy.
Why Is the Dollar Losing Value?
Have you noticed that your paycheck doesn’t seem to buy as much as it used to?
The unrelenting devaluation of the American dollar is due to several fiscal decisions made over the last century. There is more currency circulating than the economy has generated. It’s a matter of time before irresponsible fiscal policies catch up to us and cause another financial crisis.
Two future causes of the dollar’s devaluation will be loss of confidence in the currency and a rising tide of currency sales. The governments of Japan and China are the two biggest holders of American dollars, and if they start selling off their stockpiles, devaluation of the dollar will happen shortly thereafter.
How to hedge against fiat currency devaluation
The one material good that hasn’t lost value in, well, all of history, is gold.
Governments and individuals will always find inherent value in gold. That makes this precious metal a sound investment and a smart way to diversify any portfolio. While the dollar’s value fluctuates, gold provides a steady anchor point for an increasing number of investors.
When the dollar’s value drops, the price of gold rises. Depending on the severity and duration of the next depression, gold prices could remain high for a long time.
Republic Monetary Exchange is a full-service precious metals brokerage firm helping investors purchase coins and bullion for their personal possession, as well as creating private precious metal self-directed IRAs. We have served thousands of customers nationwide, making RME America’s premier dealer in precious metals.
Since we first told you we’re in a Dollar Doom Loop in March, gold has broken out!
Now things are getting worse with the dollar. Things that will drive gold prices higher still.
Friday’s action, with gold up more than $28, is a sign of things to come.
To describe the Doom Loop we asked you to imagine that you have a business that has to borrow a dollar to make 90 cents. When that happens, you’re in the Doom Loop. Forget borrowing your way to prosperity. When you’re in the Doom Loop, all your additional borrowing just leads to a more painful bankruptcy.
The Dollar Doom loop is when US debt grows faster than the economy. You can see in the following graph that federal debt, the red line, has not only passed the Gross Domestic Product, the blue line but that the debt is climbing at a steeper rate.
Federal debt today is just over $22.4 trillion dollars. It roared right past the GDP in 2013. Today GDP is estimated to be about $2 trillion below the debt level. And that is at the end of what we are told is one of the longest expansions in history, now going on for more than ten years!
But there is more to the Doom Loop story. As we reported recently, for the first ten months of the government’s current fiscal year (FY 2019 through July) federal revenue is up 3 percent. But federal spending is up 8 percent.
If that’s what happens during a booming economy, imagine what happens in the event of a widely expected recession. In that case, federal social spend goes up; federal revenue falls with the slowdown. And the gap widens.
Former Reagan budget director David Stockman says that in constant dollars under President Trump federal spending has increased 4.22 percent a year. That’s more than twice as fast as under Obama. It’s faster spending increases than under either Bush, Clinton, Reagan, Carter, or Ford.
Since President Trump was inaugurated on January 2017, federal debt has grown by almost $2.5 trillion.
We’re not politicians. We’re not running for office. We’ll leave it to others to decide who is to blame: The White House, the Fed, Congress, R’s and D’s, divided government, the media, or the people themselves. Frankly, they are all likely good candidates for some of the blame.
Our job is helping our clients both protect themselves and profit during a period of accelerating dollar destruction. Since the Fed has already destroyed about 97 percent of the dollar’s purchasing power, we’re in the late stages of this debacle.
That’s why we urge you to add to your precious metals holdings now.
Gold continues it’s front and center advance into the world’s monetary system. The mainstream news media misses it, but one of the biggest financial stories of our time is the massive move of the world’s central banks to add gold to their reserve holdings.
Of course, the mainstream media is missing it. After all, it will only affect… EVERYTHING.
That’s because it represents a “de-dollarization” of the world economy, a trend that will make Americans poorer.
And now, as though to underscore the strange new respect the central banks are paying to gold, they are even holding international conferences on gold reserves.
That is the sort of thing that signals an acceleration of their gold-buying spree.
The Global Central Bank Gold Buying Spree of 2019
We have diligently reported for our friends and clients on global central bank gold buying. See here, here, and here just for starters.
2019 has been a record-setter for central bank gold buying. In the first half of this year, the institutions added 374.1 metric tons to their holdings.
Currency wars, record debts and trillion-dollar deficits, negative interest rates and quantitative easing are some of the reasons behind the new gold awareness on the part of central banks.
They are among the reasons for you to buy gold as well.
It should surprise no one that the next international central bank gold reserve conference will be held in China. China is the world’s largest importer of gold. The 2019 Executive Program in Gold Reserve Management takes place in mid-October in Tsinghua University’s School of Finance in Beijing. Attendance is limited to “executives at central banks, sovereign wealth funds and finance ministries from around the world.”
As we wrote some time ago, “Central bank gold buying is a megatrend for a reason. The prognosis for the dollar is negative.”
If you knew what was coming, you would “buy gold on any level!”
So says Mark Mobius, the founder of Mobius Capital Partners and an emerging markets fund manager.
We think Mobius is worth listening to
On his retirement from Templeton last year Barron’s wrote, “The renowned Franklin Templeton Investments value manager has jetted from one far-flung corner of the world to the next, navigating military coups, Siberian snowstorms, and corrupt executives hurling threats, to unearth bargains as some of the world’s poorest countries transformed into economic powerhouses.
“Mobius… made a name for himself with on-the-ground research.”
In an appearance on Bloomberg Tuesday (8/20), the interviewer asked, “At what level should people be looking to buy gold.?”
“I think you have to be buying gold at any level, frankly,” he replied. “I think gold’s long-term prospect is up, up, and up.”
“The reason why I say that,” he explained, “is the money supply is up, up, and up. You know, with the efforts by these central banks to lower interest rates they’re going to be printing like crazy.”
Mobius was especially clear that he means physical gold and warned against paper gold substitutes.
That’s a point that cannot be made too clearly. One of gold’s chief attributes is that it is not someone else’s liability. It is not dependent on someone’s promise or management. But this unique and increasingly crucial advantage only applies to physical precious metals, the gold and silver coins and bullion that you own outright and have taken into you own possession. It does not extend to paper gold, stock and other representations of gold ownership, commodity contracts, or ETFs.
Learn more about in our post from last March on needless Counter-Party Risk, and speak with an RME Gold associate today about owning real gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
In April 2019, Forbes declared gold will outperform equities and bonds due to global equity corrections, wealth creation in emerging markets, a falling U.S. dollar, and rising political uncertainty. Any alarmist myths about a “gold crash” are moot.
Want proof? Here are some real expert opinions.
1. Alan Greenspan: Volatile Stock Market Will End the Bull Market
In December 2018, former Federal Reserve Chairman and Capitalism in America author Alan Greenspan told CNN claimed the bull market is beginning to fumble due to volatility and is unlikely to stabilize and take off again. Greenspan says the rise in long-term interest rates is putting pressure on stocks, which will weaken as rates continue to rise.
Greenspan predicts long-term rates will keep rising, and that we’re moving toward a period of stagflation, which is a combination of inflation and stagnation that causes the economy to weaken. He calls stagflation a “toxic mix” and has returned to his original stance, claiming gold as the “premiere currency.”
2. Judy Shelton: Gold Standard Is Needed to Fight Inflation
Judy Shelton, U.S. Executive Director of the European Bank for Reconstruction & Development and candidate for Trump’s Federal Reserve Board of Governors, wrote an op-ed piece for the Wall Street Journal titled, “The Case for Monetary Regime Change.”
In the piece, she writes that it’s worth considering linking a money supply to gold instead of relying on monetary officials setting interest rates. She continues that a linked system under gold would enable currency convertibility and mitigate inflation.
One of Trump’s top picks is advocating for gold. How likely could a gold crash be?
3. Peter Schiff: The U.S. Is Nearing a Great Financial Crisis
In May 2019, veteran stockbroker and CEO of Euro Pacific Capital, Peter Schiff, told RT the U.S. is on the verge of a greater financial crisis now than it was last year.
He says interest rates have no chance of normalizing, and balance sheets are going to balloon to new heights, a process that has been gaining momentum since early this year. That means gold will get a boost.
Bitcoin as “fool’s gold”
What about cryptocurrency? Schiff calls the cryptocurrency Bitcoin “fool’s gold.” He says it has none of the commodity properties of gold (which was a valuable commodity for centuries before it became money) and has no intrinsic value, making Bitcoin a Ponzi scheme.
Schiff compares Bitcoin trading to the Beanie Babies craze, but at least you can play with and admire Beanie Babies. You can’t do anything with Bitcoin except pray it’s worth trading.
4. Doug Casey: The Stock Market End Times Are Near
World-renowned investor, author, and founder of Casey Research Doug Casey wrote in November 2018 that gold continues to be the best form of money for reasons including:
Gold is durable
Gold can be convertible into larger and smaller pieces without losing value
Gold’s quality is consistent and easily recognizable
Gold is compact, portable, and convenient
Gold is something people want and can use, in forms like jewelry
Gold is something that can’t just be created out of thin air
He predicts the next crash will be much worse, much different and much longer lasting than the Great Recession. Since many global governments looked to inflation as a solution to the last recession, we’re in for something far worse.
5. Jim Cramer: Gold Protects Against Economic Chaos
In December 2018, Jim Cramer, host of CNBC’s Mad Money, cited severe weakness in the economy, according to Market Realist. Feeling “powerless,” he cautioned the Fed on further tightening and said the current odds don’t favor stockholders.
Cramer says if the current course of tightening continues, investors should buy into the bull market in gold. In January 2019, Cramer said if investors want an insurance policy against volatility, gold is the way to go. As he’s been saying for years, the best way to protect yourself from economic chaos is to own gold.
Experts Agree About Gold’s Value
Financial experts agree: The stock market is much more likely to crash than gold — which, as history has shown, never will.
When the stock market crashes, a gold-buying panic is likely. Wise investors are already investing in precious metals before the imminent global economic catastrophe.
To some of us, it is perfectly understandable why gold and silver are in a bull market and racing higher.
To others, it is a mystery.
In our latest radio spot for RME, I joked that there are two kinds of people in the world: those who “get” gold… and those who don’t.
And to make matters worse, they tend to marry one another!
The point is that some of the people closest to us don’t understand what we do about fundamental economic reality. And it’s probably not their fault.
In all my school years I can’t remember anybody really talking much about money and what gives our currency value. They certainly don’t talk about it in presidential debates. Quite the opposite. The candidates almost unanimously know nothing about the production of wealth; they care only about its consumption. They think they can print more wealth.
Apparently, nobody talked much about money and what gives currency value in their schools either.
If you have a spouse or friend who doesn’t understand the need to own gold, bring them by for conversation.
We know for some people explaining why central banks are panicking, or how perverse and destructive the negative interest rates they have created are, is jumping a little too deep into the conversation.
We’ve gotten pretty good at explaining why owning gold is more important now than ever. Even to people who haven’t thought about such things.
So maybe we can help! Call or visit us. No obligation.
The US has had paper dollars for a long time, but through most of our history, even the paper dollars were tied to gold. Until this date, August 15, back in 1971. It was then, 48 years ago today, that President Nixon severed the last remaining link of the U.S. dollar to gold.
Today, almost half a century later, we are experiencing the long-term consequences of that decision. Those consequences include a trade and currency war, a race among nations to destroy the purchasing power of their currencies, unrestrained money printing, inadequate personal savings, interest rate manipulations, weak economic growth, a stalled out middle-class, growing deficits, and skyrocketing debt.
Under the post-World War II monetary regime, the rest of the world had been persuaded to hold dollars as reserves and conduct international commerce in dollars. But U.S. politicians of both parties had a grand time for years spending money and buying votes on left and right to delight their special constituencies. There was the Great Society and the Vietnam War, too. Because they had the Federal Reserve to print money for them, it had been a wild spree.
But like any ne’er do well, the U.S. was writing bad checks. The state was issuing more dollars than it could possibly redeem for gold at the promised exchange rate of $35 per ounce.
The rest of the world saw the U.S. money printing under the dollar/gold exchange standard and noted the falling purchasing power of the dollars they held.
They began to race for the exits. They wanted to cash their paper dollars in for gold while they could.
Like a run on the bank, the demand to exchange dollars for gold was beyond containment.
Nixon decided to find a bogeyman to blame for the government’s wastrel ways. He chose “international money speculators.”
The crisis of the U.S. writing hot checks was their fault, he said.
In making his case against them, Nixon uttered more monetary babble. “The strength of a nation’s currency is based on the strength of that nation’s economy,” he said. But that was simply untrue: America’s economy has been growing while the value of the dollar was sinking.
And so, on that hot August night in 1971, Nixon closed the gold window and abandoned any pretense of dollar redeemability in gold.
That was 48 years ago today.
Now we find ourselves on the doorstep of a long-brewing currency crisis. With the dollar redeemable in nothing, what would act as a restraint on the issuance of more and more dollars, an endless torrent of money printing?
If the rest of the world noticed that they were having difficulty cashing in their dollars for gold decades ago, consider how they must feel today knowing that there is nothing to cash them in for.
We are speeding toward the long inevitable crisis of resolution. At every hand, the central banks and governments of foreign nations, are taking steps to insulate themselves from the developing dollar crisis.
Many of the central banks are using dollars to add to their gold reserves. They may not mind fleecing their citizens with their own debased currencies, but they didn’t want to be victimized by ours 48 years ago. And they still don’t want to be victimized by it today.
Fiscal Year 2019 is winding down and it’s one for the books. For the ten months of the year through July 30, the deficit is already higher than for the entire 12 months of the prior year. So far revenue has increased 3 percent over last year, while spending is up 8 percent. Not smart.
Inflation turned higher in July. Both the Core Consumer Price Index – that’s the one that doesn’t count food and energy – and the broader CPI were up 0.3 percent for the month. Annualize that! The higher number, well above the Fed’s 2 percent annual inflation target, makes it hard to justify further interest rate cuts.
Publisher Bill Bonner writes that gold has outperformed stocks for the entire 21st Century. “And not by just a little – but a lot. The Dow rose 145%. Gold rose 420%. Compare this to the 20th century. It was just the opposite.”
The world is now awash in some $15 trillion in debt instruments (bonds) with negative yields. It’s quite an anomaly and one that screams danger. Jim Sinclair associate Bill Holter asks a question that should answer itself: “If you are offered a bond with negative rates from an issuer who is less than stellar…and your other option is gold or silver, which do you choose?”
Speaking of debt, US mortgage debt has now surpassed the level of 2008 when the mortgage meltdown hit. In the third quarter of 2008 when it all went kablooey, mortgage debt totaled $9.294 trillion. It jumped $162 billion in the last quarter, reaching $9.406.
And still speaking of debt, US bankruptcy filings, both personal and business, rose 5 percent in the month of July. Both student loan debt and auto loan debt just made new highs of $1.605 trillion and $1.174 trillion respectively.
Gold is a valuable barometer of financial conditions.
When gold was the basis of the international monetary system, currencies were more or less stable, exchange rates fixed.
On a gold standard, countries didn’t have to bash their trading partners over exchange rates. An ounce of gold was an ounce of gold everywhere. It didn’t matter whose picture was stamped on it.
Of course, governments always try to corrupt their monetary systems to accrue more power, to fight needless wars, or to reward their cronies. One common technique of this corruption was the printing press. Since the paper money issued by those countries was simply a claim check for gold, they often printed more claim checks then they could back-up. Those that tried getting away with the usual government shenanigans involving creating “money” out of nothing, saw gold begin to flow out of their countries. The real price of gold in their currencies would go up, no matter what the government said the official exchange rate was.
Despite its pledge to redeem its dollars for gold at a fixed rate of $35 an ounce in the years after World War II, the US began printing more dollars than it had gold. In 1965, de Gaulle sent the French navy to pick up gold it had stored in the US.
By 1971 countries and central banks everywhere began lining up to exchange their US dollars for gold. It didn’t matter what the official gold price was. The real price had been rising for years.
Gold has always been a sensitive barometer of troubled economic conditions.
Today all the world’s currencies are nothing but empty representations of value. As such, they can be created at will. This is true of all currencies: Euros, Yen, Francs. Pounds, Yuan, and Dollars.
The rising price of gold reflects the corruption of the currencies.
That’s why gold is making multi-year highs in the dollar and all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
Now we have entered a great currency war in which nations fight over fictitious currency values and exchange rates.
As President Trump tweeted a few days ago, “As your president, one would think that I would be thrilled with our very strong dollar. I am not!”
That’s why he’s pushing for additional interest rate cuts.
The central objective of currency warriors is to devalue their money, to reduce its purchasing power.
In fact, as President Reagan’s budget director David Stockman said, “The U.S. Federal Reserve is the all-time champion of currency manipulation.”
What You Need to Know
You should know that Washington’s currency war will send gold prices higher… even if you support it.
You should know that Washington’s currency war will send gold prices higher… even if you don’t support it.
That is because reducing the value of a currency means it buys less. Less of everything, including gold and silver. This is true whether you are a Republican or a Democrat, whether you are a liberal or conservative.
Additionally, when people see governments destroying the purchasing power of their currency, they begin to move out of the weakening currency.
The move to the safety of gold starts off slowly at first (that’s the “smart money”; it is the first to move into gold). Eventually, there’s a stampede as more and more people figure out that the currency is not a reliable unit of account or store of value.
Gold has always been a sensitive barometer of troubled economic conditions. Today gold is telling you there is trouble ahead.
Be the smart money! Talk to your RME professional today about the steps you can take to protect yourself and your family,
Gold and Silver Break Through- But How Did We Get Here?
Although we identified the gold and silver bull market early on, now that it is showing its explosive strength, it is impossible for anyone to ignore it.
At the same time, our calls for a breakdown in this highly overvalued stock market are familiar to most of our readers.
Many have taken our advice along the way, and it is clear that many more will. We’re grateful for the confidence you have placed in us.
With gold racing right through $1500 an ounce, it’s highest since 2013, and silver easily topping $17 an ounce, we think that a short review of our recent commentary is the best way to show how we got here and where we are headed.
Our first observation was short and pointed: “Something big is happening. Take advantage of the price break [in gold] while you can.” Our second was that it is “increasingly apparent that the rest of the year will be verypainful for stock investors.”
Recently we highlighted the time-tested market wisdom to “buy the rumor, sell the news.” As we approached the long-awaited Federal Reserve Open Market Committee meeting at the end of July, we made the case here and here that “that even if the Fed cuts rates, stocks will take a beating.”
So, we said that selling on the news of the Fed announcement would trigger the next big decline.
And so it happened. The Dow Industrial began the last week of July at 27,300. Then the Fed announced its new policy rate and the Dow fell four straight days. Monday was the steepest stock market plunge of the year. It finished Monday, August 5 at 25,700.
The S&P500 began the week of the Fed announcement at 3020. Then the Fed spoke, resulting in six straight days (so far!) of lower prices. The index finished the following Monday at 2844. That’s a loss of six percent from its all-time high set just last month!
Which brings us to our next topic.
Trade and Currency Wars
The biggest drop in each of those markets – and the worst day in the stock market so far this year – came on Monday when China, reacting to increased US tariffs, stopped supporting its currency, the yuan, letting it fall to the lowest level in 10 years.
President Trump responded, designating China a “currency manipulator.”
Which, of course, it is. As is the United States. And in fact, the Fed’s interest rate cut days ago was nothing other than an act of currency manipulation itself. We said as much, citing the Mises Institute, here, and went on to explain, “The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros.”
“That’s what governments do in trade wars.”
In fact, everything the Fed does is currency manipulation including every interest rate manipulation, liquidity operations, paying banks interest on excess reserves, Zero Interest Rate Policy (ZIRP), and both quantitative easing and quantitative tightening.
And that is precisely the problem. Why should anyone put their faith in paper currencies that are mere insubstantial assertions of value, vaporous made-up things, and therefore so easily manipulated?
We have positively been on a tear to warn our friends and clients that the developing trade and currency wars have but one clear outcome: Much higher gold prices. Out of numerous posts on the topic, we will just refer to “Gold Breaks Out Big Ahead of G20 Summit” from late June, which it turn refers to an earlier post:
“There are gathering storm clouds that are being overlooked by most commentators: economic darkness approaches in the form of a developing currency war.
“We have observed that the world – including the US – is headed pell-mell into this off-shoot of the trade war. A currency war is a form of financial madness in which the winners are said to be those that most thoroughly destroy their currencies’ purchasing power.
“We have been warning about the escalation of a global currency war for a long time, but have increased our warnings and sense of alarm recently, warning that gold is always the big winner of currency wars.
“These policies are unreservedly bullish for gold (emphasis added). All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as they all fight their way to the bottom.
“When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
“That means the price of gold goes up!
“The best way to protect yourself from a currency war is to own gold.”
Gold and Silver
If we have warned many times that gold is the big winner in currency wars, it is only because currency wars are conducted everywhere by legal counterfeiters of unbacked digital and paper money. No wonder gold has entered a new bull market. No wonder gold has now hit all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
No wonder gold roared right past $1500 today! No wonder silver shot up past $17.00 an ounce today!
How long before gold hits an all-time high in the US dollar?
Just over a month ago we headlined a post “Higher Gold Price Targets: To the Moon!”, pointing to budget-busting new spending, compounding debt, and a field of presidential candidates basing their campaigns on offering voters more free things than their opponents. We wrote, “If financial analysts and portfolio managers around the world are starting to notice these things, at last, the target price for gold can barely be computed.”
Gold is up more than $470 an ounce since its low of $1046 in late 2016.
Last May gold traded at its low for the year of $1267. With today’s close over $1500, gold is up 20 percent from the May low.
Silver had a low last fall of $13.86. It’s 2019 low, like gold’s, also recorded in May, was $14.27. Now, finishing up over $17.00, silver is up 20 percent from its May low.
Those are explosive moves, particularly since both materialized in just a few short weeks.
“Confused central bankers flailing all about, banks dependent on Fed cronyism for their survival, foreign nations moving out of dollars and into gold. The remarkable strength of gold and silver is only an early warning of things to come.”
These powerful moves in gold and silver are not accidents. The world is growing more dangerous by the moment, and central bank authorities, not just at the Federal Reserve, but in Europe and around the world, know no other course but massive credit creation and money printing.
It is a path of dollar destruction. It is a road of no return.
We advise our friends and clients to add aggressively to their precious metal holdings now.
There are few phrases as unwelcome as “told you so.” It should be left in schoolyards where it belongs. For that reason, we won’t say it.
But we’re going to come uncomfortably close when we say instead …
“We hope you took our advice!”
Recently we trotted out time-tested market wisdom to “buy the rumor, sell the news.” As we approached the long-awaited Federal Reserve Open Market Committee meeting at the end of July, we made the case here and here that “that even if the Fed cuts rates, stocks will take a beating.”
So, we said that selling the news would trigger the next big decline.
And so it happened. The Dow Industrial began the last week of July at 27,300. Then the Fed announced its new policy rate and the Dow fell four straight days. It finished Monday, August 5 at 25,700.
The S&P500 began the week of the Fed announcement at 3020. Then the Fed spoke, resulting in six straight days (so far!) of lower prices. The index finished the following Monday at 2844. That’s a loss of six percent from its all-time high set just last month!
The biggest drop in each of those markets – and the worst day in the stock market so far this year – came on Monday when China stopped supporting its currency, the yuan, letting it fall to the lowest level in 10 years.
President Trump responded, designating China a “currency manipulator.”
Which, of course, it is. As is the United States. And in fact, the Fed’s interest rate cut day ago was nothing other than an act of currency manipulation itself. We said as much, citing the Mises Institute, here, and went on to explain, “The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros. That’s what governments do in trade wars.”
And that is precisely the problem. Why should anyone put their faith in paper currencies that are mere insubstantial assertions of value and therefore so easily manipulated?
In fact, everything the Fed does is currency manipulation including interest rate manipulation, liquidity operations, paying banks interest on excess reserves, and both quantitative easing and quantitative tightening. The government’s fiscal behavior – borrowing and spending – can be described as currency manipulation as well.
We have warned many times (see here) that gold is the big winner in currency wars. It is because currency wars are conducted everywhere by legal counterfeiters of unbacked digital and paper money. No wonder gold has entered a new bull market. No wonder gold has now hit all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
How long before it hits an all-time high in the US dollar?
Other authorities, like a gold expert and former presidential candidate Ron Paul, have joined us in identifying this as a gold and silver bull market.
Let’s review what has happened…
Gold is up more than $400 an ounce since its low of $1046 in late 2016.
Last May gold traded at its low for the year of $1267. Since then it has traded as high as $1458. That’s up 15% from the May low.
The recent silver story is even more dramatic as we repeatedly forecast. Silver had a low last fall of $13.86. It’s 2019 low, like gold’s also recorded in May, was $14.27. Since then it has traded as high as $16.68, up almost 17% from its May low.
Those are the kind of substantial moves that should get anybody’s attention, particularly since both materialized in just a few short weeks.
If we look at the low of both metals in 2018, gold moved up more than 25%, while silver climbed more than 20%.
And those moves (the textbooks define a bull market as a move that takes prices 20% higher) qualify both gold and silver as being in bull markets.
No wonder a Bloomberg News story last week said, “gold fever is breaking out from London to New York.”
Because we are old hands at this – our identification of the new bull market, like that of Dr. Paul, came long before the most recent powerful moves higher – we’ll just leave you with the observation that this market is just getting going.
Let me repeat that: This market is just getting going. Wait until you see what happens when large swaths of the public begin to realize they need to protect themselves from stock market bubbles, criminally destructive monetary policies around the world, and compounding government and corporate debt.
Then you won’t need a textbook definition to recognize the bull market! Take steps to protect yourself and your family. But do it now. Don’t be left behind!
Nobody was very happy with the Federal Reserve’s announcement on Wednesday that it would cut its targeted Fed funds interest rate and the interest it pays on “excess reserves” by a quarter-point.
Wall Street wanted more, a half-point, or at least a promise by the Fed that more rate cuts were on their way. It didn’t get that promise either.
So at one point, the DJIA was down 400 points, before settling 333 points lower. President Trump tweeted “As usual, Powell let us down.”
The writer of a Mises Institute article this week said, “With the economy growing at 2.1 percent, unemployment at 3.6 percent, creating 170,000 jobs per month, and estimated underlying core inflation of 2 percent, no objective data justifies cutting rates that are already artificially low.”
Then what is the real reason for a rate cut of whatever size? It’s not like someone has to break out the paddles for an economic coronary event, a rate cut defibrillator for a stricken economy.
Then why cut rates?
The Mises articles suggest it’s because we’re heading into a currency war.
The President’s pressure on the Fed to lower rates has been relentless. But don’t let anybody tell you that Trump is the first to politicize the Fed. One Fed chairman famously said years ago that the Fed has to do what the president wants, or it will lose its independence.
Think about that for a minute!
What is the fallout for gold? What is the collateral damage from another interest rate cut of whatever size? It is a currency destruction.
The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros. That’s what governments do in trade wars.
One other thing to note is that with its rate cut, the Fed also announced the early ending of its Quantitative Tightening activity. So monetary easing is the policy of the day. But this time it doubled down. Lower rates and a halt to cleaning up its bloated balance sheet. Constant easing drives bubbles and keeps zombie companies alive just a while longer. Both spell trouble down the road.
Loose money persists. Artificially contrived lower interest rates mean higher gold prices. And the world’s central banks know it. They are buying gold when the dollar trades up and when it trades down. They continue to buy gold when the Fed cuts rates, just as they did when the Fed was set on raising rates.
Here’s the latest from Bloomberg:
“Central banks continued to load up on gold in the first half, helping push total bullion demand to a three-year high, according to the World Gold Council.
“Nations added 374.1 tons in the first six months as Russia and China kept building reserves and Poland made a massive purchase. The trend is expected to continue, with a recent survey of central banks showing 54 percent of respondents expect global holdings to climb in the next 12 months.”
Nothing makes as much sense as buying gold when the money printers of the world are trying to lower the value of their currencies with interest rate cuts. And it makes more sense than ever when they become aggressive and competitive with their rate cuts, seeking to outdo one another in devaluing their currency. That’s what they do in trade wars.
“I think we’re headed for a bout of stagflation like we’ve never before seen.”
That’s the view of well-known market analyst Michael Pento.
Pento, the author of The Coming Bond Market Collapse, has proven himself to be a knowledgeable critic of bad fiscal and monetary policy, one who understands gold.
In a recent interview, Pento said that the stagflation ahead will be like nothing we have ever experienced “in the history of this nation.”
It’s not just the Fed that is panicking, he says. “Every other nation on earth now is panicking, too.” Central bankers are afraid that if they can’t engineer ongoing inflation, bank assets – the housing market, stocks, low grade, and junk bonds – will all tumble and turn into a massive crash.
According to Pento, the leverage in the system is so great that if things even started to correct a little bit, it could turn very quickly into a massive banking crash.
We’re glad Pento has identified stagflation as a very likely outcome of the monetary policies of the Fed and other central bankers. As the name suggests, stagflation combines elements of stagnation and inflation. Stagflation could be described as the worst of both worlds, weak on non-existent economic growth, accompanied by rising prices.
Weak growth makes it increasingly impossible for debtors – individuals and corporate – to service their massive debts. That’s because sales slow down, margins are squeezed, businesses are forced to cut prices, pay raises don’t materialize, and jobs disappear.
At the same time inflation means the purchasing power of the currency falls, interest rates rise in compensation, and, saving money becomes pointless. And it blows up the bond market.
There is a haven of safety and profit in an era of stagflation: Gold.
Some of our clients will remember the “stagflation decade,” the 1970s. Others will have heard about it. The stock market basically collapsed, and unemployment rose as did interest rates. Inflation skyrocketed.
Economic conditions were severe, and just when people most needed the money they had saved to keep afloat, it’s purchasing power failed them.
No wonder people began to pull out of troubled banks and failing currencies and moved into precious metals. A great bull market in gold and silver followed.
It is a pattern of movement that we are seeing today: confused central bankers flailing all about, banks dependent on Fed cronyism for their survival, foreign nations moving out of dollars and into gold. The remarkable strength of gold and silver is only an early warning of things to come.
Pento makes a strong case that stagflation is headed our way. Don’t delay. Speak with your RME Gold professional today about protecting yourself and your family with gold. If you don’t have an advisor, simply call RME Gold and you will be connected with one of our Gold Authorities.
The policy-setting Federal Reserve Open Market Committee meets this week on Tuesday and Wednesday, July 30 and 31. The announcement of any policy decisions will be made on Wednesday at 2 pm Eastern time.
At the top of the agenda is a cut in interest rates. We think that if the Fed fails to cut rates, Wall Street will throw another one of its infamous temper tantrums and stocks will fall. On the other hand, we think the possibility is growing that even if the Fed cuts rates, stocks will take a beating.
Take advantage of the new trend in the Gold-Silver Ratio. See our recent post, here, and speak with your RME Gold professional. He can give you examples of just how this powerful profit strategy can work for you.
Look Out Below!
Emerging market debt has climbed to $69.1 trillion. From Financial Times:
“Debt in the developing world has risen to an all-time high, adding to strains on a global economy flagging under the weight of rising trade protectionism and shifting supply chains.Emerging economies had the highest-ever level of debt at the end of the first quarter, both in dollar terms and as a share of their gross domestic product…
“The combined debts of 30 large emerging economies rose to 216.4 per cent of their GDP in March, from 212.4 per cent a year earlier.”
Exit Rule for the Stock Market Bubbles
From hedge funder John Hussman:
“One of the most important warnings offered by firefighters is simple: get out early.
“Similarly, our ‘Exit Rule for Bubbles’ is straightforward: You only get out if you panic before everyone else does. You have to decide whether to look like an idiot before the crash, or look like an idiot after it….
“Presently, we observe [stock] market conditions that have been associated almost exclusively, and in most cases precisely, with the most extreme bull market peaks across history.”
Why Can’t We All Just Print Money?
“A 20-year-old woman was recently arrested in Germany for walking into a car dealership and trying to by a €15,000 car with fake banknotes printed on a cheap inkjet printer using regular printing paper….
“At first, everything went smoothly. She inspected the car, took it for a test drive, but when the time came to pay the €15,000 price, dealership staff were stunned to receive a waddle of €50 and €100 bills that looked more like Monopoly money than actual currency. One employee told German media that he literally asked the woman if she wanted to play Monopoly or buy a car, but after seeing that she was serious, he called the police.”
Because It Costs More and More to Buy Less and Less!
The $100 dollar bill has overtaken the $1 dollar bill for the first time in history as the most widely used paper money.
Citing the Federal Reserve, the IMF reports there are more $100 bills circulating now than ever before. The $1 bill is now number 2, while the $20 dollar bill comes in third.
The number of $100 bill in circulation has almost doubled volume since the global financial crisis. (see chart).
No wonder we prefer gold! It’s the world’s superior money for wealth preservation, profit, and even privacy
It turned out to be pretty good advice. Silver is up more than $1.00 an ounce since then.
Nice. But experienced gold and silver investors and professionals watch something else: the gold-silver ratio.
That’s because, in bull markets like this, silver often outperforms gold. It’s something we’ve seen over and over again. Experienced gold and silver investors and professionals want their portfolios to emphasize the precious metal poised to move up the most.
Since silver is now outperforming gold, there is a window of opportunity for you to increase your precious metals holdings with an easy strategy, one I have used myself for many years.
It’s called the Gold-Silver Ratio strategy. The ratio is simply the price of gold divided by the price of silver. In other words, how many ounces of silver it takes to buy one ounce of gold.
In a precious metals bull market like this, both gold and silver move higher. But since we want to be in the one that moves the most, at these high ratios we recommend trading gold for silver.
Later, when the ratio is lower you can trade your silver back into gold with a net increase in the number of ounces of gold you own.
As you can see from the following chart, the Gold-Silver Ratio has been moving higher for some time. Suddenly a couple of weeks ago it spiked briefly at 95 to one, turned around, and began to move sharply lower as we expected.
Although it is moving lower, as I write this the ratio is still around 86 to one, still highly advantageous for you to take advantage of this strategy and increase your precious metals holdings without making any additional purchases.
I urge to speak with one of our professionals. Even if you didn’t buy your gold from us, they are happy to explain this powerful strategy in more detail and answer your questions. We especially like this simple strategy for growing your gold and silver holdings because you are always invested in precious metals, moving into the precious metal that is relatively undervalued and therefore the one that promises the greatest relative price appreciation.
Most of the biggest banks and financial institutions find very little fault with the monetary status quo. After all, they are the beneficiaries of it. Bailouts preferred borrowing at the Fed’s discount window, protection from market competition, and interest on excess reserves are just a few the privileges they enjoy under the Federal Reserve’s monetary regime.
There are policy differences at the margin among some of them from time to time. Some will prefer one policy option to another one very much like it, one interest rate adjustment more than another, or one quantitative easing or tightening schedule more than an alternative. But such differences and debates occur within a narrow range of allowable opinions.
But every now and then a development looms so largely, a consequence of monetary malfeasance so certain, that even loyal banking cronies have to say something.
Such is the case with the spreading de-dollarization of the global economy.
Although we have been warning our clients and friends about the certain ending of the US dollar’s role as the world’s reserve currency, one banking giant has noticed this 800-pound gorilla in our monetary future.
From JPMorgan Chase, the largest US bank:
“We believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”
The bank even says that diversifying from the dollar with a higher weighting in precious metals “makes sense.”
Indeed, it does.
JPMorgan Chase asks if the dollar’s declining role is already under way? Its answer makes us wonder if they have been reading our blog. It writes:
“As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession….
“Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.”
The world is beginning to de-dollarize. If you’d like to know why read our blog posts over the past year.
Or look instead at the debt ceiling suspension deal working its way through Washington right now with its $320 billion in new spending. To put it another way, spending in the current fiscal year is already up – before the new debt deal — more than 10 percent over last year, while revenue is up just 3.3 percent.
The deficit this fiscal year looks like it will come in a $1.1 trillion
Time to de-dollarize your investments.
Your RME Gold professional can help you embark on a sensible plan to diversify out of the debt-loaded, debt-backed, decaying dollar.
“We are right now sitting on a bubble that’s going to explode and it’s going to be a real bad situation, and we better get rid of the debt and we better straighten ourselves out because we have debt on debt on debt.”
Presidential Candidate Donald Trump, April 2016
The debt bomb is ticking.
That’s because nothing will stop Washington’s spending. Nothing.
Watch the Democrat debates. They don’t even mention the debt.
Not a word. Not one.
Nor do the moderators of their debates, the Democrat’s media allies, mention it.
Not a word. Not one.
So, Washington will be raising the debt ceiling again soon.
But, of course, it’s not just the fault of Democrats. The Drudge Report just prominently featured a Daily Caller report that not only do the websites of the Democrat candidates not mention the debt, “The ‘Promises Kept’ section on President Donald Trump’s reelection website makes no mention of the national debt.”
There was a time when there was a Capitol Hill constituency for fiscal responsibility. It was small, but at least it made some noise.
There’s not much of a constituency like that today.
Some debt ceiling backstory: In early 2018, the debt ceiling was suspended by Congress until a few months ago, March 1, 2019. At that time the debt limit was reset to just over $22 trillion. Since then, US government debt has officially stayed at that level. How is that accomplished, since the government still spends more than it collects?
Since the beginning of March, the Treasury has used money shuffling techniques, “extraordinary authorities,” to pay its bills. The Treasury believes that it can keep this shell game going until October. As we pointed out last week here, Nancy Pelosi thinks that may not be able to keep it up longer than August. After that some programs would be scaled back, some payments would go unmade.
Either way, Congress will be forced to raise the national debt ceiling soon.
The debate on the debt ceiling increase comes at a time of the most divided Congress and the polarized electorate in recent memory. The debate could be rancorous and bitter. That would involve some horse-trading on votes and even agreement on new government spending programs, come more crony deals, to corral the votes necessary for passage.
Or lawmakers could just close their eyes and hope the issue will go away. One proposal is to simply suspend the debt ceiling for 2 ½ years – to take the issue off the table during the elections season in 2020. After all, the nation’s solvency takes a back seat to the real issue politicians care about on both sides of the aisle: REELECTION!
The net effect of another suspension or of a protracted fight “solved” with new spending initiatives that are unpaid for, will be serious questions about US solvency in financial centers around the world. Already foreign central banks are moving away from the dollar and to gold.
New questions about US solvency cannot be comfortably answered. In fact, the only real answer to how debt that comes due today can possibly be paid is by issuance new debt tomorrow.
Or by printing more money of no intrinsic value.
That is why gold marches up in lockstep with the rising debt ceiling.
The historical correlation between the rising debt ceiling and higher gold prices is very strong.
The dollar is backed by nothing but debt. But gold is real money.
Is a short squeeze developing in the silver market? A short squeeze is an exciting market event in which rising prices give rise to still more rising prices, which in turn give rise to more… Well, you get the idea: sharply higher prices!
“Shorts” are speculators who have sold silver for future delivery in the hopes that as that date approaches, they will be able to meet their obligation by buying at lower prices. They hope to profit by the difference in those prices.
But if silver prices are actually higher as the date nears, they have to buy at those higher prices to meet their obligations. And that additional buying (called “short covering”) drives rising prices higher still, which stampedes other shorts to cover their positions with more buying.
And so it goes.
Here is some of the evidence that a silver short squeeze may be in development. As I write this, silver is up more than 13 percent since the end of May. It has even begun now to outpace gold.
As a consequence of this silver strength, the gold/silver ratio that we have written about many times (most recently here) has begun to trend lower. The ratio peaked just two weeks ago at 95 to 1 and as I write is now just below 88 to 1.
Update (7/24/19): as we’ve been saying all along, the ratio keeps gradually shrinking, and the investment opportunities are shrinking along with it. Today the ratio is down to 86:1.
Two takeaways for our clients and friends: If a silver squeeze is underway, you can expect a dramatic (and sometimes very dramatic) increase in silver prices. Your RME Gold professional will monitor all the latest developments and is prepared to advise you how to emphasize silver in your portfolio to take advantage of the move.
The turn-down in the gold/silver ratio also provides you with an important reminder about the potential gains available by trading gold for silver. Be sure to discuss this important and time-tested strategy. There is still time.
A FOLLOW-UP ABOUT DEUTSCHE BANK
Last week we wrote about troubles at Deutsche Bank, the German banking giant. We wondered it was the “key log” in the banking log-jam like Bear Stearns and Lehman Brothers were a decade ago. Their collapses led to a torrent of other collapses, a chain of destruction that became known as the Great Recession and Mortgage Meltdown.
Today we note that others are wondering the same thing. Zero Hedge reports that Deutsche Bank clients are pulling a billion dollars a day from the bank. “The similarities to Lehman Brothers are growing by the day,” it writes.
An old market adage advises to “buy the rumor, sell the news.”
In application, it suggests that you can buy stock XYZ when the market assumes that something important – a takeover, an acquisition, a major breakthrough – is imminent, but then to sell quickly when the actual news hits.
There is a justifiable cynicism to the advice. After all, it sometimes happens that market rumors are fabricated out of little or nothing, simply to run a stock price up. The rumormongers are poised to sell at the top when the news proves to be entirely fictitious or less than impressive.
That’s the description of a “pump and dump” scheme.
When the news is real, insiders have still positioned themselves well in advance. Lest they be accused of illegally trading on material non-public information, some patiently wait to profit when the rumored announcement is finally made.
“Buy the rumor, sell the news” is probably pretty good advice in the face of the widely expected Federal Reserve interest rate cut. In this case, we are not suggesting you go out and buy stocks before the upcoming Fed announcement. Certainly not. But realistically, if you are holding stocks you are already participating in the bubble; you have already effectively “bought the rumor.”
If the market universally expects that the Fed will cut interest rates, what happens when it either does so – or fails to do so – at the July meeting?
First, if it fails to cut rates, the disappointment will be widespread. Expect a hard fall in stock prices. Hard. The S&P 500 fell 25 percent in three months last fall over interest rate disappointments.
Meanwhile, the market has been buying the rumor, the expectation of a Fed rate cut, since the first of June, climbing non-stop ever since. The market believes a rate cut is a given.
That’s the “pump” part of the “pump and dump” scheme.
But if the Fed does cut rates, some observers suggest the Wall Street will “sell the news.” That’s the “dump” part of the “pump and dump” scheme.
Wall Street “selling the news” will trigger the next big decline. That’s the view of Jesse from Cafe Americain and others close observers.
It is a view we share. Although there is no shortage of other candidates to trigger the stock market sell-off, typical rumor/news market behavior is as good a trigger candidate as any. This is especially true in the face of what fund manager John Hussman calls some of the most extreme market valuations in history. Says Hussman, “Presently, we observe market conditions that have been associated almost exclusively, and in most cases precisely, with the most extreme bull market peaks across history.”
Be ready. The highly anticipated Fed meeting is only two weeks away!
We addressed this briefly the other day, but it is a financial megatrend so important that we want to loop back around to add to what we wrote.
Foreign governments and their central banks have lost faith in the US dollar.
Trust in the dollar dates back more than a century when people used expressions like “sound as a dollar,” or “the dollar is as good as gold.”
Although faith in the dollar lasted for a long time, today it is eroding rapidly.
Paper money is basically a confidence game. As long as confidence persists, the game can continue. Once people begin to lose confidence in the game, things start to break down.
Ask investors in Bernie Madoff’s funds. There were those that got a whiff of the funny business and got out early. Others figured the confidence game out too late.
Foreigners have reasons of their own for shying away from the dollar. Things like the Iraq war didn’t help. Economic sanctions that have replaced diplomacy are another reason that foreign nations are abandoning the dollar.
But those reasons wouldn’t really matter, and the dollar’s preeminence would last if the dollar were still as good as gold.
But, of course, it is not.
That’s why China added 10.3 tons of gold to its reserves in June. That’s the seventh straight month that China added to its official gold position. It is in addition to the 74 tons it added in the six months through May.
The last year has seen China reduce its US Treasury holdings by around $70 billion.
Poland added aggressively to its gold reserves recently, doubling its holdings. Turkey, Russia, Mexico, and India are prominent among those adding to their gold reserves.
We think it is vital that our clients and friends read these signs of the times. Such outsized financial dynamics can tell you what is coming.
For example, former Fed chairman Alan Greenspan said he didn’t see the housing bubble information. No one could have foreseen it, he said. Somehow he missed the fact that mortgage debt had grown from $1.8 trillion to $8 trillion on his watch.
That’s what we mean by “outsized financial dynamics.”
The move by foreign central to build gold reserves are a sure sign that the dollar confidence game is beginning to end. As we wrote in a recent post, “Suspicions about the reliability of the international dollar-reserve monetary system are running so high that countries are not just adding to their gold holdings. They are bringing their gold home from accounts at foreign institutions.”
Federal Reserve monetary officials are very clever and eventually, they will resort to the most inventive shenanigans and desperate measures to try to keep the game going.
Just like Bernie Madoff.
Those measures won’t work. But you already know the confidence game is ending. That’s why you are buying gold.
For many retiring police, firefighters, and public safety personnel, they’ve spent their careers protecting the public, and not micromanaging their finances.
Suddenly, as retirement approaches, these professionals are forced to shift their attention to the complicated world of retirement financing. It can be overwhelming at first, but public safety personnel often get retirement benefits that other professions do not. In the past years, more police, firefighters, and other public safety personnel have reinforced their retirement with gold.
What is a Deferred Retirement Option Plan (DROP)?
Arizona allows police officers to retire with pensions (62.5% of their final average salary) after 25 years of service. Pension amounts increase or decrease as service years exceed or fall short of 25, respectively.
Some police officers, firefighters, and other public safety personnel qualify for DROP, or the Deferred Retirement Option Plan. Qualification into DROP depends on your Retirement Benefit and Membership Tier. DROP provides the opportunity to receive a one-time lump-sum payment upon retirement, in addition to your monthly retirement payment.
Investing the DROP lump sum in gold
This lump sum could be used for paying off a mortgage, investing in “safe” trades on the stock market, or to travel the world. Precious metals, particularly gold and silver, are also excellent investments for retired police and firefighters because of the stability, versatility, and potential profits that come with them.
Any financial advisor will recommend diversifying your retirement portfolio. Putting your nest egg into the stock market comes with quite a bit of risk, especially as the bull market shifts to a bear market and economic bubbles burst. If the mounting national debt and deficit is any indication, the coming years may be a wild ride for those investing their retirements entirely in stocks and depreciating dollars.
Gold as an Inflation Hedge
The values of gold and silver tend to correlate negatively with monetary policy set by the global central banks and Congress. The 30-year price of gold has been fairly consistent, with some large-scale peaks and very few valleys.
Hedge investments offset losses in other types of assets. In the turbulent market since the dot-com bubble recession and skyrocketing national debt, investors have bought gold as a form of wealth insurance, so they don’t lose big in a stock market crash, or the continued inflation of the U.S. dollar.
As an example, if you bought an ounce of gold in the year 2000 for $272.65, it would be worth $1,360 in 2018. Even adjusting for inflation, $1,360 in today’s money is worth $921.15 in dollars from the year 2000. Any way you slice it, gold prices ramped up, despite massive governmental debt, recessions, and stock market disasters.
The stock market is incredibly volatile and has been known to crash. As the bull market turns to a bear market, wise retirees are looking to precious metals as a hedge against inflation.
If a police officer got a lump sum pension of $300,000 in the year 2000, it would have the purchasing power of $200,247 in 2018, losing about a third of its value to inflation. If that lump sum had been invested in 1,100 ounces of gold in 2000, it would have the purchasing power of about $1.5 million in 2018. In 18 years, the police officer would have nearly quintupled his pension, despite the chaotic economy.
Keeping all of your assets in cash and stocks puts you at the mercy of the market, while the gold price tends to have an inverse relationship with the value of the dollar.
Profit Potential of Precious Metals
Precious metals are not get-rich-quick schemes. Those looking to make an immediate profit should probably look elsewhere. That does not mean great windfalls are out of the question.
Silver sold at about $5 per ounce in 2004 and has followed a virtually identical route, as it relates to price fluctuation. The Federal Reserve announced in late 2005 that it would stop publishing the M3 monetary aggregate, the most comprehensive report pertaining to actual dollars in circulation. Three rounds of quantitative easing (money printing) followed. Meanwhile, the Gramm-Leach-Bliley Act of 1999 repealed 66-year-old legislation contained in the Glass-Steagall Act that mandated all commercial and investment banks be separate institutions.
The results of the aforementioned monetary policy and legislative moves are well-known. The U.S. economy went into its worst recession since the 1930s. Millions of Americans lost their homes, savings, and pensions; while gas prices reached historic highs. Those who invested in silver prior in 2004 and prior, however, were sitting prettier than ever.
Those $5 ounces of silver purchased in 2004 peaked at $48.58 in 2011, an astounding 872% increase, without even factoring inflation. The value of the dollar and other world currencies plummeted, while precious metals reached unprecedented heights. These types of gains are not the norm, but the potential is always there, due to very fluid monetary policies at the Fed and U.S. Treasury.
There are no guarantees in currency, but history can teach us powerful lessons on long-term value.
Police officers are proud of their badges and wear them with honor. Decorated public safety personnel earn various medals throughout their careers and proudly display them. Precious metals seem to be a natural investment for both.
Gold and silver coins have both market and intrinsic value, and American Eagles and Canadian Maple Leafs are popular coins among both investors and collectors. Coins, however, have higher premiums on them, versus gold and silver bars because of collectibility. Ultimately, bars and coins are worth their weight in the respective metal, with intrinsic value being in the eye of the beholder.
Retired police officers and firefighters served our country with bravery and dignity. Our heroes deserve to live their Golden Years comfortably. RME consultants are highly knowledgeable and experienced in gold and silver investing, whether your choice is bullion or IRAs.
Contact us today and we’ll walk you through the buying process.
There are a lot of reasons that real money – gold – outperforms irredeemable money created out of thin air.
But for today, here are three news stories that spell higher gold prices in the immediate future.
Reason Number One: The US government, hopelessly in debt, is recklessly piling up more debt by the hour.
Total federal debt, $22,022,825,000,000, is more than 100 percent of total US productivity. But that is not enough to stop Washington’s deficit spending.
The Treasury estimates that the national debt ceiling will have to be raised sometime around October. Nancy Pelosi thinks it may have to be raised in August to avoid a federal default.
Reason Number Two: The world’s central banks continue to ditch the dollar.
This is a story we’ve highlighted many times, here, here, and here.
The implications of this global “de-dollarization” are so far-reaching that we can hardly believe it receives such little attention.
We’ll have more to say about this soon, but just to share one story that captures the megatrend, Poland’s central bank announced last week that it has added 100 tons of gold to its reserves since the beginning of the year. That is four times what it added to its reserves last year.
Those willing to read between the lines will see that suspicions about the reliability of the international dollar-reserve monetary system are running so high that countries are not just adding to their gold holdings. They are bringing their gold home from accounts at foreign institutions. For example, at the same time Poland is adding aggressively to its gold reserves, it is repatriating gold that has been held in its accounts at the Bank of England.
Reason Number Three:Countries around the world are creating institutions to allow them to circumvent dollar-denominated financial institutions.
US control of the international payments system enables it to enforce sanctions against foreign countries, and then to sanction countries that evade existing sanctions. The proliferation of these US sanctions has spurred the development of non-dollar, non-US settlement alternatives of foreign transactions.
Since the Iraq war, a host of new bi-lateral and multi-lateral trade agreements have sprung up among nations. But most significant is the recent announcement by British, French, and German officials that a new system that will enable them to bypass the US SWIFT payments system is now operational. The new system, INSTEX, will initially allow countries to circumvent the US and continue to trade and settle accounts with Iran.
The long-term consequence is to sharply lessen the world’s reliance on the dollar. The dollar reserve standard that has prevailed since the end of World War II has added marginally to the purchasing power of the US dollar. A dwindling reliance of the dollar will have the opposite effect of diminishing the dollar’s purchasing power.
It is our hope that these three news stories will help our clients and friends read the signs of the times and take steps to protect themselves from potentially cataclysmic changes in the dollar and its value.
More than ever, you can’t believe everything you read. What has been hailed as “the Information Age” might as well be renamed “the Misinformation age,” as fake news continues to dominate social media and newspaper headlines around the world.
Not surprisingly, myths about gold have made their rounds in the mainstream media. From the comically misinformed to the moronically smug, every blogger thinks they know the real value of gold. When it comes to investing in gold, everyone has a strong opinion, and most of them aren’t based in reality.
Here are three myths about investing in gold that need to die.
Myth #1: The Gold Bubble Has Popped
This myth is a two-part myth. In 2010, George Soros famously said, “Gold is the ultimate bubble.” First of all, gold is not a bubble. Although several alarmist headlines followed suit, and warned of a bubble burst in 2009 when gold spot prices hit $1000 per ounce, the “pop” never happened.
Precious metals, and especially gold, don’t devalue and inflate like mass-printed, free-floating currency.
“Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by inflation or deflation.”
Though demand for gold may rise and fall with the volatility of the market, gold is a real asset. It is a physical commodity that maintains its value, despite the unrelenting devaluation of the American dollar and the fickle fluctuations of the financial markets. The Fed has destroyed 96% of the US dollar’s purchasing power since its establishment in 1913, while an ounce of gold has maintained its value.
Anyone calling the gold and precious metals market a “bubble” is in direct need of a reality check.
Myth #2: You Shouldn’t Buy Gold when the Economy is Doing Well
Anyone riding a stock market bull run might scoff at the prospect of buying gold. Time and time again, investors are so elated with their momentary profits that they ignore the very real signs of collapse.
In 1928, shortly before the Wall Street Crash of 1929, president Calvin Coolidge said, “No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment…and the highest record of years of prosperity.” Needless to say, the president had to eat his words when the market imploded and a 10-year depression went into effect.
From amateur investors to the highest echelons of financial acumen, no one knows precisely what the market will do. You’d be amazed at how many “financial experts” get it wrong, year after year. Despite the yammering from financial blowhards, the market is more precarious than you think…especially so with the skyrocketing deficit, unthinkable national debt, and several warning signs of an imminent recession.
As stated before, it’s not precious metals’ value you need to worry about; it’s everything else.
Myth #3: Gold’s Return-on-Investment is Poor
There’s no shortage of blogs bemoaning gold as a weak investment, complete with all the earmarks of fake news:
These blogs show year-over-year growth of gold compared to other investments, with very skewed charts and specific time frames that back up their points, without any consideration for alternative points of view.
Let’s look at the past 20 years. In 1999, the closing spot price of gold was $290.25 per ounce. In 2019, the price per ounce has been hovering around $1,300 per ounce. Compare this to the DOW’s gains since 1999, from 16,496.44 to 26,543.33. The S&P 500 has grown from 2,041 to 2,939 over the same period.
Though the DOW’s gains are not negligible at 160%, they pale in comparison to gold’s growth at 460%. The same applies to the S&P 500, at 144% growth. Though investing in gold isn’t a get-rich-quick scheme, investors have made significant profits from gold.
If gold and precious metals don’t get you a decent ROI, you’re doing it wrong.
Everyone thinks they’re an expert until a catastrophe. Every wannabe financial guru is forced to eat crow when the markets shift and the world enters panic mode. Those that scoff at gold as an investment option are likely to lose everything the next time the market goes belly-up. For sound investment advice on protecting your financial future with gold and precious metals, consult with Republic Monetary Exchange today. Call 602-955-6500 or 877-354-4040.
It’s hard to know what will prove to be the key log in the log jam.
That’s the log that, once moved, sets the whole destructive torrent of all the other logs loose to destroy everything downstream in their path.
It could be Germany’s Deutsche Bank.
In the Panic of 2008, Bear Stearns went first. The Fed threw $29 billion into the mess to get JPMorgan to take over the Bad News Bear.
A lot of good that did. Soon other logs were rolling: IndyMac, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac.
It was the biggest bust since the Great Depression.
Deutsche Bank is the world’s 15th largest bank. It is slashing operations everywhere and cutting 18,000 jobs.
While Deutsche Bank is flailing about, the Bank of International Settlements in Switzerland, sort of a central bank for the world’s central banks, is warning that the corporate debt market is growing unstable. From a story in the Guardian:
“The Basel-based watchdog said a surge in the sale of collateralized loan obligations (CLOs), which are collections of low-grade corporate debts packaged for sale to investors, was reminiscent of the steep rise in their forerunner – collateralized debt obligations – which ‘amplified the sub-prime crisis’.”
It is eerily like the last time. Gold was about $600 an ounce at the beginning of 2007. Then banks started failing and the mortgage crisis set gold running to $1900 in 2011.
Deutsche Bank’s problems are just one sign that “the financial system is in trouble,” says Jim Rogers.
Deutsche Bank could be the key log in the log jam. But there are others major European banks that are going to have to confront similar restructuring.
It’s best to just get out of the way of a crumbling financial system. It’s best to move into gold now.
Financial analysts around the world are racing to revise their gold price targets higher… Way higher.
Many are recommending allocating more of their portfolios to precious metals.
Maybe they are starting to take notice of some troubling fiscal and monetary developments.
June’s gold breakout, taking it to over $1,442 was like a wake-up call for many of them. The technical picture is incredibly strong. Even after pulling back to $1,400 an ounce, gold finished last week $74 over its 50-day moving average and $119 over its 200-day moving average.
Maybe somebody noticed that “the everything bubble” engineered by the Federal Reserve and its fellow central banks includes not just a stock market bubble, but a massive bond bubble as well. The bond bubble has resulted in $13.4 trillion in global negative yielding debt!
Negative yielding debt means that when you buy a bond, for say $1,000, at maturity it is redeemed for less than $1,000 dollars.
How long will individuals and even institutions buy bonds with negative yields? I don’t want any and you probably don’t either. It is a market anomaly so great that it fairly screams for informed people to get out of the way before it breaks. To get out of the way of not only bonds but stocks as well.
Maybe they finally noticed all the politicians running around the country promising free goodies to everybody.
Maybe they are starting to pay attention to US spending and debt.
If financial analysts and portfolio managers around the world are starting to notice these things, at last, the target price for gold can barely be computed.
Right now, as John Rubino notes, the financial world’s total invested capital in gold is a mere one percent. What happens when that share rises as it inevitable will? Long-time Templeton Financial fund manager Mark Mobius says portfolios should contain closer to 10 percent gold.
That, says Rubino, would send gold to the moon!
If you have noticed any of these troubling fiscal and monetary developments yourself, call or stop by our offices to discuss ways of protecting yourself and your family with prudent precious metals investments.
What a tragedy Zimbabwe has been. And a monetary laughingstock for the ages.
Now Zimbabwe wants to do it all over again.
Like so many of the African countries that fell under the control of native Marxists-Leninists and other indistinguishable leftist totalitarians in the post-colonial period – Nyerere, Mobuto, Kaunda, Lumumba – it was Zimbabwe’s bad fortune to be home to a madman named Robert Mugabe.
Zimbabwe, of course, is the former Rhodesia. As Rhodesia, it was a food exporting nation. But not long after it became Zimbabwe in 1980, and under the rule of Mugabe, it soon couldn’t produce enough food to feed its own population.
Such stories of economic train wrecks are all too familiar in sub-Saharan Africa. But what made Zimbabwe the butt of the economic jokes was its hyper-inflationary monetary policies.
Gideon Gono, the head of Zimbabwe’s central bank (sort of the Ben Bernanke of Africa) was eventually printing Zimbabwe dollars at a frenzied pace. Annual inflation was reported to have hit 11,200,000 percent in 2008!
Somewhere around the office, I have a 100 trillion Zimbabwe dollar bill. Worthless, except as an artifact of one of the worst inflations in recent history. Afterall, at the end of the money-printing experiment, it took 35 quadrillion Zimbabwe dollars to buy one US dollar.
It was literally not worth the paper it was printed on.
Eventually, Zimbabweans dumped their dollar and began using the US dollar instead. That helped for a while, but now they are back to their old ways. Zimbabwe has banned the use of foreign currencies, including the US dollar, and issued a new Zimbabwe dollar. Predictably, it put the force of law behind it, designating it the new legal tender.
Prices are surging, People are taking to the streets. It is a human tragedy, one enacted again and again. One must feel sorry for the people of the land victimized by their government’s policies. But don’t laugh out loud, because failure is the certain fate of unbacked, irredeemable paper money everywhere. That includes the US dollar.
We can only wonder how many times the lesson needs to be relearned.
“NOTE: So far this year, any pullback of gold below $1,300 has been a favorable opportunity to add to your holdings.”
It’s always risky to make a call like that because we don’t want anyone to fail to acquire gold because they waited for a price pullback. But there are often trading patterns that appear – after a lifetime in the business – predictable.
For example, after a sharp rise, the only way for “long” futures markets traders to realize their profits is to sell. When a market falls, those with “short” positions take their profits by buying. Accordingly, we are never surprised to see a pull-back, no matter how brief, after a good run, or a bounce up after a market moves lower.
Still, modesty demands that we chalk up to good luck that our clients had several opportunities to buy gold below $1,300 as we suggested before the bull market sprang to life in June.
We have just experienced a powerful wave up, in a very short period. From $1,267 on April 29, gold roared up to more than $1,440 in June. On July 1 it closed at $1389.
We would like to suggest now that any pullback to $1,400 or below is a good gold buying opportunity. But be warned: it may not last. There is a very real and broad-based rotation into gold taking place at the level of governments and major institutions globally.
Something big is happening. Take advantage of the price break while you can.
Thought Two: Now that we have entered the second half of 2019, it looks increasingly apparent that the rest of the year will be verypainful for stock investors. We are now in the longest economic expansion in history, tepid though it has been.
David Stockman makes the point that during the past twelve years the stock market’s growth has outpaced the growth of the main street economy by six times.
That is unsustainable.
Stockman asks how the big shots at the Fed could miss this and countless other data points that confirm the basic disconnect between the state of the underlying economy and the market.
The answer is simple: They always miss it.
One portfolio manager interviewed by Yahoo Finance said investors stand to get “clobbered.”
We agree and will have more to say about it in the weeks ahead.
Hint: They didn’t have staggering debt and bottomless printable currency in mind.
As we celebrate America this week, our independence and the birth of our Republic remember that the founders specifically wrote into the Constitution itself a gold and silver based monetary system for the new nation.
First of all, they gave Congress the power to coin money. From Article I, Section 8, “Congress shall have Power…to coin Money.”
Not print. Coin.
It’s hard to believe that proponents of today’s irredeemable, unbacked printing-press money schemes can get away with conflating printed money with coined money.
The founders certainly knew the difference between the two. They had experienced the collapse of the irredeemable paper currencies of the colonies and that of the Continental Congress. The Continental paper dollar was such a failure that it gave rise to a popular expression, “not worth a Continental.” It was an all-purpose description of complete worthlessness.
In Section 10 they addressed the monetary system again without ambiguity: “No state…shall make any Thing but gold and silver Coin a Tender in Payment of Debts.”
Why did the founders incorporate these provisions into the Constitution? First of all, they have learned men, well-read in the historical precedents of paper money failures, base-money inflations, and spendthrift governments.
Secondly, just as they intended to set up a government that would protect our rights, they wanted the new government to protect our wealth as well.
But our politicians had other ideas. They stripped away the protection gold and silver provide to a monetary system, first in the Civil War era with the “greenback dollar,” and then again later with the Federal Reserve system and the final break with a gold-backed monetary system in 1971.
Although we endured a brazen act of unconstitutionality from 1933 to 1974 when the government made it illegal for Americans to own monetary gold, today you can own gold.
So today, our politicians have failed to do what the founders wished, and instead of a sound monetary system that protects your wealth, you have to protect your own wealth.
And that’s exactly why we are here at Republic Monetary Exchange.
Have a happy Fourth of July. Spend some time thinking about the blessings of liberty this week. And when you or someone you know needs help protecting their wealth, call or stop by and find out why the founders trusted gold and silver.
Something about the way the world works seems to have been forgotten in America.
Here it is:
This is a world in which people’s wants are virtually limitless. Resources, on the other hand, the means of fulfilling those wants, are strictly limited.
Economics is about meeting unlimited wants with limited means. It is about trade-offs. It is why accounting is important.
But today people in Washington have an aversion to confronting the real world with its limited resources.
They missed out on that 400-year-old nursery rhyme which said that if wishes were horses, beggars would ride.
These thoughts occurred to us after the Democratic presidential debates. The news site The Daily Caller noticed it, too: “Moderators Ask Zero Questions About National Debt In First Two Democratic Debates Combined.”
“Moderators for the first two Democratic debates asked a combined zero questions about the rapidly expanding national debt.
“NBC and MSNBC hosts Savannah Guthrie, Lester Holt, Chuck Todd, Rachel Maddow, and José Diaz-Balart failed to ask any of the 20 candidates on the stage Wednesday and Thursday night about the national debt.
“The moderators covered a range of topics — other than the national debt.”
You would think that with $22 trillion in unpayable national debt (and unknown trillions more in promises the government has made to pay people for things in the future), candidates and news moderators would be deeply concerned about the ways and means of our national solvency and survival. But not so!
No wonder politics in America has become a contest of offering the people something for nothing: free housing, free medical care, free education, guaranteed annual income.
You knew, of course, that I would bring the discussion back to gold. This indifference to the realities of hard-world accounting and clear-eyed fiscal responsibility got underway with the ending of the gold standard, something that happened in two major steps. The first was with FDR’s unconstitutional confiscation of the people’s gold. The second step was Nixon’s repudiation of America’s promise to redeem its dollars in gold.
A gold-based monetary system provides discipline on governments. No wonder politicians hate it! They can’t simply issue a decree or pass a law that increases the amount of gold in the treasury.
In a gold system, they are forced to live in the real world.
That’s why gold had to go. It is why the Federal Reserve was created to replace it.
If you understand how grim it is that Washington can’t be bothered to deal with little things like national solvency and unpayable debt, you will understand why you need to take steps to insulate yourself from the governing classes’ failing monetary system.
That’s what we’re here for. RME’s experts can help you get started on a plan to protect yourself and your family with gold and silver.
Bloomberg writes this about gold: “Futures post the highest close in six years; funds pile in.”
With gold hitting six-year highs, major institutional financial analysts around the world have been busy revising upwards their precious metals price targets.
Here’s a sampling of comments and observations about the precious metals bull market:
“Gold bulls are back in control,” said one analyst in a Bloomberg article.
Michael Oliver, a technical analyst, said in an interview, “By the end of the year we should see $1,700 in gold. That’s not the end, it’s just where it will be at year-end. We’re in a major situation.
John Rubino headlines a piece about silver this way: “If History Still Matters, Silver Is Poised For A Huge Move.”
Agora Financial wrote this week, “This could be your last chance to hold physical metal before the masses come rushing in.”
Jim Sinclair, a veteran precious metals analyst, called the timing of the June breakout in precious metals with amazing precision. He called for the breakout within a couple of days. Now, says Sinclair, we’ll see a complete monetary re-set by 2024, or heading into 2025, with a gold price so high, I won’t even repeat it here. Not because I disagree with Sinclair, but because at that point, the dollar price of gold will be much less important than how many ounces of gold one owns.
Most of the commentary about the gold and silver breakout refers to trigger events like the Fed’s recent meeting and the Iran situation. The importance of both of those cannot be overstated. We have emphasized both as our regular readers will know.
But there are gathering storm clouds that are being overlooked by most commentators: economic darkness approaches in the form of a developing currency war.
We have observed that the world – including the US – is headed pell-mell into this off-shoot of the trade war. A currency war is a form of financial madness in which the winners are said to be those that most thoroughly destroy their currencies’ purchasing power.
We have been warning about the escalation of a global currency war for a long time, but have increased our warnings and sense of alarm recently (see here and here), warning that gold is always the big winner of currency wars.
“These policies are unreservedly bullish for gold. All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as they all fight their way to the bottom.
“When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
“That means the price of gold goes up!
“The best way to protect yourself from a currency war is to own gold.”
We want to call your attention to the fact that the breakout in gold and silver comes just ahead of the G20 meeting of nations in Japan. Only one other analyst that we have seen also notes the direct linkage between the price movement in the metals and the G20 meeting. It is his view that the Japan summit will result in a sharp devaluation of the US dollar, somewhere on the order of 20-25 percent.
If that is the case, the price movement we have seen in the last month is only the beginning of what is to come.
With gold closing over $1,400 an ounce and silver easily breaking through $15.00 an ounce, the world is discovering that there are a lot of important reasons to own gold and silver.
Reasons like government debt and money printing. Wealth preservation. Financial privacy.
Or just to make money!
Today’s message is for those of you looking for good old-fashioned profits!
Right now, silver is less than a third the price it hit in 1980!
Think about that a moment. How many other investments are less than a third the price they were almost 40 years ago?
Today, everywhere you look, things are higher. In 1980 the median price of a US home was only $47,200. Today it is $226,800.
Oil topped out a $40 a barrel back in 1980. Today it is $54.
At the beginning of 1980, the Dow Jones Industrial Average was 824. Today it is around its all-time high of 27,000. “It’s too late to be bullish” on stocks says a London analyst.
Everything is higher today. Everything except silver.
Is that because no one needs silver?
On the contrary. Because of silver’s dual role – as an industrial metal and prized for its monetary properties – demand rises over time. Silver demand for coins and bullion bars shows powerful growth. Some 60 percent of annual silver supplies are consumed by industrial applications. But new silver mining cannot keep up with overall demand for silver. The shortfall has largely been made up over the decades by scrap silver recovery and by net sales from government stockpiles. But scrap recovery is way down and sales from once huge government stockpiles have now ground to a complete halt as those stockpiles have been depleted.
Today at only $15 an ounce, silver is less than a third the price it topped out at in 1980, $50 an ounce. And that wasn’t just a one-time thing. Silver moved back up to that range – to over $49 an ounce – again in 2011.
Let me state the case I have made here differently. What is more likely to triple in value, the stock market that is already at all-time highs, or silver, priced today at less than one third its 1980 and 2011 highs?
Because somebody wise once suggested that the key to making money is to buy low and sell high, there are a lot of things we might consider to be attractive investments at their prices of 40 years ago. It would make great sense to buy real estate and stocks at the prices that prevailed back in those days.
But you can buy silver today for less than a third its prior highs. And that is a shining profit opportunity!
Gold raced to six-year highs on Thursday (6/20), closing at $1,397.10. That’s a powerful one day move of $48 on news of Iran taking out a US military drone and the expectation of forthcoming US countermeasures.
Gold has now marched up more than $130 an ounce in just the last month!
Silver easily broke above $15 an ounce this week, to close Thursday at $15.49. That’s up from a low last month of $14.27. That’s an 8.5 percent move in just over three weeks.
With these moves, we are watching many of our monetary predictions and warnings about global confrontations being fulfilled.
Two months ago, in one of our frequent posts about the Persian Gulf, we wrote that “the risk of an incident, even an accident, is rising.”
Now, the incendiary geopolitics propelling gold higher is taking place in an environment in which the markets expect more Federal Reserve interest rate manipulation and credit creation, as well.
Although the Fed did not announce an interest rate cut on Wednesday following its Open Market Committee meeting, close Fed watchers concluded that lower rates were in the offing. Bretton Woods Research said it was “95 percent certain the Fed will begin reducing rates sometime during the next 91 days.”
The widespread certainty of lower rates ahead not only pushed gold up, but it also pushed the dollar and treasury market yields lower.
As we reported recently, former Congressman and long-time gold expert Ron Paul is explicit in identifying this as a gold bull market. Similar bullish calls are coming in from every direction. Even Citigroup analysts say $1,500 seems to be a reasonable target for gold. Hedge fund manager Paul Tudor Jones, who we wrote about last week, sees $1,700 gold coming “rather quickly.”
Elsewhere, China’s aggressive gold buying continued in May for the sixth straight month. The chart below from Zero Hedge illustrates this de-dollarization and the move to gold by China and Russia.
We cannot be more clear: These powerful moves in gold and silver are not accidents. The world is growing more dangerous by the moment, and central bank authorities, not just at the Federal Reserve, but in Europe and around the world, know no other course but massive credit creation and money printing.
It is a path of dollar destruction. It is a road of no return.
We advise our friends and clients to add aggressively to their precious metal holdings now.
For those who have not yet taken steps to protect themselves and their families, we urge you to read the timely advice we posted last week: Don’t Wait Until It’s Too Late to Own Gold! Then contact RME Gold to learn more. Simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Gold’s close at $1350 on Tuesday, 6/18 was the highest close in over a year. Last week gold reached an intraday high of $1362.
With that, gold is more than $50 an ounce over its 50-day moving average; it is more than $80 an ounce over its 200-day m0ving average.
So, what exactly is going on with gold?
Just exactly what we have been writing about for months. In fact, the forces driving gold are so plentiful that we hardly know where to begin.
But let us touch on a couple of things.
Things are moving fast in the Persian Gulf. According to the Jerusalem Post, diplomatic sources at the UN describe the US as readying a massive aerial bombardment campaign against Iranian targets.
Secretary of State Mike Pompeo visited Centcom Headquarters in Florida, while both John Bolton and Henry Kissinger have been sighted at the Pentagon. All this as the Trump administration announced plans to send 1,000 more troops to the Mideast.
Meanwhile, China has sounded a grave warning about the US opening a “Pandora’s box” in the region and called on the US to halt its “extreme pressure” campaign against Iran.
At the same time, Russia, describing what it called a “conscious attempt to provoke a war with Iran,” has called on the US to halt its “unthinking and reckless pumping up of tensions in an explosive region.”
We don’t know exactly what will happen next. Things can heat up and cool down, only to ignite again when least expected.
Still, there are other fronts that threaten military confrontations, like the South China Sea. We always try to bear in mind that when the world is focused on one trouble spot, real conflagrations often break out somewhere off the news media’s radar screen. The US has just enough military presence scattered across the globe that any incident anywhere can act as a tripwire to assure US involvement.
At the same time, US debt continues to explode. But foreigners, many of whom are skeptical of US attribution of responsibility to Iran for tanker attacks in the Persian Gulf region, are also dragging their feet when it comes to continuing funding US debt.
China, the largest foreign creditor of the US, sold $17 billion of US debt in March and April, a total of $69 billion over the twelve months that ended in April.
Other countries are picking up part of the shortfall, but they won’t be able to continue to do so in the face of the advancing global trade war and the coming currency war. (It should be lost on no one that both Trump and Democratic opponents like Elizabeth Warren want to drive the purchasing power of the dollar down. That means Americans will get less, not more for their money.) Nor can foreign creditors be counted to keep up with the rivers of US red ink. During the same 12-month period ending in April, US debt soared by almost a trillion dollars.
That’s probably enough to chew on for now. We will leave for another day revisiting other dynamics that will propel gold to unimaginable new heights.
Your RME Gold professional can help you take sound steps to protect yourself and profit from a world spinning apart. But don’t delay! Call or stop by today.
At Republic Monetary Exchange, we take client service seriously.
Our gold professionals are always only a phone call away. And with our blog, we provide our clients with online briefings on news and vital behind the scenes-developments. Special profit tips. Spot-on warnings about stock market sell-offs. The deep significance of record gold buying by the world’s central banks.
Let’s discuss some things you must know to protect your wealth.
I have more than four decades in the precious metals business and founded RME Gold in 2008. We have been serving our client from the same location ever since. And we have a staff of professional gold and silver advisors trained to assist you to achieve your investing goals.
Because of our reputation as the Gold Authorities, we know many people have bookmarked our website and read our alerts who have not taken the necessary steps to protect themselves and their families from the approaching financial upheavals.
We think it is important that as many people as possible be alerted to the economic challenges ahead of us. And, in fact, the more people who own gold and silver, the more resilience the economy will have when the breakdown of the current monetary system takes place.
We don’t want commerce to grind to a halt because no one has reliable money. Nor do we want people to suffer avoidable loss.
But all the information in the world is not enough for people who procrastinate forever. Too many people in this country still have not acted to protect themselves in a currency crisis.
But we are not willing to throw in the towel simply because someone hasn’t taken prudent action yet.
With that said, below are links to four recent posts on the RME Gold blog that should help move people to add gold and silver to their holdings now.
Back in April, I called central bank gold buying a “megatrend.” It is one of the most important and overlooked monetary developments of our time. For more on the story be sure to read The Gold Buying Spree Continues.
The national debt, now more than $22 trillion, is one of the best indicators of the scale of US fiscal recklessness. Through the first eight months of the fiscal year 2019, the US government spent more than $3 trillion, which is a new spending record. The budget shortfall, the deficit for the 8 months, came in at $738,639,000,000. The spending and deficits are, of course, unsustainable. We have taken pains to put them in perspective several times, most recently in a piece called It’s The Titanic and the Iceberg- Full Speed Ahead.
In The Doom Loop, published in March, we confronted a concept economist call “the marginal productivity of debt.” It is one thing if incremental indebtedness is producing more wealth. But it is very serious indeed when debt is outpacing productivity. And that is what is happening in the US today.
And finally, six months ago I surveyed for you three dramatic stock market collapses in the modern era that resembles today’s markets in many ways.
Paul Tudor Jones, the Tudor Investment Corporation founder, believes that gold is the best trade and is going to “scream” over the next year to two years.
Jones is a leading hedge fund manager of long-standing. His philanthropic activities are many. He first became prominent when he predicted the calamitous Black Monday stock market crash in October 1987.
In an interview on Bloomberg TV this week, Jones said:
“The best trade is going to be gold. If I have to pick my favorite for the next 12-24 months, it probably would be gold. I think gold goes beyond $1,400… it goes to $1,700 rather quickly. It has everything going for it in a world where rates are conceivably going to zero in the United States.
“Remember we’ve had 75 years of expanding globalization and trade, and we built the machine around the belief that’s the way the world’s going to be. Now, all of a sudden, it’s stopped, and we are reversing that.
“When you break something like that, the consequences won’t be seen at first, it might be seen one year, two years, three years later. That would make one think that it’s possible that we go into a recession. That would make one think that rates in the US go back toward the zero bound and in the course of that situation, gold is going to scream.”
It is early to draw any firm conclusion about the latest incidents in the Persian Gulf attacks on two commercial vessels. We have lived through too many things like the Tonkin Gulf incident, forged yellowcake documents, and missing WMDs to jump to conclusions. There are too many parties with interests in the region and hopes to gain from an escalation of hostilities to attribute responsibility without definitive evidence. As we have learned, the possibility of a false flag attack is always high.
While Iran has the most to lose, it is worth bearing in mind Iranian President Hassan Rouhani promised last year to his nation that, “If one day they (the US) want to prevent the export of Iran’s oil, then no oil will be exported from the Persian Gulf.”
We note only that no matter who is to blame, and for whatever purposes, such incidents in the Persian Gulf threaten wider warfare and they are unreservedly bullish for gold and silver.
“I think we’re in the middle of a bull market in gold.”
That’s the observation of Dr. Ron Paul.
The former congressman and presidential candidate was commenting on the dramatic surge in gold prices. Even with a correction this week, gold is up more than $60 an ounce since its late May low just weeks ago.
In fact, gold is up more than $300 since its low of $1046 in 2015.
“The dollar’s value goes down. It never keeps up. There are more dollars around. The purchasing power goes down. Real wages go down.”
“The purchasing power of gold is moving up again and people will discover it.”
The gold market has certainly taken note of the push for lower interest rates and more quantitative easing. Looking ahead to next years election, President Trump’s thumping for loose money has been relentless, despite his insistence during the last presidential campaign that we are in the middle of a “big, fat, ugly bubble” in the stock market.
Now Trump wants the bubble to get bigger, fatter, and uglier. Recently he remarked on CNBC that if the Fed had listened to him on interest rates, the stock market would be up another 10,000 points.
David Stockman reacted the bubble talk, warning market participants that “when the trap door opens, you won’t even know what hit you.”
Dr. Paul correctly observes that the market is probably 10,000 points too high right now because of what the Fed has already don.
Still, the Fed can certainly make the bubble bigger if it prints enough money, says Paul. But as it inflates the bubble, the people should be frightened by its enormous size. What happens to the cost structure the people will be forced to face? To medical costs? To education costs?
What’s the solution? Gold. “We need to seriously consider the use of gold as part of the monetary system.” But to really work, a gold standard has to be a gold coin standard, says Dr. Paul.
“My main concern, my interest in this is not only because people should protect themselves; I think it’s a freedom issue.
“This strategy of central banking over the last 50-60 years around the world has all been geared to pay for big government.
“Big government always undermines personal liberties and encourages wars.
“The issue is liberty, and liberty cannot be preserved without sound money.”
People certainly buy gold for a lot of (good) different reasons.
Some people buy gold for long-term capital preservation. If your grandparents or great grandparents had left you a pile of $20 gold coins, you’d be a lot better off than if they had left you a wad of $20 bills.
That’s because the Federal Reserve has destroyed 96 percent of the dollar’s purchasing power.
Other people buy gold as insurance against reckless government policies and money printing.
We think that’s be very good idea. People by fire insurance for their homes, too. But the risk of their home burning down is slight compared to the certainty that the government will spend itself into bankruptcy.
Some people buy gold for privacy. They would like to keep their financial affairs better protected. Since the banks have become snoops for the government, reporting what you do, and since big corporations try to follow you in everything you do and anything you buy, just the peace of mind of having a little privacy is a very good reason to own gold.
You may remember how a lot of things were shut down after 9/11. Have you even wondered what would happen if the increasingly stressed national electricity grid went down, or if solar flares screwed up satellite functions and digital communications?
What would you do if ATM machines stopped spitting out cash?
I can tell you this. In any of those circumstances you would be very happy to own gold and silver, the world’s most liquid commodities.
But there is one more very good reason that people buy gold. And that is for good, old fashioned profits.
They just want to make money.
You may have noticed that when the price of gold (and silver) are suppressed for a long time by the government (it was illegal for Americans to own monetary gold as recently as 1974!); or that when the price is suppressed by wild money printing and interest rate manipulation, it can only be suppressed for so long.
All of these are good reasons to own gold.
The longer they suppress the gold price, the bigger the move when it breaks out! We’ve already seen the spike begin this past week. Gold has now topped $1,300 and is quickly approaching the $1,350 mark. Why wait until $1,400 to protect your portfolio when you still can now with gold spot under $1,350?
I have coined a term for it: the socialist juggernaut.
Socialism is when the government enables other people to live at your expense.
A juggernaut is a large, merciless, and unstoppable destructive force.
And that is what is loose in America. A socialist juggernaut.
You work. You save. And then politicians looking for votes start offering everybody free stuff. Free college. Free medicine. Borrow money for free. Free guaranteed annual income. Free housing.
Somebody has to pay. The money has to come from somewhere. Before long they’re peering into your wallet. Eyeing your bank account. Focusing on your investments.
But as Margaret Thatcher said, the problem with socialism is that pretty soon you run out of other people’s money.
All of this comes to mind because of an investment newsletter that showed up in our inbox the other day. It asked what happens when the socialists come after your wealth.
We have plenty of precedents from all around the world, so the answer is pretty clear.
When the socialist come for your money, they get it.
Sometimes they get it by destroying the currency. The print more and more of it to pay for the giveaways, until the money you have saved looses its purchasing power. It is a stealth confiscation of your wealth.
Sometimes they get it through taxation. Or by the expropriation of your private property.
And there are other clever ways the socialists get your money. They may hope to borrow more. But if people decide they don’t trust the state enough to loan it any more money, they may insist that every bank and financial institution and even your personal retirement account must invest a certain percentage of its assets in their untrustworthy bonds. Bonds that are certificates of guaranteed confiscation.
Oh, they’re clever! When the socialists come for your money, they invent financial devices and monetary shenanigans to get it faster than you can keep up.
Ask the people in Venezuela. They get it by manipulating prices, by rationing, by increasingly burdensome financial regulations.
The evidence that a socialist juggernaut is loose on the land can be seen in the way America’s middle class is being wiped out, and in the mounting debt of the American people, borrowing and struggling to keep up. It can be seen in the compounding debt of the nation-state. It can be seen in the rise of political fantasies like Modern Monetary Theory and political figures who never learned that wealth comes from production, not from redistribution.
What do you do when the socialist come for your wealth?
You get your wealth out of the game since it is not a level playing field. You get it out of the institutions they control.
You refuse to be victimized.
Somebody wise once called gold “capital on strike.” When you realize your wealth is in their crosshairs, you have to go on strike.
The world has been through these episodes over and over: Venezuela, North Korea, Cuba, East Germany and much of Eastern Europe, the Soviet Union, and Mao’s China are but a few of many, many examples.
Gold remains the best means of getting out of the way and preserving your wealth when the socialist beast roams the land.
ONE FINAL NOTE:
If you have missed gold’s powerful breakout because you have been mesmerized by the stock market, we will share with you an observation from Bill Bonner, another newsletter writer:
“In the downturn of 2000, the Greenspan Fed cut the federal funds rate by 500 basis points. Still, in terms of gold, the Dow fell 82%. In 2008/2009, the Bernanke Fed again cut rates by 500 basis points. Once again, stocks nevertheless lost 68%.
“And now, the expansion seems to be approaching its end (it has to end sometime!)… and the Fed only has 240 basis points to cut.
“Besides, the Fed cannot really make companies more valuable. It can’t increase their sales; it can’t really increase their profits. It can’t improve their products or strengthen their marketing. It can’t create more time. Or more real money. Or make people smarter or more inventive.
“All it can do is mislead you and misallocate resources with fake money and fake price signals.”
April, says the famous poem The Waste Land, is the cruelest month. But May was pretty tough on the top-heavy stock market, as we had warned. (See here, here, and here.) The Month of May was cruel to investors.
Both the Dow Industrials and the S&P 5oo lost six percent in May. The Nasdaq fell about eight percent.
What happens when a market falls? What does it take to restore your position? This is a very important consideration and one of the reasons we have been advising you to seek safety in gold.
Let me give you an example. Suppose a stock index you have invested in is at 10,000 points. If the market falls 20 percent, your index is now worth 8,000. That is straight forward, right?
So, you need the market to bounce back up 20 percent to be made whole again, right?
At the new price of 8,000, if the index climbs a full 20 percent, it is now worth only 9,600 points
The market fell 20 percent. But then in climbed 20 percent back up. Yet you are still down four percent.
And that is crueler than any month.
In fact, you need the market to climb 25 percent just to break even!
That is why we warn so repeatedly that in this environment of an obviously top-heavy and wobbly stock market, it is better to sit out the game.
Don’t forget for an instant that last fall the S&P 500 dropped 25 percent in just 64 trading days! And when a market falls 25 percent like that, it has to climb back up 33 percent just to get you back to break-even!
That’s a pretty steep climb!
The safest place to sit out the risky stock market game in an era of trade and currency wars, unpayable government debt, and reckless money-printing, is gold.
Contact RME Gold to learn more. Simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Today we have a rare and potentially extremely profitable opportunity for our friends and clients.
The ratio is so high right now that you can get more ounces of silver for each ounce of gold than at any time since 1993!
It is like a second chance to take advantage of this opportunity.
Then, when the Gold-Silver ratio moves lower, you will be able to trade your silver back into gold with a net increase in the amount of gold you own!
More gold in your portfolio! Without making any additional investment!
Recently the ratio has been in the high 80s range, creating a spectacular opportunity for you to increase your precious metal holdings. It is a simple strategy that the professionals us to increase their wealth.
There is nothing magical about it. Indeed, like so many of the best wealth building techniques it is really the essence of simplicity.
Let me give you an example of this powerful strategy.
Suppose you have 25 ounces of gold. On a day when the Gold-Silver ratio is high, say 86 to one, you trade your gold for 2,150 ounces of silver.
Then down the road, when the ratio reaches 50 to one, you trade your silver back into gold. At that ratio, your 2,150 ounces of silver would be equal to 43 ounces of gold.
With this simple strategy, you would have increased your gold holdings from 25 ounces to 43 ounces, an increase of 18 ounces of gold.
That is a 72 percent increase in the amount of gold you own! With no additional investment.
This example, using the spot prices of gold and silver, is for purposes of illustration only because of transaction costs and since different coins and bars have their own premiums relative to the spot prices. But I have chosen to be very conservative in illustrating this strategy.
I used the example of trading with the ration at 86 to 1. But the actual ratio as I write this is almost 90 to 1, even more favorable for making the trade. And when you trade back into gold, the ratio could very well be even lower than the 50 to 1 example I used to illustrate the strategy, meaning more gold in your portfolio. Your RME Professional will be able to give you specific recommendations depending on market conditions at that time.
Many of our clients and I, myself, have used this powerful strategy for years to substantially increase our precious metals holdings.
The key takeaway is that with the Gold-Silver ratio at almost 90 to 1, the price of silver is historically low relative to the gold price.
In a rising market, silver in poised to appreciate even faster than the price of gold. With this strategy, you are never out of precious metals, but you always emphasize the one in your holdings with the greatest promise of profit.
And that is a good place to be!
If you own gold, even if you didn’t buy your gold from us, let us show you how the professionals use this ratio to maximize their profits. Call or stop by.
After all, why should you let the professionals have all the profits?
Switzerland has a long, long history of taking issues of money, wealth, banking and financial propriety very seriously.
These are some of the reason that Switzerland has long been a prosperous island of stability surrounded by centuries of chaos and ruinous inflation, currency failure, and bankruptcy in neighboring countries like Germany, France, and Italy.
It is no surprise that Switzerland ranks near the top in measures of economic stability, growth, privacy, and prosperity. In terms of size or natural resources, it would not rank near the top at all. But it rates number one in Europe and number four worldwide in the Heritage 2019 Index of World Freedom. Its per capital GDP ranks among the highest in the world.
For a very long time the Swiss Franc was one of the world’s premier currencies. It even had a statutory gold-backing.
Although Switzerland in recent decades has succumbed to some of the paper money mania that has proven so destructive elsewhere, still the preference for sound money runs deep in the national ethos of the Swiss people.
A new survey reveals the persistence of Swiss attachment to gold. In fact, the headline on a report by the University of St. Gallen reads, “Swiss people like to invest in gold.” 48 percent of Swiss surveyed mention gold among their favorite investments. That’s second only to real estate, and well ahead of stocks and funds, and even traditional saving accounts. Platinum ranks surprisingly high among the Swiss, at ninth, and even ahead of silver which ranks 13th.
Switzerland has the second highest per capital gold demand in the world, right after Hong Kong, also noted for its prosperity. Unfortunately, the US doesn’t even rank in the top 10.
Almost forty percent of the Swiss surveyed mentioned “security” as among their reasons for preferring gold.
Gold remains the world’s super sovereign currency. As such, it’s linkage to wealth, prosperity, and economic security is not a coincidence.
Speak with one of RME Gold’s professionals to find out how to anchor your wealth, prosperity and security in gold.
We would like you, and all our friends and clients, to take a good look at the accompanying chart. It will help you read the signs of the times.
It is an eye-opening portrayal of this stage in the everything bubble! As you can see from the movement up by the S&P500 since last Christmas, the stock market has been powered by the Fed’s reversal of its announced interest rate increases at the end of last year.
In fact, as we have pointed out many times, this entire stock market bubble is the offspring of the Fed’s interest rate suppression.
The chart shows the yield on the 10-year US Treasury moving down, down, down, down.
Wednesday’s market action (5/29) was strong confirmation of the longer-term picture illustrated here. The 10-year yield fell to 2.26 percent. That’s the lowest yield since September 2017. At the same time stocks fell to 12- week lows, with the Dow Industrials gapping down to close beneath its 200-day moving average.
Lower yields mean that money is moving massively into the bond market. Why would Wall Street stampede into the bond market at these historic low yields? The answer comes in two parts:
They are getting out of the way of a stock market calamity.
And they expect that the Fed will respond to a stock market calamity by attempting to drive rates even lower – an effort to goose the economy as a recession looms.
We expect the same thing.
The Federal Reserve is a one trick pony. It has one thing that it does: It creates money and credit out of nothing. That is the Fed’s response to every crisis, a banking liquidity crisis, a housing bubble that popped, or a collapsing stock market.
One other important note:
There is an anomaly in the interest rate market called a yield curve inversion. In this case the yield on the 10-year Treasury is lower than the yield on the three-month Treasury.
That is abnormal. It is an important signal that something is amiss.
As we have pointed out, normally longer-term interest rates are higher than short-term rates. After all, whatever you might charge to loan someone money for three months, you would certainly want a higher rate to loan money for ten years. You have given up the use of your money for a longer time during which market rates may change markedly, while a longer-term increases the risks that can befall the borrower and the return of your money.
In normal markets, long-term rates are higher than short-term rates. An interest rate inversion like the one we are experiencing, when long-term debt instruments develop lower yields than short-term ones, is a classic indication of a weakening economy and of recessions.
It is an indication that investors are beginning to panic!
As a post on Zero Hedge put it, “The last two times the yield curve inverted like this were March 2000… right when the Tech Bubble burst… and late 2006… right as the housing bubble burst… and about 12 months before the Great Financial Crisis…”
This is a key juncture to buy gold. The deficit picture will worsen in a recession and Fed money printing will become much more aggressive. At the same time, many of the people fleeing the stock market, those who can read the signs of the times, will look to the safest of safe havens.
There are two takeaways from today’s’ commentary. Let me share them with your right up front:
Takeaway #1: President Trump wants to have a currency war with China, and ultimately with the rest of the world.
Takeaway #2: The big winner in currency wars is gold.
In addition to continual calls from the administration for all the elements of a currency war, specifically for the Federal Reserve to lower rates further, for more Quantitative Easing (money printing), and for tariff regimes, the President recently tweeted,
“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”
In response to the taunt, a Chinese government newspaper, the Global Times, reports that China is preparing for a currency war, with steps being taken that will position it to strike back.
A currency war occurs when nations deliberately depreciate the value of their currencies in order to stimulate their economies. When trading partners impose tariffs on a country’s incoming goods, the exporting nation will often depreciate or devalue its currency so that its goods become cheaper to foreign buyers. In this way it hopes to offset the additional cost imposed on its goods by the tariffs or taxes imposed on them.
It is a deranged strategy. Countries devalue their currencies by manipulating interest rates lower and printing money – or to use the euphemisms of the day, by “quantitative easing.”
While it can make its manufactured goods cheaper for foreign buyers with such machinations, it makes everything its own citizens buy from foreign producers more expensive. So, if a country like China drives the yuan down, the Chinese pay more for raw materials, gasoline, food, and anything else that comes from abroad.
When China devalues its currency, it makes the Chinese people poorer.
When America devalues its currency, it makes the American people poorer.
A country the devalues its currency is saying that it wants its people to get less for their money.
Who wins currency wars? People who own gold are the big winners.
In his book Currency Wars, author Jim Rickards identifies three major currency wars in the last 100 years.
The first, from 1920 – 1936 saw the complete collapse of some currencies, while President Roosevelt declared a bank holiday and steeply depreciated the dollar.
Gold holders were the big winners as gold skyrocketed from the gold standard price of $20.67 an ounce to $35 an ounce.
Gold appreciated 69 percent.
The second currency war, Rickards dates from 1967 – 1987. There can be some disagreement about the dates, but there is no disagreement about the dollar’s loss of purchasing power during the period. As the currency war opened, gold was still officially priced at $35 dollars an ounce, but in the free market none was available at that price. It was the period that saw the silver in US coinage replaced with cheap base metals, although the government went to a great deal of trouble to make the new coinage appear to still be made of silver. Most of the action took place during the stagflation decade of the 1970s, and by the beginning of the 1980s gold has raced to $850 an ounce.
Rickards identifies the third currency war as having begun in 2010. It continues today. Given the risk of the collapse of the global monetary system, Rickards suggests that Currency War III may be the last currency war.
Currency War III includes the so-called Great Recession, Quantitative Easing, and an explosion of unpayable government debt. Even with events of that magnitude, it is fair to say that until now, Currency War III has been a low-grade affair. Even so, it saw gold roar up to $1,900 per ounce in 2011.
But now the currency war is getting going in earnest as threats and counter-threats of rising intensity fly back and forth across the oceans.
If Rickards is right that this could be the last currency war, then there is little point in attempting to forecast just how high the price of gold will go in terms of a dollar that itself will be dethroned as the world’s reserve currency.
In the final analysis, wealth will be measured not in terms of such irredeemable paper currencies, but in terms of how many ounces of gold one owns.
In currency wars, the winners are people who own gold.
We’ve all heard of bloggers and writers – mostly conservatives, but not all – that have been de-platformed by social media. These are people that have said something that the social media giants like Facebook and Twitter have found unacceptable, and who have therefore been banned and lost their access to their audiences.
But have you heard of people being de-platformed by their bank?
Actually, in the banking world, it is called “de-risking.” And apparently, a growing number of people has had their accounts closed. Some are finding their funds frozen along the way.
A common pretext for de-risking is a bank’s finding that it isn’t making enough money off a customer’s account. But the proliferation of governmental policies and regulations and the war on cash are also responsible for banks closing customer accounts.
Mark Nestmann, whose business involves helping people establish foreign domiciles, writes, “In the US, tens of thousands of gun sellers, coin dealers, fireworks suppliers, dating services, US citizens living abroad, Muslim students, money services businesses, diplomats, and even porn stars like Teagan Presley have had their accounts closed due to the de-risking phenomenon.”
According to Nestmann,
“It’s not really surprising that US banks are de-risking as fast as they can. They must follow strict ‘know your customer’ rules and also report an ever-larger list of supposed ‘suspicious transactions’ to a secretive Treasury bureau called the “Financial Crimes Enforcement Network,” (FinCEN).
“If a bank perceives a customer as ‘high risk,’ it’s safer to close their account than to possibly face stiff fines and even criminal prosecution. And Congress keeps passing new laws requiring ever-greater levels of surveillance over our financial transactions. Is it really a surprise that a growing number of banks refuse to provide banking services to a growing number of categories of customers?”
One financial consultancy that studied the phenomena found it ironic that regulations purportedly spawned to protect financial institutions are having the opposite effect. They are driving people and business away from financial institutions.
Meanwhile, so-called “anti-money laundering” provisions are casting an ever-widening net. Banks have required foreign embassies, over the protest of the State Department, to close their accounts, while people involved in marijuana commerce in venues where it is perfectly legal to have had banks close their accounts.
All in all, it is another development in the fatigue and confusion of the financial and monetary system. The government, demonstrably incapable of managing its own financial and monetary affairs, compensates with a flurry of intrusions into the private affairs of the people.
We prefer to look at the term “de-risking” from the perspective of our clients and the American people. That is why we recommend holding at least a substantial portion of your wealth in gold. It is the most efficient way to insulate yourself from the financial risk of a hopelessly indebted government and the monetary risk of a confused, money-printing central bank.
Speak with an RME Gold associate today to find out how to de-risk yourself. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
There is an old expression in the stock market that they never ring a bell at the top. It’s true.
They shouldn’t need to ring a bell. This expansion is already long-in-the-tooth, almost ten years old. In a few weeks it will be the longest on record. Ever. And one of the weakest, too.
In place of the bell, look at the burgeoning trade war. Or look at some of the ridiculous IPOs. Uber and Lyft are the biggest money-losing companies to ever go public. Doesn’t anybody remember the Nasdaq bubble and Pets.com, eToys.com, Drugstore.com, or DrKoop.com?
Just as they never ring a bell at the top of the market, former congressman Ron Paul says that the Federal Reserve never announces that it created a bubble.
It has created so many that you might think they would know exactly how and precisely when they do it so that they could announce it.
It’s just that they really don’t want you to know it’s a bubble. Besides, you’ll find out soon enough – once it pops and the damage is done!
In the meantime, they can’t announce a bubble like the dotcom bubble, the housing bubble, or today’s stock market bubble because, as Dr. Paul says, they want to avoid a panic.
“The bubble is there,” he says. “No one wants to admit it. I think people should prepare for it. And quite frankly, my opinion is, this bubble is really big!”
Of course, he’s not the only one who notices that this bubble is much bigger than the others the Fed has created. And that’s really saying something, since most have them have been stupendous. “When the Nasdaq bubble burst, it lost 80 percent of its value,” Paul reminds us.
“It will be the worst in my lifetime,” says Jim Rogers of the coming bear market.
But they don’t ring a bell at the top.
And the Fed never announces that it created another bubble.
Avoid the casino economy! The stock market looks more like a casino every day. And you know that casino odds are never in your favor.
Casino? Consider David Stockman’s observation that “between the September 21 intra-day high of 2,941 and the 2,351 close on Christmas Eve, the S&P 500 index dropped by a stomach-churning 25% in just 64 trading days.”
That drastic move wasn’t because the underlying conditions, sales, markets, or revenue picture of American business had changed dramatically in those three months.
It was because the Fed intended to raise interest rates. Betting on the future value of stocks based on what a handful of unelected and mostly unknown Fed officials may do next is like betting on a roll of the dice.
It is not investing. It’s a crap shoot.
Then the Fed changed its position on interest rates and the market moved back up. The Dow Industrial began trading above its 50-day moving average.
But suddenly, with the next roll of the dice and some announcements from Washington, a trade war began gaining traction. Now the market has fallen for two weeks and is trading below its 50-day moving average again.
With every little change in the breeze, with every change in the Washington winds, the market reverses itself.
That is not a reputable trading environment. It is a casino.
The more volatile the stock market, the more dangerous to you. And the more important it is to own gold.
Casino markets come and go. But gold has been the preferred money of the world for thousands of years, the supra-sovereign currency that outlasts all paper money schemes, and the best haven for safety as governments gorge themselves to death on debt.
Leave the casino. Cash in your casino chips. Protect yourself and your family from the casino economy. With gold and silver.
Speak with an RME associate today. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Today some key insights and financial news, little noticed and mostly overlooked stories that affect our economy, paper money, and gold; bite-size news that we think our friends and clients should know.
China Cuts US Debt Holdings
“China reduced its holdings of U.S. debt in March by about $20.5 billion, bringing its overall ownership down to $1.12 trillion.
“The holdings are at their lowest level in two years and come amid escalating trade tensions.
“There’s worry that China might use its status as the world’s No. 1 U.S. debtholder as leverage in trade negotiations.”
Social Security just ran a $9 trillion deficit, and nobody noticed!
“Social Security’s annual Trustees Report came out recently, and it showed Social Security ran a gigantic $9 trillion deficit between last year and this year. The system’s long-term unfunded liability is now $43 trillion, up from $34 trillion last year.
“Funny, nobody noticed.”
Boston University Professor Laurence Kotlikoff, The Hill, 5/14/19
Fed Issues More Warnings on Danger of High-Risk Company Debt
“The Federal Reserve escalated its warnings about the perils of risky borrowing by businesses Monday, saying firms with the worst credit profiles are the ones taking on more and more debt….
“The U.S. central bank’s latest financial stability report said leveraged-lending issuance grew 20 percent last year, and that protections included in loan documents to shield lenders from defaults are eroding.”
Dutch Central Bank Admits ‘The Rich Get Richer When We Print Money“
“Loose monetary conditions strongly increase the top one percent’s income and vice versa. In fact, following an expansionary monetary policy shock, the share of national income held by the richest 1 percent increases by approximately 1 to 6 percentage points.”
“… the increase in top 1 percent’s share is arguably the result of higher asset prices. The baseline results hold under a battery of robustness checks…. Furthermore, the regime-switching version of our model indicates that our conclusions are robust, regardless of the state of the economy.”
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We think this is one of the most important warnings we have posted. Please read it carefully.
We posted an item months ago about the way that tariff wars can deteriorate into currency wars.
A currency war is about to break out.
A currency war occurs when nations deliberately weaken the value of their currencies in order to stimulate their economies. When trading partners impose tariffs on a country’s incoming goods, that exporting nation will often depreciate or devalue its currency so that its goods become cheaper to foreign buyers. In this way, it hopes to offset the additional cost imposed on its goods by the tariffs or taxes imposed on them.
It is a deranged strategy. Countries devalue their currencies by manipulating interest rates lower and printing money – or to use the euphemisms of the day, by “quantitative easing.”
While it can make its manufactured goods cheaper for foreign buyers with these manipulations, it makes everything its own citizens buy from foreign producers more expensive. So, if a country like China drives the yuan down, the Chinese pay more for raw materials, gasoline, food, and anything else that comes from abroad.
When China devalues its currency, it makes the Chinese people poorer.
When America devalues its currency, it makes the American people poorer.
A country the devalues its currency is saying that it wants its people to get less for their money.
Now Trump, expecting China to devalue its currency in the new trade war, is challenging the Fed to do the same thing: print, PRINT, PRINT!
Here’s an early Tuesday morning tweet from Trump:
“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”
The President and his advisors have been calling for the Fed to lower interest rates a full-percentage point and to start another round of Quantitative Easing anyway, for domestic economic reasons. And to help Trump get reelected.
Now they are calling for it as a tool in the trade war with China.
There policies are unreservedly bullish for gold. All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as the all fight their way to the bottom.
When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
That means the price of gold goes up!
The best way to protect yourself from a currency war is to own gold!
We hope you will re-read this post and share it with your family and friends. It is timely and extremely important.
Please contact your RME Gold professional if you have any questions.
Things to keep in mind while Alien and Predator are locked in mortal trade combat, whipsawing the stock market, and trampling ordinary people underfoot:
There is hardly a sector of the market or an area that won’t be affected. American farmers are already being slammed. To cite but one example, Farmers for Free Trade reports that in 2017 farmers in Washington state sold 270,000 metric tons of wheat to China. In 2018, their sales dropped to zero.
At the same time, the costs of the trade war include billions in welfare the Department of Agriculture is paying to the struggling farmers.
The additional taxes on goods (tariffs are taxes) are costing Americans an estimated $3 billion a month.
The research teams at the major investment banks are pumping out reports daily about which industries and stocks will be hit hardest. It’s hard to find any that won’t be hurt. And the currency consequences can be huge as well.
The last big trade war, and the Smoot-Hawley tariffs, led to a world-wide stock market crash and a global depression that seemed endless.
We don’t pretend to know how long this stand-off will last or who will blink. Tariffs always invite retaliatory tariffs, but no one can say in advance how much things will escalate.
We’ll leave others to take wild guesses about such unknowns.
We prefer to advise you to simply get out of the way.
We’ve all seen terrified and innocent bystanders get crushed in movies with battling behemoths like King Kong vs. Godzilla. We think it wise to stand aside and not be crushed and victimized.
That means retreating to the safety of gold and silver. Trade war often lead to hot wars, but even when they don’t, they are still financially destructive to stocks and paper currencies.
Speak with your RME associate today about getting your wealth out of the way as giants thrash about destroying anything in their path.
It was just days ago that we warned the stock market was hanging by a thread.
Now we have seen just how thin that thread was.
The one-day 473 point drop in the Dow earlier this week is nothing to sneeze at. As of this morning, its getting hammered again- down over 100 points as of print.
(Incidentally for those that follow technical signals, the Dow closed below its 50-day moving average for the first time since January.)
This market is based on an illusion. Stock prices are based on the expectation that everything will work out perfectly:
That there will be a perfect trade deal with China;
That the deficits don’t matter;
That the national debt doesn’t matter;
That warships steaming to Venezuela and the Persian Gulf don’t matter;
That the Fed can really control interest rates;
That the Fed, which still has a big problem with QE I, II, and III, will launch another round of money printing to help Donald Trump get reelected.
But as the latest drop proves, all of those views are astonishingly naïve. At the faintest sign that one of these naïve beliefs will prove untrue, the Wall Street professionals head for the door.
They can be quick. That’s because they want to make sure they beat you out the door!
Deal with China?
Perhaps a last-minute trade deal with China will be pulled out of a hat. Or perhaps the Plunge Protection Team (a secret little Deep State operation created to manipulate the stock market) will engage in some sleight of hand to tap the brakes on the new bear market.
But ask yourself this simple question: If the market is as sound as Trump insists, why does it need unprecedented rate cuts and still more Quantitative Easing to keep going?
It’s like proclaiming someone a world-record setting athlete and then pleading for performance enhancing injections so he can compete.
In much the same discordant manner, the GDP is supposed to robust, but the national debt is leapfrogging up a trillion dollars a year. (Months ago, we wrote about the marginal productivity of debt: How much growth do you get for each additional dollar of borrowing? Economist Keith Weiner has formulated this into an economic law: If the marginal productivity of debt is less than 1, the economy is not sustainable. See our post on The Doom Loop here).
This stock market is a bubble. It’s not a bubble because we say it is a bubble. It’s a bubble because like all bubbles it is driven by the artificial creation of money and credit.
And like all bubbles, it will meet its pin.
That pin could be anything. Expected or unexpected.
Now, you would think that after the dot.com bubble and the housing bubble, the people would be in no mood for a third Fed-engineered bubble in this young century. But as we have been saying, the people don’t really understand how these things work.
And the media sure isn’t going to tell them.
That’s why we take it as part of our job to help them figure it out with these posts, to show them the wizard behind the curtain.
If all your investments are in the stock market, you’re doing it wrong. Historically, folks have lost their shirts in the stock market, even in times of extreme optimism. As investors scramble to get ahead of the next hot stock or investment opportunity, they often neglect to consider precious metals.
Here are seven reasons why gold is the best investment to make in 2019.
1. 2019 Is Filled with Uncertainty
World events like Brexit, U.S.-China trade disputes, and a potential economic downturn in the States point to volatility in stocks and indexes in 2019. A 2019 poll by interactive investor shows one-third of investors expect the FTSE 100 index to see either negative or flat growth this year.
Investors who are worried about the instability that may come can hedge their bets with gold. Even during times of financial stress, gold remains one of the most valued currencies around the globe.
2. Experts Are Predicting Strong Outlooks for Gold
Financial experts agree that the U.S. dollar “looks to be in retreat,” according to a 2019 report by Forbes. That means the price of gold is expected to rise, which is good news for gold investors who purchase early. Goldman Sachs and the World Gold Council both predict bullish markets for gold due to the economic impact issues like the government shutdown.
Gold beat global equities and commodities for the fourth quarter at the end of 2018, with daily trading volumes almost the same as S&P 500 companies. In January 2019, gold achieved a golden cross, meaning the 50-day moving average crossed above the 200-day moving average, which is a bullish sign for the price of gold.
3. Gold Is Stable
Do you hate watching your investments fluctuate, cringing every time the stock market value is in the red? Don’t panic, don’t punch a wall, and don’t swear off investing. Gold is one of the most stable investments you can make.
When inflation hits, gold rises in value. When the U.S. dollar deteriorates, the value of gold rises. So even in a recession, gold is a solid investment. When a bear market hits, gold tends to go up in value as investors look to stable investments. And now that we’re in our 10th year of a bull market, a bear market is due any time.
4. Gold’s Value Doesn’t Change
Even when the price of gold takes a dip, its value isn’t affected. Gold maintains value over time because it’s a commodity. There’s only a fixed scarce quantity of gold, compared to a fiat currency like the dollar which holds no inherent value. Since it’s the most sought-after precious metal for jewelry, there is always a demand for gold.
A 2017 report by Duke University found the purchasing power of gold remains largely the same over extended periods of time. So, even though you’re not going to grow your investment with gold, you’re not going to lose your investment, either. Take that, bear market!
5. Gold Is Liquid
We’re talking liquidity here, and not liquid like water. Because gold is universally valued as a form of viable currency, it can easily be converted into cash around the globe. There aren’t any commodities more valuable than gold, which is extremely rare and difficult to extract but highly prized in all types of countries.
If the country you live in experiences an economic collapse (ahem, Venezuela), having gold on hand gives you options to keep your finances strong. Since gold doesn’t decay or lose its quality or structure, it’s as solid an investment as it is a physical commodity.
6. Gold Diversifies Your Portfolio
The more you rely on one type of investment, the more risk you incur should that investment go south. Adding gold to your portfolio is a great way to diversify your investments, which lowers the overall risk. It’s like having a built-in insurance policy for your portfolio.
The closer you are to retirement or older you are, the less risk you want with your investments. Since gold prices tend to counteract stock prices, it’s a natural stabilizer for your portfolio.
7. Gold Is Real
Have you ever lost your wallet and all the cash in it? Or how about thousands of dollars in one fell swoop on the stock market? The feeling is crushing. You may have wished you had just stuffed your dollars into your mattress for safekeeping.
Gold is a tangible investment that will always be there for you. It can’t be destroyed by a natural disaster. It can’t be hacked and stolen by an identity thief. With safe storage, you’ll never lose it and can always access it when you need it.
Ready to Go After the Gold?
We say gold isn’t just the best investment of 2019 – it’s a must-have every year. Owning gold in an IRA is a way to protect your finances, no matter what the market experiences this year and beyond.
“What is the fundamental difference between any failed currency and the US dollar? Except for degree, not much. Like other currencies that have in time returned to their ultimate commodity value (what is the value of little rectangular pieces of paper, especially those that have already been printed on?) the US dollar in unbacked and issued without restraint.
“If you think that is an exaggeration, let me point you to the trillions of dollars the Fed created out of thin air to buy government bonds and toxic mortgage securities from the money center banks in the years between 2008 and 2015. That’s money printing on a Venezuelan scale!”
We’ll conclude today post with a few words from a January piece called The New Venezuela, in which we wrote about the socialist juggernaut running loose in America:
“Their prominence and the spread of socialist ideas is a really good reason to start attending to your precious metals portfolio today. The left is determined that America should tread the path of socialism and become the next Venezuela. Socialism’s manifest failures are not enough to dissuade them from trying to tank what is left of our prosperity and charting a ruinous course for Americans.
“Millions of impoverished Venezuelans wish they had transferred their wealth into gold and silver while they still could. Before their Hugos and Maduros took over.
Have you noticed that practically nobody in Washington talks about the national debt anymore?
Not so long ago there were committees of concern about the national debt, national debt commissions, people signing petitions, and coalitions in Congress to rein in the debt.
But now, at $22 trillion dollars of debt and climbing, there is none of that. If you listen carefully, all you can hear is crickets!
22 trillion is an amount more than the human mind can adequately comprehend.
22 trillion… let’s put this astronomical number into some perspective: To travel 22 trillion miles, you would have to go from the Earth to Pluto and back… 3,081 times!
The silence about this incomprehensible national debt reminds of the famous Sherlock Holmes tale of the dog that didn’t bark. The dog didn’t bark in the night because the criminal in the story was familiar to him. There was no point in alerting anyone.
Now, no one bothers to raise an alarm about the national debt because there is no reason to. Nothing can be done about it now. We have passed the point of no return.
Even with todays Fed-engineered low interest rates, the interest on the debt is climbing at a hair-raising pace. Interest payments on the federal debt rose at a double-digit rate in the first half of the current fiscal year.
Here’s the way the Congressional Budget Office reported on the results for the six months ending in March: “Outlays for net interest on the public debt increased by $22 billion (or 13 percent) because interest rates on short-term debt are substantially higher now than they were during the same period in 2018 and because the amount of federal debt is larger than it was a year ago.”
The Fed Can’t Stop Rising Interest Rates
No matter what the Fed does, market interest rates will go up. And they will go higher on US Treasury debt as the grim prospects of that debt being repaid become more widely known.
Rather than attacking the federal debt, politicians are offering more entitlements, new foreign wars, and Medicare for all. They are promising to wipe out student debt, pay reparations, and increase defense budgets. They are planning to spend trillions on new infrastructure programs and are talking about universal basic income and regime change interventions in places like Iran and Venezuela.
Washington has grown accustomed to the idea that the Fed can print money to fund its vote-buying schemes. Yes, the Fed can bail them out… but only by destroying the dollar. And that’s just what they will do. In our lifetimes we have never before seen Congress this irresponsible.
The time is long past when you could hope that somebody in Washington will put things right and protect the wealth and prosperity of the American people.
Now you must protect your own wealth and prosperity.
I encourage you to take steps now to do so. Begin by speaking with the RME gold authorities. Simply call our office at 602-955-6500 and you will be connected to one of our knowledgeable gold and silver professionals.
How do you think President Trump would like to have a full Monty recession underway around while he’s campaigning for reelection in 2020?
He says the Fed is holding back the economy. That’s why he’s calling for the Fed to lower interest rates a full-percentage point and to start another round of Quantitative Easing.
As we wrote here several weeks ago, “It has taken a lot of loose money to drive the stock market to today’s levels. Now the market, addicted to losing money, is growing skittish. As we saw at the end of last year, the stock market wants the Fed to provide it with another fix.
“It’s like a junkie getting the heebie-jeebies. If it doesn’t get its fix, it will fall. Hard.”
So when Fed chairman Powell failed to dangle a rate cut in front of the stock exchanges the other day, the Dow quickly gave up about 500 points. (And focused our attention on the opportunity to take advantage of the buying opportunity in gold!)
Are lower rates and more Fed bond buying in our future? The President is demanding it. And the stock market is threatening that it will do something drastic once again if it doesn’t get its way.
Remember how gold skyrocketed during QE 1, 2, and 3 beginning in 2008?
It’ll happen again.
Second Thing You Should Know:
It starting to look like “Groundhog Day”. The same thing over and over: Foreign central banks just keep buying gold.
Here’s the 5/1/19 Bloomberg story, “Central Banks Are Ditching the Dollar for Gold”:
“First-quarter gold purchases by central banks, led by Russia and China, were the highest in six years as countries diversify their assets away from the U.S. dollar.
“Global gold reserves rose 145.5 tons in the first quarter, a 68 percent increase from a year earlier.”
The global de-dollarization and central bank move to gold is one of the most important monetary events of the day. And yet it is overlooked by the mainstream press and financial establishment in a way that is disappointing but not surprising.
Things haven’t been sound on the money front for a long time, and certainly not since the Fed was created and we left the gold standard.
We developed quite a reputation for out timely warnings about the stock market last year (see here, here, and here.)
What took place in stocks late in the year can honestly be described as a bloodbath. Only the most extraordinary policy reversal by the Federal Reserve was able to keep Wall Street, hedge funds, and their robot algorithms trading in the game.
We turn now to the fearless David Stockman, President Reagan’s budget director and himself a long-time Wall Street veteran, to synopsize exactly what happened.
On April 24 Stockman wrote, “Between the September 21 intra-day high of 2,941 and the 2,351 close on Christmas Eve, the S&P 500 index dropped by a stomach-churning 25% in just 64 trading days.”
That’s what happened on the down-side. It was simply brutal. And who knows how much farther it would have fallen, had it not been for Fed chairman Powell’s sudden policy pivot.
A few days later, on April 29 Stockman described what happened with the engineered bounce-back. “To wit, since Christmas Eve the Dow is up 22%, the S&P 500 is higher by 25% and the NASDAQ-100 by a scorching 33%. …
What about the FAANG Stocks?
“Facebook is up 56%, Apple 39%, Amazon 69%, Netflix 59%, Google 25% and Microsoft 38%. In all, these six stocks put on $1.25 trillion of market cap that wasn’t there on Christmas Eve—- rising from a combined value of $3.21 trillion to $4.46 trillion in virtually a heartbeat.”
What should have been learned from the episode? Simply this: That stock valuations are not trading on the basis of business fundamentals. After all, nothing changed about Amazon’s business during that period to justify a 69 percent increase in its value. Stocks are not trading on fundamentals, on their dividends and earnings, on their P/E ratios, or on profitability.
They are trading on the basis of momentum only. When that broke down, the Fed was able to reverse the momentum for the time being by promising to firehose more money and credit Wall Street’s way.
Stock market valuations are an illusion, the product of the Fed’s monetary sleight of hand.
In other words, the stock market is once again hanging by a thread.
Now you would think that after the dot.com bubble and the housing bubble, the people would be in no mood for a third Fed-engineered bubble in this young century. But people don’t really understand how these things work. And the media doesn’t help them.
That’s why we take it as part of our job to help them figure it out with these posts, to show them the wizard behind the curtain.
And to show them how to protect themselves with gold and silver.
We encourage you to share these posts on Facebook and Twitter and to use the Newsletter Signup below to have these articles delivered to your inbox.
You can’t believe how crazy things are in Washington.
Thing haven’t been sound on the money front for a long time. Certainly not since the Fed was created and we left the gold standard.
But thing have gotten crazier than ever. Now people in Washington and their academic minions are working on hyper-inflationary schemes you probably haven’t even heard of!
Like “Helicopter Money.” And “Modern Monetary Theory.” That’s the one Alexandria Ocasio-Cortez likes.
The Fed’s printing press has been destroying the dollar anyway, but now the crazies want to get their hands on it.
We wrote about Helicopter Money a couple of weeks ago HERE. The idea behind Helicopter Money is that if the Federal Reserve has trouble inflating the money supply through the banking system, the government can simply take a step back to the olden days of money-printing and inflate the money supply without the help of banks. It can simply print the money and get the Treasury Department to help shovel at out the doors of helicopters to the people down below.
Using helicopters to drop money on people around the country is only a metaphor for something more sophisticated. While it means using the US Treasury and tax policy instead of the Fed, the end goal is the same: hyperinflation by shoveling more and more dollars of less and less value into the consumer economy.
Milton Friedman discussed this option back in the 1960s. Former Fed chairman Ben Bernanke brought it back to life in a speech in 2002.
But today even Helicopter Money is an old school concept now that there is a socialist juggernaut loose on the land. The newest rage of the something-for-nothing crowd is called “Modern Monetary Theory.”
I was going to say that Modern Monetary Theory (MMT) is not modern, not about money, and not really much of a theory. But then on Friday, an economist named Charles Gave beat me to the punch!
MMT is like a perpetual motion machine. Free college education? Done! Government guaranteed jobs? Of course! The Green New Deal? Free health care? Free universal income? No worries! MMT can provide all that and much, much more.
As long as money is a State monopoly and as long as legal tender laws force people to use the State’s money and pay their taxes with it, the State can simply print whatever it needs to pay for anything it wishes to give away.
Oh, sure, taxes will still exist, but their primary purpose in the MMT future is as a tool of social control. Taxation will be used to force people to behave in ways the State wishes. Otherwise, for the State’s spending, taxes are mostly superfluous. The State can print as much money as it wishes to spend.
MMT is all about consumption. Production, the work involved in the creation of goods and services? Forget about it!
It is so crazy that even big government types like Bill Gates and Warren Buffett can see through it. Even Paul Krugman realizes how crazy it is.
Even so, MMT is all the rage. Academics who should know better (and they would know better if they had studied historical schemes like John Law’s Mississippi Bubble debacle three hundred years ago) are climbing aboard. And politicians, many of whom will subscribe to any scheme that allows them to promise to give things to people and get re-elected, are falling all over themselves to sign up.
MMT hasn’t reached critical mass yet, but I suspect it will soon. Remember the old saying that those whom the gods would destroy, they first make mad.
Protect yourself and profit from the madness of our times with gold.
Call or stop by Republic Monetary Exchange on Camelback, just east of 40th Street. 602-682-GOLD. 602-682-GOLD. RMEGold.com.
The story cites one analyst who says that the anecdotal comments about pricing from companies show that “inflation is not dead.”
What they should say is that consumer price inflation is not dead and appears to be making a comeback. Asset price inflation, as we have been tirelessly pointing out about the stock market bubble, has been very much alive.
This headline is from CNN, Social security won’t Be Able to Pay Full Benefits by 2035.
In some ways the story might be considered old news, except that it adjusts the date it projects that the Social Security trust fund will run out of money to 2035.
Social Security is expected to pay out more to beneficiaries next year, 2020, than it generates in revenue, a pattern that will continue for the foreseeable future.
We will only comment that all these stories about the Social Security trust fund neglect to point out that there is no such fund. The money has been spent. In its place a notoriously irresponsible government has left only an IOU. We might say there is no security, no trust, and no fund.
And here’s an article from the Economic Collapse Blog we found insightful: Do You Remember The Oil Crisis And “Stagflation” Of The 1970s? In Many Ways, 2019 Is Starting To Look A Lot Like 1973…
This look back at the stagflation decade with its powerful gold bull market begins this way: “The price of gasoline is rapidly rising, economic activity is slowing down, the Middle East appears to be on the brink of war, and Democrats are trying to find a way to remove a Republican president from office. In many ways, 2019 is starting to look a lot like 1973.”
Today, we glean some information from the new World Silver Survey 2019. The annual report, released this month, is produced by The Silver Institute, a trade association.
The Survey notes several significant silver supply/demand developments last year.
Total silver demand rose 4 percent to 1.0335 billion ounces in 2018. This was the first annual increase in total demand since 2015. Although the report found a small decline in silver demand for industrial applications, it was offset by “a robust recovery in retail investment, led principally by silver bar demand, which climbed sharply last year.” In fact, the coin and bar market jumped 20 percent last year. Demand also benefited by increases in jewelry and silverware demand.
Global mine production of silver had climbed for 13 straight years before 2016. Now it has fallen for three years in a row. 2018 saw mine production fall 2 percent over the prior year, to 855.7 million ounces.
Silver recovered from prior usage, scrap production, has always been vital to filling the gap between silver production and demand. Scrap supply has been falling every year since 2012. In 2018, scrap supply fell 1.6 percent over the prior year to 151.3 million ounces.
Altogether, including marginal adjustment to the supply and demand figures given here, the Survey reports that there was a physical silver deficit of 29.2 million ounces. The shortfall must be made up by above-ground stocks of silver. In 2018, after nine years of growing above-ground silver inventories, those stocks fell by 3 percent to 2,457.5 million ounces.
The Results Indicate Silver is Bullish
In summation, the silver picture is bullish indeed. Silver demand grew in 2018, while production fell. Scrap silver recovery continues to decline, while above-ground stockpiles fell as well.
The complete World Silver Survey 2019 report can be accessed online at The Silver Institute site HERE.
Call or stop by and visit with an RME gold and silver professional today and learn more about the profit opportunities available in silver.
The U.S. confrontation with Iran continues to escalate
It is still mostly a war of words, but we are inching closer to something else. The risk of an incident, even an accident, is rising. A military engagement of any sort in the shipping lanes of the Persian Gulf is all it would take to kick start a powerful surge in the price of gold.
The US has announced that it will no longer provide waivers to countries not in compliance with its sanctions on Iranian oil importers. Secretary of State Mike Pompeo confirmed that the US intends to “zero out” Iran’s exports, “Iran’s principal source of revenue.”
Calling the American restrictions on Iran “sanctions” soft pedals what is really an act of war: a blockade. The objective is to prevent Iran from exporting oil and to shut down its access to international markets and financial clearinghouses. It is designed to be a complete blockade of both Iranian oil and commerce, one every bit as effective as a military blockade.
Gas and Gold Prices Could Rise with an Iranian Conflict
Gas prices in California just hit a five-year high. If the Iranian situation continues to heat up, gas prices could get a lot worse.
Although other Persian Gulf states have promised to hike their oil production to offset the loss of Iranian oil to the world market, Iran’s response to Pompeo was a quick pivot to the Strait of Hormuz shipping lanes.
It is not enough for more oil to be pumped to make up for the loss to the world market of production Iran will be prevented from selling. Oil must be moved as well.
Which is why Iran said if it is prevented from using the shipping lanes, it will act militarily to close the Strait of Hormuz.
It is normally in Iran’s interest to see the shipping lanes open. But there is no telling what Iran will do in extremis. The threat to shut down the passageway is the only defense Iran has to any kind of attack.
The Strait of Hormuz is a sea-lane between Iran and the Arabian Peninsula. It links the otherwise landlocked Persian Gulf with the Gulf of Oman and the Arabian Sea, providing access to the world’s oceans.
Twenty-one miles wide at its narrowest, the waterway is a critical choke point.
The Strait accounts for nearly 20% of global oil trade, with Iran, Iraq, Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates all relying on the Strait to ship their oil. Most of these shipments have Asian destinations: Japan, India, China, and South Korea.
Now, imagine you run a powerful company that owns and operates supertankers that sail through the Persian Gulf. If hostilities break out and the Strait of Hormuz is shut down – even for a day – will you authorize your ships to sail in those waters?
Imagine you insure oil tankers. You will have very strict terms to suspend coverage for a company foolish enough to ship in the waterways of warfare.
Either way, the flow of oil is interrupted. Geopolitical alliances begin to shift as countries weigh their self-interest and seek advantage from an international incident. Of course, oil prices explode.
Those with long memories will note the role the Iranian Revolution in 1979 and the taking of 52 American hostages played in the skyrocketing price of gold. Today Iran has a high profile in gold’s action once again.
The war of words with Iran can’t continue to escalate forever. When temperatures rise, things boil over.
NOTE: So far this year, any pullback of gold below $1,300 has been a favorable opportunity to add to your holdings.
There’s a lot of talk about a slowdown in the economy.
World trade has slowed sharply… the worst downturn since the Panic of 2008.
We saw a story the other day that 6,000 retail stores have closed so far this year. That’s more than all of last year.
Housing starts have fallen to a two-year low.
And David Stockman asks how the stock market can be up when business profits are down year after year. Here’s a chart from the Federal Reserve he uses to make the point graphically:
President Trump and his advisors are very concerned about evidence of a slowdown. They want the Fed to lower rates, and to print and pump money into the economy.
They are calling for interest rate cuts that will put real interest rates (rates after inflation) into negative territory.
Return to QE?
President Trump is himself explicitly calling for another round of Quantitative Easing, a repeat of the biggest money-printing binge in US history.
You know what that does to the price of gold?
We do. We’ve seen it before.
Quantitative Easing began in November 2008. Gold took off like a rocket ship. This chart shows the shocking increase in the Fed’s holdings of US Treasury securities (the blue line). Those holdings had been about $800 billion for some time before this chart begins in 2008.
Before long it had $2 trillion in US securities. Where did the Fed get the money to purchase a fresh $1.2 trillion in US government bonds?
Silly question. It made it up on a computer.
As a part of QE, the Fed not only ratcheted up its purchase of Treasury bonds with money it made up out of nothing more than a digital keystroke, it began purchasing mortgage-backed securities, toxic and worthless mortgage portfolios from the crony banks (the red line).
The Fed had no mortgage-backed securities before QE. Before long, it had more than $1.6 trillion of them.
I’ve overlaid the price of gold so that you can see how the launch of QE pulled gold up to a high of $1900 in 2011.
The chart might suggest that gold became indifferent to the QE money pumping before QE leveled off in 2014. But in reality, money managers around the world realized that all of that bond and mortgage security buying was going to firehose money right to Wall Street and money center banks. So they all piled into the stock market. Many sold gold to buy stocks.
The result has the US in a dilemma. It has taken a lot of loose money to drive the stock market to today’s levels. Now the market, addicted to loose money, is growing skittish. As we saw at the end of last year, the stock market wants the Fed to provide it with another fix.
It’s like a junkie getting the heebie-jeebies. If it doesn’t get its fix, it will fall. Hard.
And money will come rushing out of the stock market and into gold. Gold will take off.
If it does get the QE fix it wants, like last time, gold will skyrocket again. Just like it did when they started this whole QE mess.
Either way, gold moves up. “Bigly,” as the President might put it.
If you’d like to know more about the gold and silver markets and learn how to participate in the coming boom, speak with the RME gold authorities. Simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Recessions, depression, and destroying 96 percent of the dollar’s purchasing power. Yes, the Fed’s track record is pretty bad.
But the Federal Reserve is good at one thing: Creating bubbles. Like the dot com bubble and the housing bubble.
And now the Fed’s massive money printing, pumping trillions to Wall Street, has created the biggest bubble of all… the stock market bubble.
Since he took office, President Trump has tied himself pretty tightly to a rising stock market. He has not been shy about taking credit for it on the way up. It worked out well for him since the Dow Industrial went almost straight up in his first year. But things were a little choppy in 2018 his second year.
By the end of last year the market plunged, just as we had warned.
The market fell from a high of 27,000 in the fall to 21,700 at the end of the year. Only a pivot by the Fed, a decision to halt interest rate increases and back off efforts to modestly reduce its toxic bond portfolio, has allowed the market to recover, closing Friday (4/12) of 26,412
But Trump and those around him know just how precarious the stock market still is. And they know a bear market would play against them in next year’s election. If he owned it on the way up, he’ll own it on the way down whether he wants to or not.
That’s just the way it works.
Note how anxious the Trump team is to get the Fed’s printing presses going full-tilt. It is a frank acknowledgement that only loose money sustains this market.
Larry Kudlow, the president’s chief economic advisor, is calling for interest rate cuts.
Trump Federal Reserve Board nominee Stephen Moore has called for an immediate rate cut of half a point.
Think about that. The Fed funds rate is about 2.4 percent right now. The inflation rate in March was 1.9 percent. That means he is calling for a real interest rate (the interest rate minus inflation) of zero percent.
Now that’s loose money!
President Trump is characteristically the most explicit about the Fed policy he wants. “I personally think the Fed should drop rates; I think they really slowed us down,” he said. “In terms of quantitative tightening, it should absolutely now be quantitative easing,” he added.
None of this will be enough to keep the stock market bubble from popping, no matter how much it gets juiced. You can juice a runner with something to keep him going, but not forever. Eventually he can’t be juiced any more.
We survey world events — deep economic trouble in China, the European Union coming apart at the seams, trade hostilities growing – and add in a weakening domestic economy – and there is no shortage of pins to pop this bubble.
You’ll be happy to have moved to gold when the air comes out of stocks. And wait until you see what happens then, even crazier Fed policies like “helicopter money” that we wrote about here, and even “Modern Monetary Theory,” the newest hyper-inflationary enthusiasm of people like Alexandria Ocasio-Cortez.
We just know don’t know exactly when and by what means.
The Federal Reserve will inflate. It will print money. It will debauch the currency.
It will do what it has always done. That is the source of its power. Short of inflating, there is no other reason for it to exist.
An Observer says the Fed will start dropping money from helicopters next.
Let me explain.
Over the centuries the means of inflating have changed. The kings of old used to re-mint the precious metals coins that came through their counting house, adding base metals to dilute their gold or silver content.
A hundred coins came in. Presto! A hundred and ten coins went out.
That’s an old-fashioned means of inflation. But we saw a variation on this when US silver coins, dimes, quarter, and half-dollars, were replaced with cheap metal. President Johnson said at the time that silver had become too valuable to be used as money,
Of course money is supposed to be valuable. That’s why its called… money!
Later inflation took the form of just printing more paper dollars, marks, francs, pesos, lira, yen and other currencies. A lot of that still goes on around the world.
Inflating the Currency
In more sophisticated countries like the US, inflating the currency is done by a more sophisticated process. The Federal Reserve expands the supply of money and credit with policies called liquidity operations, debt monetization, interest rate management, and Quantitative Easing.
High-powered inflation depends on the so-called “fractional reserve” banking system, as the Fed empowers banks to lend out the amount of their deposits many times over.
But there can be a problem with that. What if banks can’t find enough credit-worthy borrowers? If a business can’t sell what in already has, or is losing money, will it borrow more money to expand?
This had economist scratching their heads. How can we inflate in a fractional reserve economy when borrowers are in trouble and don’t want to take on more debt?
But then they realized that they could just take a step back to the old money-printing era and inflate the money supply without the help of banks. They could print the money and get the Treasury department to help shovel at out the doors of helicopters to the people down below.
Although the term “helicopter money” had been around since the 1960’s, The Federal Reserve’s Ben Bernanke brought it back to life in a speech in 2002.
That brings our story up to the present and to David Rosenberg, chief economist of Gluskin Sheff, a major Canadian wealth management firm and former chief economist of Merrill Lynch. He is generally a standout among people in such positions.
That’s why we sat up and noticed the other day when an interviewer suggested to Rosenberg that helicopter money would be the next Fed initiative.
“I think actually you’re 100 percent on the money with that observation,” said Rosenberg. “Quantitative easings and incursions by the Bernanke Fed were all aimed at promoting a stronger stock market.” The result, he says correctly, was record income inequality. But that also created record wealth inequality. So the next time, the policy will be different.
Because wealth inequality has turned America into a powder keg ready to blow!
The political reality is that the Fed won’t be able to get away with stove-piping money to Wall Street in the next inflationary round. It will have to use a more populist policy. In other words, “Fire up the helicopters, boys!”
“The Fed prints that money and then hands it over to the Treasury to do with it what you would like,” says Rosenberg. “And you don’t have to change the tax system. You don’t have to change any laws and have it held up in the House or the Senate. And there’s a whole bunch of things you could do with that money to try and stimulate aggregate demand.
“And then we’ll create a whole new inflationary experience.”
We think this discussion of helicopter money is one of the most important pieces we’ve published. It is a policy that will have ruinous consequences for our nation. You are free to distribute it to your associates, friends, and family and to print it if you wish.
Speak with an RME Gold associate today to find out how to profit from the next round of dollar destruction. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
For the naïve mind there is something miraculous in the issuance of fiat money. A magic word spoken by the government creates out of nothing a thing which can be exchanged against any merchandise a man would like to get. How pale is the art of sorcerers, witches, and conjurors when compared.
– Ludwig von Mises
Another month, another purchase of tons of gold.
China continued its gold buying spree in March. It added 360,000 troy ounces of gold to its reserves. That’s 11.2 metric tons. In one month.
It’s the fourth month in a row that China has beefed up its gold stock. In February it bought 9.95 tons, in January 11.8 tons, and in December 9.95 tons.
China is also the world’s top gold producer. China is serious about gold.
Last year the world’s central banks added 651.5 tons of gold.
It’s reached the point where I have to describe central bank gold buying as a megatrend. As with most financial megatrends, the mainstream media usually misses its significance until much later.
Like the housing bubble.
What is behind the megatrend?
It is a move away from the US dollar.
Some years ago, in congressional testimony, Federal Reserve chairman Ben Bernanke was asked by Ron Paul why central banks own gold.
Bernanke had to come up with something. He thought fast. “It’s tradition,” he answered.
Like so much else, he had that wrong, too. Central banks hold gold because it is money.
They hold dollars because of tradition. The tradition became institutionalized with the international Bretton Woods agreement after World War II. That agreement broke down decades ago.
They have continued to hold the dollar in the belief that it’s “the cleanest dirty shirt.” All paper currencies are flawed, although they viewed the dollar is the best of a bad lot.
But with Bernanke’s Quantitative Easing, central banks are slowly realizing that they don’t want any dirty shirt. If the Fed can conjure up trillions of dollars out of nothing, maybe they better get out of the way.
Because even the best of a bad lot is still bad.
Central bank gold buying is a megatrend for a reason. The prognosis for the dollar is negative.
It’s the Titanic and the Iceberg- Full Speed Ahead.
Icebergs aren’t the only things that are 90 percent underwater.
So is the US national debt.
The visible national debt is more than $22 trillion. That’s the part that everybody knows about. If you ask Google, it says $22 trillion. If you walk by the US national debt clock in midtown Manhattan, you’ll see it registers $22 trillion. Even politicians answer that the national debt is $22 trillion.
But like the iceberg, $22 trillion is the only part that people see. It’s above the waterline.
In the case of both the iceberg and the national debt, the invisible part that is much larger and is also most the most dangerous.
So here are the numbers. The visible national debt as I write this is about $22,028,000,000,000.
The US population is just over 327,200,000. That means the visible national debt is $67,322 per person.
That’s your share. It’s about $270,000 for a family of four.
How will the National Debt ever be paid?
We’ll get to that. But first you need to be aware of the hidden debt, too. It consists of promises the government has made to people, promises that people have relied upon, for which payment hasn’t been funded.
Oh, they’re debts all right. If the million of people who paid into Social Security for a lifetime suddenly stopped getting their checks – checks they depend upon to put food on the table – the economy would melt down.
These promises are called “unfunded liabilities.”
Boston University economist Laurence Kotlikoff says this hidden debt amounts to more than $222 trillion.
That’s ten times the visible debt. No wonder former Reagan budget director David Stockman says we’re headed for the “debtberg.”
Your share of the hidden debt would be more than $670,000. It’s about $2,700,000 for a family of four.
When will you get your share?
That’s not really a serious question, because the debt can’t and won’t be repaid.
It will have to be “reset.”
That means it will be defaulted, repudiated, and inflated away.
The Federal Reserve “printed” almost $4 trillion during the Quantitative Easing episode. Most of that hasn’t entered the consumer economy yet, but a lot of it has been stovepiped Wall Street’s way; hence the stock market bubble. Watch out.
There’s no reason that it won’t try to inflate away much of the national debt with more money printing.
Of course, that will sink the dollar. And send gold prices to the moon.
The debtberg lies straight ahead. Think of the Titanic. We are perilously close and incapable of changing direction in time.
You need to protect yourself and your family with gold.
At least there was a house behind all that mortgage debt.
Today 11.4 percent of student loans are 90 or more days delinquent. What’s behind all the student debt? Many are “backed” by degrees of questionable market value.
Student loan debt is more than $1.56 trillion today. More than the value of subprime loans that led to the Great Recession. A half-trillion dollars more than total US credit card debt.
Like other guarantees and promises it makes so cavalierly, the government can only make good on its student loan guarantees by printing money. That’s because it doesn’t have an extra trillion dollars laying around anywhere.
Everything about student loan debt is bad economics. All the easy money flowing the way of colleges and universities has led to a doubling of the cost of higher education over the past 20 years. It’s made the schools rich. They’ve become palatial in some places, top heavy with administrators and bureaucrats everywhere, although nobody insists that their graduates are better educated.
Today some random facts about gold and the gold market, valuable little nuggets of information gleaned from World Gold Council research:
Gold Outperforms Paper Money
“Over the past century, gold has greatly outperformed all major currencies as a means of exchange. This includes instances when major economies defaulted, sending their currencies spiraling down, as well as after the end of the Gold Standard. One of the reasons for this robust performance is that the available above-ground supply of gold has changed little over time – over the past two decades increasing approximately 1.6% per year through mine production. By contrast, fiat money can be printed in unlimited quantities to support monetary policies.”
Investment Demand for Gold Keeps Growing
“Gold is becoming more mainstream. Since 2001, investment demand for gold worldwide has grown, on average, 15% per year. This has been driven in part by the advent of new ways to access the market, such as physical gold-backed exchange-traded funds (ETFs), but also by the expansion of the middle class in Asia and a renewed focus on effective risk management following the 2008–2009 financial crisis in the US and Europe.”
Institutional Investors Are Getting on Board
“Institutional investors have embraced alternatives to traditional assets such as stocks and bonds. The share of non-traditional assets among global pension funds has increased from 15% in 2007 to 25% in 2017. And in the US this figure is close to 30%.”
In Good Times and Bad
“Gold is not only useful in periods of higher uncertainty. Its price has increased by an average of 10% per year since 1971 when gold began to be freely traded following the collapse of Bretton Woods.”
Gold Outpaces Inflation
“In years when inflation has been higher than 3% gold’s price has increased by 15% on average.”
If you will spend a minute or so on the following story problem, I will share with you a secret that professional traders, dealers, and investors use to grow their precious metals holdings.
1- Bill has 10 ounces of gold.
2- He agrees to trade it for 800 ounces of silver.
3- When prices change, Bill trades his 800 ounces of silver back into gold.
Bill ends up with 16 ounces of gold instead of the 10 he started with. By Today’s Prices, that is somewhere in the neighborhood of $7,750 in profits.
Question: Would that be a pretty smart thing for Bill to do?
In this example Bill is using a strategy well-known to professionals. It’s called the trading the gold/silver ratio.
Bill didn’t invest any more money, but the amount of gold he owns just increased by a sixty percent!
It’s Common Sense Trading
The gold-silver ratio is the price of gold divided by the price of silver – essentially how many ounces of silver can you buy with one ounce of gold.
Right now, an ounce of gold will buy 85 ounces of silver. That is the highest level in about 25 years, and even more advantageous for trading than our example!
We strongly recommend trading gold for silver with the ratio this high.
Our example using the spot prices of gold and silver, is for purposes of illustration only because of transaction costs and since different coins and bars have their own premiums relative to the spot prices.
Because gold and silver each have their own supply-demand fundamentals, their prices don’t move in lockstep. Down the road as prices change the ratio between the two metals will change.
For example, in April 2011 the ratio hit 30 to 1.
In short, the objective is to hold the precious metal poised for the most rapid appreciation. Because silver is underpriced relative to the gold price, it’s is a favorable time to trade gold for silver. I don’t want you to miss the opportunity to add to your precious metals holdings without investing additional money.
The gold-silver ratio doesn’t tell you where the price of either metal will be next month or next year. But at 85 to 1, it is very persuasive evidence that the price of silver is low relative to the gold price.
So that is the secret strategy professionals use to increase their holdings of gold and silver. Many of our clients and I, myself, have used this powerful strategy for years to substantially increase our precious metals holdings.
I urge you to speak with your RME Gold professional advisor about this strategy.
After all, why should the professionals get all the profits?
They just never stop. The people who want to control your life, your money, and your wealth, that is.
They never stop!
After watching the authorities destroy 96 percent of the purchasing power of the dollar, after watching all the bubbles they inflate that then pop in a spectacle of widespread disaster, one wonders what claim that should have on managing anybody’s affairs.
It’s like watching the giants on Wall Street lined up with their tin cups in Washington begging for handouts from everyday Americans who didn’t speculate recklessly on toxic mortgage securities.
And these are the financial institutions, the advisors, and geniuses we should trust with planning our affairs, our savings, investments, and retirement plans? When they can’t even manage their own affairs?
Alright. That’s enough ranting.
But they never stop wanting to get their hands on your wealth.
Here’s the latest.
Something called the Independent Commission for the Reform on International Corporate Taxation has jumped on board a proposal to launch a “global wealth registry” using blockchain technology
A proposed pilot program would require the registration and tracking of private assets in things like real estate, gold, and other financial assets in proposed amounts of $10,000 or more.
One of the targets of the program is “wealth inequality.” And more efficient taxation.
So virtually everything – stocks, real estate, savings accounts, checking – every conventional investment and form of wealth you own is already registered in on form or another with someone.
In fact only precious metal allow you to hold the world’s most time-tested monetary assets anonymously.
We think that is a good thing, especially in an era of unrestrained snooping by governments and mega-corporations.
Speak with an RME associate today to find out how to maintain your privacy in an era of intrusion with gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Not so long ago the suggestion that the US might default on its debt was considered slightly reprehensible in mainstream circles.
But we noticed an article on Fox Business News the other day from the principal of a Dallas investment firm asking just how an inevitable default should be managed.
Todd Stein writes that the answer may be a “soft default.”
And $10,000 gold.
Here’s what he suggests:
“The Treasury would peg the dollar to gold, oil, natural gas or silver — or perhaps a basket of those commodities. By choosing a weak valuation, for instance, $10,000 per ounce of gold, compared to the current market price of roughly $1,290 per ounce, much of the debt could be paid down thanks to a much weaker dollar.”
The soft default he describes is the rough equivalent of a massive devaluation of the dollar. It is a recognition of US insolvency.
A soft default is the least bad of bad options. The alternative is a hard default, the State’s repudiation of all or most of its debt.
“To be clear, a soft default isn’t a good idea., writes Stein. “It certainly isn’t moral. It’d hurt everyone who socked away money in bonds, certificates of deposit or savings accounts.”
“But realistically, a default of some kind will happen anyway — simply put, the debt load isn’t sustainable.”
The governing classes, and their fiscal and monetary officials have put this country and the American people between a rock and a hard place.
But it’s good to see the curtain being pulled back on their malperformance. It’s good to see the conversation changing.
But we also think it is good idea to get out of the way before dollar holders are victimized by either a de facto devaluation or a default.
Call it what you like. A vicious circle. A downward spiral. The point of no return.
I prefer to call it The Doom Loop.
Here’s an example. Suppose your business has to borrow a dollar to make 90 cents. You’re headed for big trouble.
Here’s a better example of the Doom Loop. Thinking to spur growth – increased productivity, more taxable activity – the government borrows and spends a lot of money.
But the growth doesn’t materialize. So it borrows and spends more.
Still, growth lags behind the rising debt. More borrowing and spending.
The hoped-for increases in productivity and therefor higher tax revenue fails to materialize.
But all the borrowing has a cost. Debt compounds. Compounding debt means more borrowing despite lagging growth.
Now we’re in the Doom Loop.
And that’s the situation Washington has gotten this country into.
US debt has passed total US productivity.
We reached the crossover point in the fourth quarter of 2012, at the end of Obama’s first term, when the debt surpassed the GDP for the first time since the World War II era.
US GDP at the end of 2012 was $16.24 trillion. US debt was $16.43 trillion.
Soaring National Debt
Today the national debt has climbed more than a trillion dollars past the nation’s total productivity. 2018 GDP was $20.89 trillion (an update of the 2018 estimate is due out in days). The national debt is $22.03 trillion.
Take a look again at the chart we provided in our recent post It’s When… Not If! It shows US Debt in red blowing right past US GDP. And the debt is climbing at a steeper rate.
Economists talk about the marginal productivity of debt: How much growth do you get for each additional dollar of borrowing?
Again, suppose your business has to borrow a dollar to make 90 cents. You’re in the Doom Loop.
Economist Keith Weiner has formulated this into an economic law: If the marginal productivity of debt is less than 1, the economy is not sustainable.
To the extent there is any acknowledgement of this problem in Washington, the stock answer from both Republicans and Democrats has been, “We’ll grow our way out of it.”
Except we haven’t.
We are ten years into the current economic expansion. The average length of an economic expansion is just over three years. The odds of the current expansion continuing are slim, the signs that the economy is slowing are plentiful.
The Doom Loop is a global phenomenon. The IMF says that global debt is now equal to $184 trillion which is 225 percent of global GDP.
How can you escape the Doom Loop?
Don’t expect the government to deal with the problem. When President Trump’s advisors showed him graphs of the coming “hockey stick” debt spike, he merely shrugged, “Yeah, but I won’t be here.”
Economist Weiner says, “It is time for gold to enter the mainstream monetary discussion. Interest rates and the marginal productivity of debt do not fall when there is a free market in money and credit. And the market will choose gold, if it is free to do so.”
But you can choose gold. Speak with an RME associate today to find out how to protect yourself from the Doom Loop. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Politicians and government will not choose gold. Printing money is a source of power. It is a major means of vote-buying.
“Buy gold,” said Mish. That was on Wednesday, two days before the Dow’s stunning 460 point drop.
Mish was watching anomalies in the interest rate market. Wall Street figured it out later.
Mish has a great track record on the big events. Like Ron Paul, he was a small, still, voice crying out about the housing bubble back when nobody wanted to hear it.
Now Mish is alarmed by action in the interest rate markets. Normally longer-term interest rates are higher than short-term rates. After all, whatever you might charge to loan someone money for three months, you would certainly want a higher rate to loan money for ten years. You have given up the use of your money for a longer time during which market rates may change markedly, while a longer-term increases the risks that can befall the borrower and the return of your money.
In normal markets, long-term rates are higher than short-term rates. An interest rate inversion, when long-term debt instruments develop lower yields than short-term ones, is a classic indication of a weakening economy and of recessions.
Mish also notes rates on the 30-year government bond and concludes the market is growing “very concerned about US government deficits exceeding $1 trillion dollars for the next five years minimum.”
We think that concern is justifiable. See our two-part comments “Debt Binging” here and here.
In the meantime…
Mish says, “Meanwhile, buy gold. The budget deficit picture will get much worse in a recession.”
We will note once again just how precarious the stock market is. It will grow more wobbly as the deficit picture becomes more clear.
We note as well that as the European market was nearing its close on Wednesday, someone stepped in and dumped a billion dollars’ worth of “paper gold,” gold futures contracts, on the market, driving it briefly below $1300. We don’t know who or why, but observe only that if it was an attempt to manipulate the market lower, it didn’t work. Buyers stepped in immediately and took advantage of the lower price, quickly moving gold back over $1300.
We don’t often find ourselves citing the CEOs of America’s biggest banks. Between the bankster bailouts and the way the Fed has stovepiped wealth to the canyons of Wall Street, it’s clear that their influence peddling and cronyism has helped them at the expense of the people. Their every pronouncement should be viewed skeptically.
But the problem of the overlooked and declining American middle class is too big to be ignored, even by them. So today I will cite a comment from J.P. Morgan Chase CEO Jamie Dimon (whose bank had a $25 billion bailout windfall) about those who are being left behind:
“Forty percent of Americans make less than $15 an hour. Forty percent of Americans can’t afford a $400 bill, whether it’s medical or fixing their car. Fifteen percent of Americans make minimum wages, 70,000 die from opioids” annually.
“If you travel around to most neighborhoods where companies live, they’re doing fine.”
“So we’ve kind of bifurcated the economy.”
Bifurcated. Well, that’s one word for it.
In the 1960s, America’s growing middle class was the envy of the world. Its prosperity and reach haven’t been equaled since. No one should be surprised that with the end of the gold exchange standard (itself a corruption of a real gold standard) in 1971, the expansion of the middle-class ground to a halt.
The Income Gap
The wealth and income gap have been widening ever since. But the situation has gotten critical today with the frenzied wealth redistribution of today’s monetary cronyism. Quantitative Easing saw trillions of dollars made up out of thin air and pumped right into the financial sector.
In the interest of candor, we may call this Federal Reserve activity of creating money counterfeiting. It may be legalized by the state, but it is monetary counterfeiting none the less. Murray Rothbard pulled back the curtain on the practice long ago:
“It would be difficult to see the point of counterfeiting if each person is to receive the new money proportionally. In real life, then, the very point of counterfeiting is to constitute a process, a process of transmitting new money from one pocket to another, and not the result of a magical and proportionate expansion of money in everyone’s pocket simultaneously.”
Little wonder that the state and its cronies resist the discipline that an honest gold standard imposes on them. The alchemists of old couldn’t create gold out of lead, and today’s Washington wizards can’t create gold out of thin air.
The growing divide between the rich and poor that results from Washington’s monetary sleight of hand are, incidentally, a surefire recipe for social breakdown and violence. Even Dimon acknowledges the danger, saying, “We made a mistake by ignoring some of these things. If we don’t [act], society is going to get worse, because these problems aren’t aging well.”
We’ll go one step further and assure our readers that the problems will not get fixed. Living through a monetary collapse is not a pleasant thing, but get ready for it. If you know that it is coming you can protect yourself and your family with gold and silver.
The answer is the central banks of governments around the world. They are on a gold-buying spree!
And they are using money they used to keep in US dollars.
We think they know something most people don’t know.
In fact, we’ve seen this pattern before. Let me explain.
The World Gold Council reports that central bank gold buying is at the highest levels since 1971. Why is that date important?
Because that is the year the United States broke its promise to back its dollars with gold. Until then, if for some reason the central banks didn’t trust the US dollar, they could exchange their dollar holdings for gold, no questions asked.
But the US was printing money recklessly. Like writing bad checks, the US was printing more dollars than it had gold to back up those promises.
The world’s central banks could see where this was leading. So even before the end of dollar’s gold backing was made official, they began scrambling to get gold for their dollars. Buyers around the world were taking down hundreds of tons of gold with their discredited dollars.
It was a smart move. Over the following decade, from January 1970 to January 1980, gold moved from $35 to $850 an ounce.
Central banks today own 30,000 tons of gold. But they are adding more because they see what is coming. Like last time, they are acquiring gold fast. And like last time, they are doing it with money they used to keep in dollars.
We have written about this revealing megatrend many times. We strongly suggest you review this material. In More on the Central Bank Gold Rush in February, we wrote that “Russian dollar reserves have fallen over the last ten years from about $180 billion to around $10 billion today. On the other hand, its gold reserves have jumped from 40 tons in 2006 to nearly 2000 tons today.”
Altogether in 2018 central banks added more than 650 tons of gold to their reserves. That’s an increase of 74 percent over 2017. And as 2019 gets underway they are still at it.
China Continues to Add More Gold
After not announcing any new gold acquisitions since 2016, China suddenly announced in January that it increased its gold holding by almost 15 percent in 2018. As we pointed out at that time, in adding 10 tons to its gold reserves in December, “China has grown its official gold holdings by 75 percent in 3½ years.”
Just weeks ago, China announced that it kept buying gold in February, the third month in a row. India added 6.5 tons of gold in January alone and is now jockeying to be the tenth largest gold holder in the world.
Buying gold is not just for economic powerhouses
Perhaps I can underscore the purposes at work in this gold buying by pointing out that in addition to buying more gold, there is a stampede around the world of foreign governments repatriating their gold. Countries big and small are having gold they used to leave in storage with the US Federal Reserve or with the Bank of England or Banque de France returned home.
It’s almost like the early stages of a run on the bank as central banks seek to avoid being victimized by a coming dollar debt crisis and the reckless money printing it implies.
Germany recently completed a repatriation of $31 billion in gold from New York and London. But what had many market observers scratching their heads is that an operation that should have taken just weeks – or perhaps a couple of months – inexplicably met delays stretching out over four years.
So more countries began calling their gold home. Even tiny Romania is moving to bring home its gold held by the Bank of England.
Having been through the dollar chicanery of the 1970s and the subsequent decade of high inflation, central banks are moving to put their trust in gold instead of the “printed” paper money (or, more accurately, the digital bookkeeping entries) of the world’s largest debtor.
They see monetary upheavals ahead. They want gold. In their hands.
You should to.
Our precious metals professionals believe that educating as many Americans as possible is part of our job. If you have family members, friends, and colleagues that would like to learn why central bankers around the world are moving aggressively into gold, we can be of help. Have them contact Republic Monetary Exchange right away.
Everyone knows – perhaps I should say “every thinking person” since there are some in Washington who don’t actually know and therefore should not be accused of thinking – that the US debt can’t keep growing forever.
When the day arrives that it is evident to all that the US can’t pay its debts except by printing money, the game is over.
When foreign governments are no long willing to buy US debt, that end game has arrived.
Because no one will want to loan money at any kind of reasonable rate knowing that they will be paid back in cheaper dollars.
Governments always count on some slippage in there, allowing them to inflate away the currency for a while before most people sit up and take notice. And just because they begin to notice doesn’t mean that they won’t be fleeced a little more.
So, for example, if government inflation results in a ten percent loss of purchasing power over a given period, most investors will demand an “inflation premium” on government bonds to compensate for the diminished purchasing power of the currency.
If a normal interest return of, say, five percent a year is expected, a bond would have to offer a fifteen percent return.
That sort of device works for a while, but generally not for long.
After all, why should the ten percent inflation rate in our hypothetical example, not give way to a 15 or 20 percent rate? Or higher.
Of course it will. Most gold investors understand this.
They aren’t suckers.
The rationale for government debt, going back to John Maynard Keynes, is that deficit spending will allow the authorities to “goose” the economy and get higher productivity.
But take a good, sober look at where we are right now. We are ten years into an economic expansion. Unemployment is said to be low, with armies of working people paying taxes.
And yet, what is happening to US debt? Despite a growing economy and low unemployment, the debt is climbing even faster! As you can see from the following chart, the gross federal debt (the red line) has overtaken GDP, the total productivity of the economy (the blue line).
Stated differently, a new dollar of national debt is unable to produce even a dollar of productivity. This crossover took place in 2013.
If the government cannot reduce its indebtedness in an expanding economy with supposed full-employment, when can it?
Here’s David Stockman’s answer: “We are probably only monthsfrom the onset of a budgetary red ink eruption that will envelope Washington and Wall Street alike as far as they eye can see.”
Our advice is to take whatever profits you may have in stocks and move to the safety of precious metals at once.
Next week on KFYI in Phoenix, I am beginning a series of radio commercials to alert listeners to some of the major economic events taking place around the world. These events will have a powerful impact on gold and silver. You can listen to a preview of that here:
These special messages are addressed to our existing friends and clients, as well as people who have never before bought gold and silver. For that reason, I invite you to share them each week with your own colleagues, friends, and family members, those you think who can profit from the information and use it to protect their own wealth and families. You might even want to share this blog with them. For those of you beyond the reaches of KFYI’s airwaves, we will include the audio each week right here in the GMD.
In the meantime, here’s a sampling of recent news items, things we think our clients and readers should know, a few bullet points about insiders rushing to sell stocks, and China adding still more gold to its reserves in February.
But let’s start with evidence that the current state of the US economy is much weaker than generally acknowledged. President Reagan’s former budget director observes that the US economy since 2007 is a case study in underperformance, even though the Great Recession was officially declared over ten years ago. In fact, the expansion even underperforms the pathetically weak expansion for the same period of the Great Depression following the 1929 market collapse:
“On a peak-to-peak basis, in fact, the 11-year gain (2007-2018) in real GDP came in at 18.85% and that, by your way, is less than the 19.89% gain posted during the Great Depression spanning the 11-year period between 1929 and 1940.” “From a cumulative growth viewpoint, the last 11 years have posted the weakest gain ever recorded since modern GDP statistics were invented.”
David Stockman, 3/1/19
Stockman goes on to points out that during the 11-year period from 1969 to 1980, which encompassed the “Stagflation Decade of the 70s,” the US experienced a peak-to-peak gain of 38 percent, more than double that of the past 11 years.
Next, a quick note on the stock market’s weakness:
“Stocks fell for a fifth straight day on Friday after the U.S. government released employment data that badly missed expectations, adding to growing concerns that the global economy may be slowing down.”
And, here’s something investors should know. Corporate insiders are rushing to sell stocks:
A category of investors who correctly picked the market’s bottom in December is retreating from U.S. stocks.
“The number of corporate executives and officers selling shares of their own companies has doubled since December while buying dwindled. Last month, insider sellers outpaced buyers by a ratio of 5-to-1, the most in two years, data compiled by the Washington Service showed.”
And a couple of briefs on Asia’s hunger for gold:
Physical gold demand picked up pace in major Asian hubs this week, with bullion being sold at a premium for the first time in more than three months in India, while China saw improved appetite for jewelry.
“In India, the world’s second biggest consumer of the metal after China, dealers were charging a premium of up to $1 an ounce over official domestic prices this week, up from last week’s discount of up to $2.”
– Reuters, 3/8/19
China increased its gold reserves for a third straight month in February, data from the People’s Bank of China (PBOC) showed this morning….
“John Reade of the World Gold Council notes on Twitter that the last time the PBoC reported regular monthly increases in gold holdings, it continued for 24 months.”
– Mark O’Byrne, 3/8/19
Next week we’ll focus on who is buying billions of dollars’ worth of gold!
One thing about gold, a defining characteristic that cannot be emphasized enough, is that it does not rely on some one else’s performance or promise.
Gold can be physically held in your hands, under your own control. There can be zero separation between yourself and your wealth– no banks to rely on, no brazen boardroom executives at the company of the stock you own. Simply put, owning physical gold is without counterparty risk.
The same is of course true of silver, which, like gold, has a long and shining monetary history.
What is counterparty risk?
It is the risk of nonpayment, default, and bankruptcy by individuals, companies, financial exchanges, institutions, and banks – quite apart from the risk of the Fed’s fiat dollar.
Gold (and silver) are the only monetary assets that are not someone else’s liability. They are not dependent on someone else’s solvency, promises to perform, or honesty. Their value does not depend on the endorsement or propriety of any state or state institution.
It is a wonderful thing for people’s promises to be reliable, for institutions to be vigorous fiduciaries of their clients’ interest. The modern world with all its miracles is built on the assurance that people will meet their obligations, fulfill their contracts, and respect others’ property.
When this environment of trust begins to fray, sophisticated civilization itself is at risk.
I mention this for two reasons: the monetary authorities sense of obligation to the users of its currency unit is nowhere in evidence. And debt – personal, corporate, and governmental – has reached unsustainable levels.
Although charged with maintaining the value of the currency (price stability), the Federal Reserve’s dollar management has an arbitrary and incompatible objective: a two percent annual inflation rate. At that rate, the Fed is destroying half the value of its currency in 35 years. Why save?
As for debt, corporate debt is higher than when the trouble hit the fan at the end of 2008. Low grade debt has exploded. The number of BBB bonds has more than tripled.
And you know about government debt.
We saw in 2008 how liquidity and solvency problems cascade from one counterparty to another, from insurance company to hedge fund to bank. It is in environments like this that counterparty risk becomes crucial.
Proliferating counterparty risks lead wise investors to the safe haven of gold. But its unique advantage only applies to physical precious metals, the gold and silver coins and bullion that you own outright and have taken into you own possession. It does not extend to paper gold, stock and other representations of gold ownership, commodity contracts, or ETFs.
Speak with an RME associate today to find out how to profit in uncertain times and protect your portfolio with gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Today, with a socialist juggernaut loose on the land, here’s a story that I am afraid will soon become as all-American as baseball itself.
Even casual sport fans by now know that 26-year-old right fielder Bryce Harper just signed a record busting 13-year, $330 million contract with the Philadelphia Phillies.
We’ve liked Harper ever since he replied, “That’s a clown question, bro,” to some reporter.
But it is the economics at work in Harper’s story that interests us as champions of prosperity and sound money. It is reported that the San Francisco Giants were in the hunt for Harper, too, and were willing to pay an astronomical amount to get him.
But they were undone by California’s sky-high taxes. The Giants would have had to pay far more than the Phillies for Harper’s after-tax income to be the same. So he went to Philadelphia instead of San Francisco.
Not only did he escape taxifornia by not signing with LA or SF— but he also chose the Phils, who are one of only 8 “Flat Tax” states in the country. That means whether you make $5,000 a year or, [cough], $27,538,462, you pay the same flat tax rate.
If he were to have played in California, he would have paid California state tax of $3,675,141. His total tax of his salary would have been 51.1%.
In Philly, where he will homer his way into the Hall of Fame, he will also save some cheddar- “enjoying” a lower tax rate of 41.8%, because the state of Pennsylvania only rakes $921,000.
That is $2,754,141 savings per year. Over the duration of his 13 seasons, (if he were to stay the duration of the contract, and the tax code didn’t change) that would be an insane $35,803,833 savings!!!!!!!
Harper’s story is only a large-scale example of calculations that are being made by people at lesser pay grades. We are seeing a lot of this sort of thing. Because it is hostile to wealth, the wealthy and even the not-so-wealthy are fleeing California in big numbers for tax reasons.
Charlie Munger of Berkshire Hathaway pointed out recently that places like California along with Connecticut, and New York City are shooting themselves in the foot with their tax greed.
“It’s been serious. Driving the rich people out is pretty dumb if you’re a state or a city,” said Munger.
It’s not just tax socialism that drives away wealth. Central banking itself and fiat money are nothing but monetary socialism. And you can see a corollary of tax greed in the US dollar.
In the words of Jim Grant, “the central bank is playing with fire by actively seeking to depreciate the dollar, a currency that, whatever its current lofty status in the world, is a piece of paper of no defined value.”
As we’ve pointed out often in this space, a building US debt calamity and Fed mismanagement are driving foreign central banks away from King Dollar.
And where are they going?
They are going to gold.
They’re buying billions of dollars’ worth of gold.
This flight to safety by foreign states illustrates one thing clearly. Governments around the world may be quite happy to fleece their citizens with their own bogus paper money schemes.
They just don’t want to be fleeced by ours. Just like Bryce Harper didn’t want to be fleeced by California.
You shouldn’t allow yourself to be fleeced either.
In February 2018, Congress suspended the US national debt ceiling, the statutory limit on how much money the government is authorized to borrow, until March 1, 2019.
It was the tenth time in the last decade the debt ceiling was suspended.
At that time the debt ceiling was $20.5 trillion. With the suspension of the ceiling, the national debt has risen to $22 trillion.
Now, for the government to borrow more, the statutory limit will have to be either suspended again or raised.
We’ve been to this circus many times. The government will resort to accounting gimmicks, what in describes as “extraordinary measures,” to keep operations going until sometime in September when it runs out of maneuvering room.
But it is without question that Congress will raise the debt ceiling by that time. Just as it has done dozens of time in the past.
That’s one of the reasons informed people buy gold.
But if the debt limit is just perfunctory, a time-consuming activity with a foregone outcome, why bother with it at all?
And that is just what a lot of people in Washington would like to do. Get rid of the debt ceiling. Take the spotlight off Washington’s big spending ways. Let the government borrow as much as Congress approves spending.
But debates over the nation debt ceiling are one of the few times the people’s attention can be focused on just how deeply in debt the US has gotten. It’s not often time is given in mainstream media reporting to a discussion of national solvency, but the debt ceiling is one.
It’s about all we’ve got.
Now here’s a mystery question for you…
In 2006 the national debt ceiling was “only” $8.965 trillion. When borrowing bumped up against that level, Congress voted to raise it again. During the debate one freshman senator voted “no” on the increase.
He rose to the floor to explain his vote. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said.
He was right.
Q: Do you know who that senator was?
A: His name was Barack Obama.
Oh, by the way, the national debt ceiling was raised five time during Obama’s presidency, a period in which the national debt virtually doubled.
Smart (and obvious) investing advice: When Warren Buffett speaks, you listen.
Something Warren Buffett said the other day caught our attention.
In a CNBC interview, Warren Buffett warned companies to avoid states with unfunded pension liabilities.
It is sound advice. And it has implications for individuals as well.
Unfunded public pension liabilities are a “disaster,” said the Oracle of Omaha.
“If I were relocating into some state that had a huge unfunded pension plan, I am walking into liabilities,” Buffett warned. “Because I mean, who knows whether they’re going to get it from the corporate income tax or my employees — you know, with personal income taxes or what. But that — that liability isn’t going — you can’t ship it offshore or anything like that. And those are big numbers, really big numbers…. they will come after corporations, they’ll come after individuals. They — just — they’re going to have to raise a lotta money.”
They will come after the money
Buffett’s logic must be applied to the financial behavior of the United States government. Because the problem of a state’s unfunded pension liabilities are chickenfeed compared to the unfunded pension liabilities of the US.
You know that the US national debt is now $22 trillion dollars. But that’s just the visible part of the debt. The hidden debt includes the government’s unfunded pension and other liabilities. These are IOUs and other promises the government has made to workers, retirees, and others that are inadequately funded.
An honest measure of its indebtedness should include promises the government has made to pay for things. That’s how we reckon debts in the real world. Instead, the US uses Bernie Madoff accounting. More about the fanciful world of government accounting HERE.
US unfunded liabilities are estimated to range between $123 trillion and $210 trillion.
That’s not chickenfeed.
Now, Buffett is right. State will seek to solve their problem of unfunded liabilities with income taxes and corporate taxes.
But, oh, how the states would love to be able to do what the US government can do. How envious they must be of the federal government’s ability to just print the money.
It’s a time-honored technique of governments throughout history. And while everybody notices when the tax bite gets bigger, most people don’t understand that the declining purchasing power of their money is a tax on them as well. The new money the government prints to pay its bills takes on purchasing power to the exact extent the money you have in your pocket or in the bank.
It’s taxation by sleight of hand.
Buffett warns that states with unfunded liabilities are money pit that can be avoided by staying away from those states. But the US government money pit is not as easily avoided by Americans. Most of us can’t just pack up and move away and most of us don’t want to.
But we can take prudent steps to insulate ourselves from the government’s inevitable currency destruction.
Find out how by speaking with an RME Gold associate.
We do occasionally run into someone who doesn’t understand our beef with the Federal Reserve.
You would think having destroyed 96 percent of the dollar’s purchasing power since it went into business in 1913 would be reason enough to be dissatisfied with the Fed. Not to mention engineering the worst economic upheavals in the country’s history, events like the Great Recession and Housing Bust, the Inflation Crack-Up and double-digit interest rates of the 1970s, or the Great Depression.
For those who don’t see the hand of the Fed behind those calamities, we can only point to the Fed’s serial stock market bubbles and ask, “Do you really think this can end well?”
By “this” we mean the Fed’s slavish relationship to Wall Street and the money center banks.
To illustrate the precariousness of it all, we have attached a chart overlaying the Fed’s interest rate suppression of almost forty years (the brown line) with the heights to which it has driven the stock market (the blue line) represented by the Wilshire 5000 Total Market Index.
Having created the double-digit interest rates of the 70s, the Stagflation Decade, the Fed engineered the record high rates seen on the left-hand side of the chart beginning in the early 80s. It has spent the following decades driving interest rates down. Along the way the Fed has made its role as the handmaiden of Wall Street explicit. You can see the result: artificially low rates have made borrowing cheap and provided a major subsidy for Wall Street.
Look carefully at the decades of falling rates. Down, down, down. Year after year of interest rate suppression. The Greenspan Fed. The Bernanke Fed. The Yellen Fed.
And when the current Fed chairman, a fellow named Powell, thought he would change things, he was handed his lunch. In a prior post, we noted the speed with which Wall Street was able reverse even a modest effort by the Fed to normalize interest rates.
Wall Street’s temper tantrum, The December collapse of stock prices, drew a quicker response than the government shut down.
The Fed’s about-face was total. “Raise rates? Why, no sir. Never had any such thing mind.”
So, for all the aforementioned Fed calamities, this stock bubble promises to be the biggest and baddest of them all.
For the last decade or so, real interest rates (the nominal interest rate minus the inflation rate) have been bumping along near zero. Wall Street has loved it. But now ask yourself, if it takes constantly lower interest rates to sustain the stock market, how much lower can rates go?
Not only is the answer not much, but all the economic fundamentals militate for higher rates. To provide one example, observe the growing revolt against America’s international sanctions regimes. Foreign countries have discovered they don’t like being told where they can buy the energy they need to keep warm in the winter, or who they may or may not sell their goods to. And they don’t want their dollar accounts frozen by Washington bureaucrats. Already foreign buyers presence in the US Treasury market is described as “fading.” Their search for alternatives to dollar jeopardy eventually will mean the US will have to offer higher rates to sell its debt instruments.
What we are saying is simply this: The stock market is a bubble of enormous proportions. The Fed will try to keep it inflated, but eventually it will fail. Eventually rates will rise.
And as always, the bigger the bubble, the bigger the bust.
“In trying to explain the complexities of interest rates, inflation, money and banking, exchange rates and business cycles to my students, I leave them with this comforting thought: Don’t blame me for all this, blame the government. Without the interference of government, the entire topic would be duck soup.”
In December, the Federal Reserve raised its Fed funds interest rate target to 2.5 percent. It clearly expressed its intent to hike interest rates at least a couple of more times in 2019.
But the stock market threw a fit. In seven consecutive trading days, the Dow Jones Industrials fell at least 350 points six times. In no time at all the DJIA gave up 4,000 points.
Fed chairman Jerome Powell felt the heat. And he saw the light. Additional interest rate hikes are off the table for now, Powell having observed that the case for rate hikes had “weakened.”
Not for the first time Wall Street demonstrated its veto power over Fed actions.
And the stock market has returned to its December highs.
For those of us that understand that interest rates, the costs of borrowing and returns on lending, are simply prices, the price of money, the entire episode reveals the madness of the monetary authorities. Prices are not just arbitrary things. They communicate vital information about supply and demand. When, instead of moving freely, prices are set arbitrarily by government authorities, they create harmful and wasteful conditions.
Prices that are set artificially low create harmful shortages, while those that are set above what real conditions of supply and demand would dictate create wasteful surpluses.
In the process vital information that directs valuable resources to where they are most needed by producers and savers and consumers is corrupted. Think back no further than the 2008 housing bust when artificial interference in mortgage lending and rates deceived builders and sellers and lenders about the extent of credit worthy buyers. When reality was finally revealed, the artificial boom was followed by a painful bust.
Yet central banks are like wrecking machines for crucial information about real conditions of credit. And while the Fed’s low rates are what its Wall Street overseers want, they are harmful to persons on fixed incomes that depend on interest income. They encourage older people and retirees to take investment risks that are inappropriate to their circumstances. They are harmful to pension funds that are underperforming and will soon ask to be bailed out by the taxpayers. The are a disincentive to savers and encourage speculation.
Interest rate interventions by central banks would be funny if they were not so destructive. Frantic Fed officials changed interest rates 23 times in 1978. Financial planning and business decision-making became almost impossible.
But interventionism is compulsive with central bankers, and not just with the Fed. Here’s a sample of actual headlines about recent central bank activities around the world:
Sri Lanka holds rates, cuts reserve ratio another 100 bps
Jamaica cuts rate 25 bps, reserve ratio to boost inflation
Tunisia raises rate 100 bps to curb inflationary pressures
Egypt cuts rate 100 bps after hitting first inflation target
Mozambique holds rate after 9 cuts in prudent policy
The point is that monetary meddling is a world-wide phenomenon. It is an occupational hazard of central banking and fiat money regimes.
But back to the US and contemporary events, where, the Fed having spoken, the stock market has done a complete 360 in recent weeks, and we’re back where we were.
One thing is different, however. The Fed’s theoretical objective in raising interest rates was to somehow mop up or sterilize all the mad money printing of Quantitative Easing. Before that liquidity leaks into the general economy and wreaks havoc with consumer prices.
Now we know that the QE trillions will not be neutralized.
One of the most basic principles of economics was made memorable in the oft-repeated aphorism of Milton Friedman: “There ain’t no such thing as a free lunch.” So, who pays for the QE lunch? The Fed has decided that the cost of a QE clean-up is too high for its crony constituency.
Said differently, the trillions of dollars the Fed created with QE will exact a cost, a very high cost. But the Fed is not willing for it to be borne by the financial institutions it serves.
The gold market has taken note of all this. While the stock market is back where it was at the beginning of December, gold did not return to its December lows where this turn of events began. Because gold discounts central banking machinations and paper money frauds, it has convincingly marched higher throughout the entire episode.
Afterall, gold always shows up wherever and whenever monetary shenanigans are afoot and currency destruction is in the works.
Reporting on a $23 jump in the price of gold the other day, The Wall Street Journal headline read, “Gold Surges on Elevated Geopolitical Uncertainty.”
We stopped right there.
When a market makes a big move – any market, stocks, oil, bonds, gold – financial writers have to explain it. In the gold market, if they don’t know exactly what’s behind the move, they can always fall back on “uncertainty.”
That’s probably because the mainstream press always seems to expect as a certainty that the conventional wisdom will prove out in the end, and anything contrary to the conventional wisdom is “uncertain.” Politicians, they trust, make good decisions for their nations, the monetary authorities know what they are doing, deficits don’t matter, we’ll grow our way out of it, and so on.
Perhaps we flatter ourselves in believing we know better, but we have long memories and are familiar with a rich history of precedents. We think that where your money is concerned it is wise to be skeptical of the conventional wisdom of the financial press. Indeed, we suspect that politicians are just as likely to be self-serving, that the monetary authorities don’t know what they are doing, that we cannot spend our way to prosperity.
In any case, we like to think for ourselves. And in most cases what the mainstream press calls “uncertainty” is not uncertain at all.
We invite out clients to review the past six months of these posts. You will find that we have identified a risky stock market that is sustained only by the Fed’s policies, a flight to quality among wise investors world-wide, including new gold-buying priorities by central banks, a world of troubled paper currencies, a badly deteriorating US debt picture, abounding financial bubbles (like student debt), the dollar reserve standard breaking down, a deteriorating domestic business environment, political uncertainty, fracturing geopolitical relations, a socialism juggernaut loose on the land… shall we go on?
Instead, help yourself to our comprehensive commentary about these and many other topics. The mainstream media may be uncertain, but you will understand why we view higher gold prices as a certainty.
If you would like to know more about recent market action and learn how you can protect yourself and your family with precious metals, call your RME Gold broker. If you do not have one, simply call our office and you will be connected to one of our knowledgeable gold and silver professionals
At $22 trillion of debt, the benchmark the US government hit just days ago, we’re up in the nose-bleed section somewhere.
Just how bad is it? In an earlier post we pointed out that the trillion dollar debt the US added in just the last eleven months was more than the Republic accumulated through the Revolutionary War, the War of 1812, the Louisiana purchase and Seward’s Folly, fighting the Civil War, the Spanish American War, two world wars, Korea and Vietnam, and putting a man on the moon.
The US did all that without accumulating a national debt of $1 trillion.
Now we add a trillion dollars of debt in less than a year.
It even gives you a glimpse at just how inexpensive gold is right now with respect to the unpayable US debt. We’ll get to that in a minute.
But first, a few bullet points.
The US debt is higher than the combined market value of all the Fortune 500 companies combined.
Just with the money the US spends on interest, it could run Canada or Mexico.
Debt from just one Trump term could pay for another World War II.
This is all happening, not during a depression or even a recession, but during “good times.”
Here’s the part the puts the price of gold into perspective.
The article points out that at today’s price, just the debt accumulated during the Obama years would be enough to buy all the gold that has ever been mined in history. “Every nugget pulled out of the Klondike, every ounce plundered from the Aztecs, every gold bar leach-mined out of Australia: it all adds up to about 190,040 tons, or 6.7 billion ounces. At the current price of about $1300, the world’s gold hoard would be just enough to pay off the US debt accumulated between 2009 and 2016.”
The US has a lot of irredeemable dollar debt out there. Let me put it another way. Think of an inverted pyramid, an enormous mass of debt all balancing precariously on a teeny-tiny tip of gold, which is real liquidity.
Talk about unstable!
Today’s gold price in so low in comparison to the debt mass resting on it, that it is easy to see how a world-wide awakening to this unsustainable debt binge will create a gold rush of unprecedented proportions.
Call your professional RME gold broker to find out how to beat the rush.
The US is in denial. Its debt binging is obviously a chronic condition like alcoholism or drug addiction. It obviously needs help.
We can’t let this benchmark event pass without remarking on it.
The US national debt hitting $22 trillion, I mean.
It’s quite an achievement. All of that money, all $22 trillion of it, had to be borrowed. And borrowed it was, despite the fact that every lender knows it can never be paid back – except by borrowing more tomorrow.
It’s sort of like a Ponzi scheme. It’s quite an achievement for a sketchy borrower!
The US broke the $22 trillion borrowing ceiling on Monday, February 11.
Just to review, its borrowing reached $1 trillion during President Reagan’s first term. It broke above $10 trillion at the end of Bush the Younger’s presidency. And hit $20 trillion at the end of Obama’s tenure.
Imagine that. The national debt doubled during the Obama presidency. Who would have thought?
Think about this for a moment. America won its independence in the Revolutionary War, fought the War of 1812, made the Louisiana purchase and that of Alaska, fought a Civil War, the Spanish American War, two world wars, Korea and Vietnam, and put a man on the moon – all without accumulating a national debt of $1 trillion.
And yet the debt climbed another trillion dollars in just the last 11 months. (It hit $21 trillion last March.)
Well, the only thing changing about the debt trajectory is that it keeps getting steeper.
Worse, still, is that there is no coalition in Congress to do something about it. Out of 535 members of Congress, only 7 voted last year to reduce federal spending.
So, I think we can all see where US debt binge is headed.
The importance of the rush of the world’s central banks to buy gold cannot be over-emphasized. After all, how could a class of gold buyers that already own 30,000 tons of gold and are intent on acquiring more not deserve our full attention?
We think that this move to gold is a megatrend in the making, but one that is being largely overlooked by others. We want our clients and readers to be among to most informed about it.
Central bank gold buying is not just gold positive. Because much of the money that they are using to purchase gold comes from their dollar reserves, it is dollar negative as well.
As an example, Russian dollar reserves have fallen over the last ten years from about $180 billion to around $10 billion today. On the other hand, its gold reserves have jumped from 40 tons in 2006 to nearly 2000 tons today.
Recently we reported on what we described as “aggressive” gold buying by China, boosting its gold position by 75 percent in 3½ years.
Like Russia and China, many central banks having been adding to their gold reserves right along, but it is notable that the central banks of countries that have been absent from the gold market for years are buying again. That includes India, Thailand, the Philippines, Egypt, and Poland.
Here is a brief description of the trajectory of central bank gold buying as reported by the World Gold Council:
“Central bank gold reserves are rising. Net purchases totaled 351.5 tons in the first 10 months of 2018, up 17 percent year-on-year and the strongest showing since 2015. Momentum is growing too, with net purchases of 148.4 tons in the third quarter alone, up a full 22 percent year-on-year.”
Little noted in the popular press, foreign gold buying foreshadows changes in the US dollars’ status. The dollar and its risks are the unstated focus of their analysis when foreign central bankers explain their new gold rush.
A Russian central bank official says gold is a “100 percent guarantee from legal and political risks.” Hungary, which has increased its gold holdings by ten times in recent years, describes gold “as a major line of defense under extreme market conditions or in times of structural changes in the international financial system or deep geopolitical crises.”
We spotted a foreign news story the other day that is right out of the paper money fraudsters’ playbook. We wanted to highlight it for you because it is a play that governments and central banks run again and again, seeking to deflect blame from themselves for their destructive practices.
Turkey’s monetary policies have been like those of most of the world: its central bank has been destroying the purchasing power of the currency with money printing.
Why does money printing destroy purchasing power?
Here’s a recent comment by economist Don Boudreaux: “Wealth is goods and services; wealth is not money. And so to create more money without creating more goods and services is to create, not more wealth, but only more inflation — along with the distortions and uncertainties that inflation unleashes.”
That’s it in a nutshell. So, Turkey’s money printing is destroying the lira. The annual inflation rate hit about 25 percent in the last quarter. Food prices have been rising at a 30 percent rate and higher.
But what we wanted to call to your attention is the way the government is scapegoating others for its own currency destruction. The government is on a tear, issuing fines and demonizing farmers, wholesalers, vendors and anybody else it can for high food prices. It calls them terrorists and traitors.
President Erdoğan says, “The government will finish off those terrorizing wholesale food markets in no time, the way it finished off those terrorists in caves.”
All of this will drive commerce to the black market, and suppress production, in turn driving prices higher still.
We see the same pattern often and elsewhere. And not just in places like Turkey and Venezuela. When the British were busy destroying their currency in the 1950s, Harold Wilson, the eventual prime minister, blamed “the gnomes of Zurich” for their crisis. Nixon blamed international money speculators when he took the dollar off the gold standard.
Consider this just an early warning about events to come here in the US, where money printing has been escalated to heights that make Turkey’s problems look insignificant. When the effects become conspicuous, and our own government begins looking for scapegoats for its monetary malfeasance, you will know that draconian policies are close at hand.
Just over two weeks ago gold broke through the $1,300 per ounce level. At the time we described for you the technical picture for gold, writing, “Gold’s bullish outlook is also confirmed by a look at the charts. This week gold’s closely watched 50-day moving average broke above its 200-day moving average. This ‘crossover’ is a widely regarded bullish indicator.”
Gold has had no difficulty staying above $1,300 since then, closing in New York on Friday at $1,318.
Now a similar technical picture is developing in the silver market. Silver’s 50-day moving average turned up sharply about three months ago. Now it is within just a few cents of moving above its own 200-day moving average. As with gold, this crossover is taken by chart-watchers to be an important bullish indicator.
It has been more than three years since the last time silver’s 50-day moving average broke above the longer-term average, and in fact it was a technical event that heralded a powerful move higher in silver.
In the space of just a few months from its 2016 crossover, silver climbed from below $15 to over $23 dollars per ounce.
We think the economic background, the fundamentals that impact the dollar, are much more bullish now that they were three years ago!
Those fundamentals include Federal Reserve policy confusion, years of unassimilated money printing, obvious turmoil in the stock markets, and rising geopolitical temperatures.
The socialist juggernaut that has been unleashed in this country looks to us to be unstoppable as well. It should be kept front and center in your financial planning. The only thing it can deliver is poverty… and much, much higher gold and silver prices.
The US Treasury’s borrowing needs are about to explode, as we wrote last week, and for more reasons than growing deficits.
Consider the convergence of some of the contributory factors:
The Fed has proposed that it will clean up its balance sheet, swollen by Quantitative Easing (QE), with Quantitative Tightening (QT). That means when bonds in its portfolio mature, the Fed isn’t rolling them over into new bonds as it had done along the way during the QE phase of its operation. But the Treasury can only redeem bonds today – including the Fed’s maturing bonds – by selling new bonds tomorrow. The net effect of QT is that a much bigger supply of bonds needs to be absorbed by a straining market. For 2019, the Fed planned to reduce its holdings by $600 billion.
At the same time, and as we have been warning, the global dollar reserve standard is winding down. In 2000, 72 percent of global foreign exchange reserves were in dollars. Now it is only 62 percent. Like reducing the presence of the Fed in the Treasury market thanks to QT, the falling appetite for US debt from foreign central banks means reduced buying presence in the market as well.
Well, what could be worse than the removal of two major buyers – the Fed and foreign central banks – from Treasury auctions?
How about this. At the same time buyers are disappearing, the Treasury has more bonds to peddle. A lot more.
Let me repeat that last part. The Treasury is looking at having to sell trillions of dollars of additional bonds because now the US is looking at trillion-dollar annual deficits each year as far as the eye can see.
More supply. Fewer buyers.
To cut to the chase: There will be buyers for all of those bonds. But only when they pay far higher interest rates.
And higher rates increase the cost of funding government debt. They widen the deficits, which means even more bonds must be peddled. Or taxes must be raised, which is another drag on the productive and tax-paying economy, once again widening the deficit.
Because reducing spending is off the table, everything the government does about the deficit and debt from this point forward perversely widens the deficits.
We have written this piece so far without resorting to a cliché about “a perfect storm.”
But that is exactly what it is.
Last week we wrote that “some Treasury advisors are aware of the incremental, intersecting borrowing demands ahead. But they aren’t trying to figure out how to stop it. They are scratching their heads trying to figure out how to keep the game going.”
Typically, these “solutions” will require that certain individuals, plans, funds and institutions must hold US Treasuries whether they want to or not. That may mean savings accounts, retirement plans, trust accounts, and investment businesses. Of course, nobody has to mandate good investments.
Only those you wouldn’t choose must be mandated.
In times like this, only gold offers shelter from the storm.
Sometimes key insights and financial news, things that shed light on the value of the dollar, the solvency of the country, and gold, come our way at a furious pace.
As part of our commitment to keep our clients and readers informed, we occasionally assemble them in one post.
Cities Can’t Pay Their Bills
“According to a recent analysis of the 75 most populous cities in the U.S., 63 of them can’t pay their bills and the total amount of unfunded debt among them is nearly $330 billion. Most of the debt is due to unfunded retiree benefits such as pension and health care costs.
“This year, pension debt accounts for $189.1 billion, and other post-employment benefits (OPEB) – mainly retiree health care liabilities – totaled $139.2 billion,” the third annual “Financial State of the Cities” report produced by the Chicago-based research organization, Truth in Accounting (TIA), states.”
“… Student loan debt has been cited as one of the reasons for declining homeownership and, only projected to worsen over time, economists worry that it could pose other serious financial risks.”
Gold: The Bubble Alternative
“The essential attribute of gold is that it is a contra central bank asset. It’s the one asset that can’t be influenced, manipulated, created or destroyed, for that matter, by the central banks. It’s the one asset that history has proven, without a doubt, can retain its value regardless of the mayhem and financial disorder caused by governments…
“Gold is the alternative asset to a bubble ridden financial system that is driven by the central banks.”
– David Stockman, quoted in USAWatchdog, 2/6/19
UN Warns of Currency Wars
According to the UN report, continuing or hiking tariffs between [the US and China] would have an unavoidable impact on the “still fragile” global economy, including disturbances in commodities, financial markets and currencies.
The UN trade conference report said, “One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service. Another worry is that more countries may join the fray and that protectionist policies could escalate to a global level.”
… A currency war occurs when nations deliberately depreciate the value of their domestic currencies in order to stimulate their economies.
Bad News for 25 Million Americans Who Expect Their Pensions Are Funded
“Total unfunded liabilities at U.S. state and local public defined benefit pension plans are about $1.4 trillion — more than three times their pre-financial crisis level. After a decade of strong investment returns, the funded status of public pension plans continues to worsen. The next economic downturn will deliver the coup de grâce to some public pensions. As the probability of defaulting on promised benefits increases with falling asset prices and bloated pension liabilities, retirees nationwide will face the grim prospect of receiving greatly reduced benefits during their golden years.”
– The Hill
Central Banks Own Gold
“If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute.”
Central Banks Continue AgressiveAcquistions of Gold
The world’s central banks were aggressive gold buyers in 2018, according to a new World Gold Council report. The banks’ gold acquisitions jumped an astonishing 74 percent over the year before.
Altogether central banks added 651.5 metric tons to their official gold reserves in 2018, according to the WGC.
Driven in part by the central bank buying, the most in 50 years, overall gold demand jumped 4 percent for the year,
Alistair Hewitt, the WGC Head of Market Intelligence, summed up the findings:
“Gold demand rose in 2018 and, although the US dollar gold price was down 1% over the year, it outperformed many other financial assets. Worries about a slowdown in global growth, heightened geopolitical tensions, and financial market volatility saw central bank demand hit its highest level since Nixon closed the gold window in 1971, the volume of gold in European-listed ETFs reach a record high, and annual coin demand leap 26 percent.”
Demand for gold ramped up dramatically toward the end of the year. Zeroing in on the last quarter of 2018, October-November-December, the WGC reports, “Overall demand increased 16 percent in Q4 21018, compared with Q4 2017, while total investment demand grew 35 percent Q4 2018 from Q4 2017.”
“I don’t see any of the risks that investors and central banks are worried about fading anytime soon and I expect gold to remain an attractive hedge in 2019,” said Hewitt.
The world’s central bankers are much more aware of the dollar and debt problems of the United States than are most American citizens. They are taking steps to reduce their chances of being fleeced by fundamentally dishonest Federal Reserve practices. Few Americans are taking the same kind of steps.
Our professional RME Gold brokers believe that educating as many Americans as possible is part of our job. If you have family members, friends, and colleagues that would like to learn why central bankers around the world are moving aggressively into gold, we can be of help. Have them contact an RME broker right away.