Gold has been around since the beginning of time. It sits in a lump, doesn’t pay interest; yet governments around the world hoard it, and investment pundits recommend we own some. As kids, we watched movies about pirates stealing it, governments fighting over it and women swooning when they receive it as a gift. Warren Buffett, a former gold critic, just bought 21 million shares of a gold mining company. Why?
Historic low interest rates make it very difficult to grow and accumulate wealth. Tim Plaehn, our dividend expert, and Chuck Butler our Fed and currency expert both recommend owning gold and gold stocks as part of a well-diversified portfolio.
Friend John Williams of Shadowstats shows us that gold has outperformed the stock market since 2000.
Friend Jeff Clark, our gold expert tells us, as of September 23rd, silver is the best performing asset class of 2020 (+27.3%), gold is second (+22.7%) and Nasdaq third (+11.8%).
| Why are people buying an asset that sits in a lump ahead of shares of solid businesses producing profits and paying dividends? |
We’ve recommended owning gold for quite some time; today I would like to discuss why. Why has gold stood the test of time and considered a measure of true wealth?
Who better to help us than Jeff Clark, our gold expert, and senior analyst at GoldSilver.com.
DENNIS: Jeff, on behalf of our readers, thank you for your time. Let’s get to it. Many times I’ve heard you say, “Gold is REAL money.” You remind us that it will NEVER go to zero.
Unlike other metals like iron or copper that have a lot of industrial uses, gold is expensive and industry looks for lower cost alternatives.
What makes gold so special?
JEFF: Thanks again Dennis for the opportunity to address your readers.
The primary reason gold is money is it represents real wealth. It can’t be debased by man or destroyed by nature. It’s the asset of last resort, which is why the price has been rising in response to the virus, riots, recession, geopolitical conflicts, and currency printing.
| “The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.”
– Henry Hazlitt |
Another reason is because it has a finite supply, which of course is the opposite for paper currency. A few keystrokes and a central bank can conjure up trillions in paper dollars – it doesn’t even need to be printed.
Gold, on the other hand, takes a decade to bring to market, from when it’s first discovered to you and I holding a newly minted gold Eagle in our hand.
The last reason is because it is universal. Gold is understood by every central bank and virtually all citizens around the world. It transcends borders, even borders of countries that may be at war. The power is that you can literally take gold anywhere in the world and sell it if you need to. There aren’t very many assets in the investment world today where one can do that.
DENNIS: Countries used to back their currency with gold. As a kid, we had both gold and silver certificates. Today, I don’t think any currencies are gold-backed.
Jeff, why is that? Does it really make a difference?
JEFF: Good question. It’s true, no major economy in the world today backs their currency with gold. In fact, this is the first time in recorded history where NO currency is backed by gold or silver. It’s a fiat world, literally everywhere. The risk that goes with that is something we’ve never faced before as a civilization.
However, many central banks do hold gold as part of their reserves. Many have been adding to those reserves on a net basis for over a decade now. Central banks understand that in a world full of monetary, economic and geopolitical risks that they need to hold the asset of last resort. We should view it the same way.
The difference is a gold-backed currency limits government spending to the amount of gold in the treasury. When currency is not gold-backed, governments can spend as they please.
DENNIS: Some history before the next question.
In 1933, President Roosevelt signed Executive Order 6102 making it a criminal offense for US citizens to own or trade gold anywhere in the world, with very limited exceptions. Gold was valued at $20.67/oz and citizens were forced to redeem their gold for paper dollars.
In 1934 the Gold Reserve Act was passed giving Roosevelt the power to value gold by proclamation. He promptly revalued gold at $35/oz. In round numbers, citizens saw their dollar decline by 70%.
Federal Reserve History tells us:
“…. (The) $20.67 per ounce…rate had prevailed until…1933, when the Roosevelt administration began its campaign to devalue the dollar.” (Emphasis mine)
With the Fed’s new inflation policy, wanting to devalue the dollar, pundits predict potential inflation, perhaps like we endured in the Carter years.
For the moment citizens can own gold. Is confiscation possible a second time around?
JEFF: The risk is not zero, but remember the U.S. was on a gold standard at the time. Gold actually backed the currency, and given the tumult at the time Roosevelt probably felt he had to acquire as much gold as he could. It was wrong what he did by later devaluing the dollar, but that was the risk at the time.
Today gold is not part of the currency system. The incentive to confiscate is lower. And it wouldn’t net the government much cash anyway; the gold market is tiny compared to other juicier assets like mutual funds and pension funds.
DENNIS: In addition to gold, how do you recommend investors hedge their inflation risk?
JEFF: Silver is very volatile, but it responds directly to inflation. If the CPI starts to rise in earnest, history says silver will respond in leaps and bounds. Before it’s all over I expect silver to rise more than gold, particularly if we get inflation.
Some investors use collectibles but that introduces other risks one doesn’t have by simply owning gold and silver bullion.
DENNIS: Our readers need income, like interest and dividends, which physical gold does not offer.
What are you advising readers to do in order to hedge against inflation; yet generate some income at the same time? Are you recommending stocks?
JEFF: It’s not easy in the current environment, because trying to grab any meaningful yield-something that yields more than the rate of inflation-requires one to increase their risk. For me personally, I don’t own common equities, because I feel stocks as a group are overvalued and vulnerable to a major downturn.
With regard to mining stocks with strong dividends; I’ll point out that many miners have increased their dividends recently, as their free cash flow has jumped due to higher gold prices.
DENNIS: In the last year we increased our holdings of mining stocks. Chuck Butler mentioned he has done the same.
What are you currently recommending to your readers as far as physical metals, and stocks as a percentage of their overall portfolio?
JEFF: This greatly depends on each individual, but for me I didn’t start buying dividend-paying mining stocks – in spite of knowing a lot about them – until I had my monetary insurance in place – until I had purchased a meaningful amount of physical gold. And given the current world circumstances, this is clearly a time to be overweight gold-I can’t think of a more conducive environment to owning gold than now.
Long-term studies show the optimal allocation to gold to balance risk and reward is 20%. Based on this extensive research, going all the way back to 1968, any amount less than that leaves a portfolio at risk, particularly today.
I also own mining stocks as part of my offensive strategy. They’re riskier, but if gold is in a bull market as I think, they will more likely follow gold up than what common stocks may do. I enjoy capturing some dividends along the way.
DENNIS: One final question. A few months ago you said the supply of physical gold was tight, but was still available. What is the current situation?
JEFF: Demand is still high, and most mints are still on reduced operating hours, so physical metal is still tenuous. Depending on the product, you may or may not have to wait for delivery. As we speak premiums have come down from their highs, as have prices, so for someone who felt like the market got away from them earlier buying now may be a good opportunity. There’s little doubt in my mind that we will see much higher prices and much higher premiums as the bull market progresses.
Thanks for inviting me, Dennis.
Dennis here. With the Fed hell-bent on creating inflation, investors need to stay ahead of the game. Most can ill afford to see the buying power of their wealth erode. Jo and I own gold and metal stocks. Yes, they have been volatile lately, but the Fed will prevail and we will eventually see the anticipated inflation.
I’ve known Jeff for several years. He is a true precious metals expert and is prominent speaker at investment conferences. His company, GoldSilver, offers a low-price guarantee.
For more information, check out my website or follow me on FaceBook.
Until next time…
Dennis
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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I own both Lots of both and suggest everyone do the same before it’s too late
One need only hold some in one’s hand to appreciate why it has always been “treasured.” That it is easily divisible, is heavy relative to quantity, is unreactive with chemicals, water, soil, etc., is ornamental, and has functional uses, only adds to its appeal. I have no regrets about my ownership.
Problem with gold is I cannot afford any of it.
Just think of the human misery caused by it. I wonder how many people have been murdered over it.
Silver in small amounts would make more sense for barter and trade.
yah- Sometimes I’m simply amazed by your comments. Do you ever think to engage your critical thinking skills that would help you through the thought process before jumping to some irrelevant conclusion?
Gold hasn’t caused even an iota of misery, because (here comes the critical thinking part) it, like firearms is an inanimate object, that is completely and totally incapable of causing anything.
Guns don’t kill people, other people kill people and sometimes it’s with guns. Other times it may be with a hammer, or a steel-toed boot. But whatever the object was that became a murder weapon, it played no part in the planning or execution of the crime.
Likewise, gold lays in the ground, is mined, refined, struck into coins, or cast into bars and sits in someone’s safe, or storage facility until it is needed for any number of transactions for commerce.
That’s it. It doesn’t sit around plotting to cause misery, or attempt to overthrow governments. Nothing, it just sits there until needed.
The only cause of human misery is other humans,who for one reason or another are driven to become a psychopath, or tyrant and is compelled to interfere, sometimes fatally, in the affairs of other humans.
Research and trace the history of the (Khazarian edomite) Jewish people and you will find that it was their obsession with possessing gold that caused the human misery that you spoke of. They worship gold, but flood the world with their phony fiat currency.
They were the original bankers in the form of goldsmiths, where people could store their gold and receive a certificate stating that amount stored by the bank. People were then relieved that they didn’t have to carry large and heavy amounts of gold for their daily transactions.
It didn’t take long, however, for the wily goldsmith to figure out that he could issue more certificates as loans, than he had gold in storage. Thus, the origination of fractional banking, which is in practice to this very day by the crooked central banks and their ilk.
Like fire, gold can be a trusty servant, but a cruel master in the wrong (Jewish) hands.
And well before a single ounce of it was ever pulled from the ground, humans were butchering humans over things that had more meaning – like food, women, animals, land, etc.
My stupid cunt coworkers asked me how gold’s doing lately, I said I don’t know, don’t follow it that closely.
I said I own it as a hedge against massive inflation coming our way. I said inflation is really starting to pick up.
I then told the cunts to open up Google and one cunt needed help opening up Google. I then showed the cunts wheelbarrows full of cash from Zimbabwe to purchase a loaf of bread.
The fucking cunts then promptly closed the picture and ran away from me.
My plan all along. ….
Life is tougher when you’re stupid. You hurt their feelings.
In 2003 I was talking with a guy two years older than me (I was 53 at the time) and he asked me what I was investing in, him having gotten hurt in the stock market 2000 dot com crash, the 2001 9/11 crash, and the 2002 downturn.
We were having a drink with others around and I told him I had cashed out a stock market 401k in 1999 (I was 49) after much thought, prayers and research, took the significant profit, paid the taxes & penalty & got debt free, and then put a sizable amount of money into physical Gold and Silver.
He looked at me like I had just farted in church…then laughed out loud shaking his head in open mockery and disbelief.
We have a connection that keeps us aware of one another’s doings.
He got his clock cleaned again in 2008/9…I bought more PMs.
He isn’t laughing anymore.
I’m building our dream house.
Leaning towards Gold $2,500, Silver $40, 1st quarter 2021. (I still have most of the 1999 stacks). But that is just the begining of the 3rd PM Bull Market of my life.
I suspect after the coming ‘Great Reset’ he will be eating cat food in the dark.
big grin over here.
you have a way with words, MM.
always interested in what you write and opine.
getting one’s clock cleaned, or taking a severe haircut to NAV of those mutual funds…yup.
1999…dot comk / tech stock bust
2009…housing bubble pops
2020…Covid hoax
Cycles sure do repeat, eh?
Frequency.
And, it Hz more, if you don’t hold PM’s in hand.
AuGee,
After the Banksters ‘Bank of International Settlements and Asset Rigging’ quietly made Gold a Tier 1 Asset in April 2019 I started drooling, then when the Central Bankster REPO market started its collapse in September 2019, with the ‘Federal Money Changer Reserve’ pumping in panicked billions nightly, I told my wife when the time was right we were going back in for one more big buy.
When they slammed PMs back down last March I told her: THIS WAS IT…COVER ME…I’M GOING IN!…bought Gold at around $1,400 and Silver at a little over $12.
I usually go long, but this was house money, knew it would be needed by year end…and we will be selling both those buys soon to finish the Markamo.
Bada Bing…Bada Boom!
Almost ready for Civil War 2, the 4th Turning climax, TSHTF, and last but not least…the night of the living dead Golden Horde TEOTWAWNI Zombie Apocalypse!