August 2017 Information Line
By Rich Checkan
Is your chaos hedge in place?
As I put fingers to keyboard for this month’s Perspective, and as I look back over the events of the past month, this seems to be a very valid question.
Last month, the precious metals were in the midst of another sound beating. Gold was trading in the low $1,200’s and silver was below $16 per ounce. If you read our alerts, you know we suggested it would be a good time to buy gold and silver (and platinum and palladium). After all, the selling in precious metals was clearly overdone… and then some.
Since then, quite a bit has happened, and none of it is particularly positive for the economy or for global stability. I’m not a gloom and doom guy, but consider what has taken place over the past month…
- The Trump administration is giving new meaning to the “revolving door.” The latest casualty lasted about a week.
- New sanctions are about to be imposed on Russia as they call for the reduction of U.S. diplomats and local Russian workers at the Russian embassy by over 60%.
- North Korea, it seems almost daily, is testing intercontinental ballistic missiles… demonstrating the capability to reach many major U.S. cities.
- In response, the U.S. is flexing its muscles with Japan and South Korea by flying missions perilously close to the North Korean border.
- In our backyard, violence erupts surrounding the highly controversial presidential election in Caracas.
Amidst all of this, the U.S. dollar lost nearly 3% in the past month… a weakening we called late last year. And, the precious metals have rebounded quite nicely over the last month despite significant outflows from ETF gold by institutional investors.
Over the last 30 days, gold is up 3.8%. Silver is up 5.8%. Platinum is up 3.3%, and palladium is up 5.3%.
As you read this month’s full newsletter, you will see we believe there is much more room to the upside. Whether it happens right away or over time, we still expect to see the Gold/Silver Ratio (GSR) fall from its current level near 76 to somewhere between 30 and 40.
As a result, we believe now may be the best time to buy gold and silver (and platinum and palladium) than you will see for the next 5 to 6 years.
Is your chaos hedge in place?
If that wasn’t enough to motivate you to take action now, consider this…
Michael and I recently attended FreedomFest in Las Vegas with about 2,200 people in attendance. Topics covered there ranged from political to financial to philosophical themes. But, the one topic with the largest coverage and by far the most interest was Bitcoin specifically and cryptocurrencies in general.
This is not a surprise. It is on the minds of many. There are articles showing up in my Inbox daily on the subject.
How will cryptocurrencies evolve? How will cryptocurrencies relate to gold? How will cryptocurrencies affect the dollar and the rest of the world’s fiat currencies?
The crypto bulls believe the trend is unstoppable. The crypto bears believe the current euphoria is nothing more than a current tulip craze… speculation and nothing more.
Take a look at our guest commentary this month in Currency Corner to understand this fascination with everything crypto.
From my standpoint, I still believe we are early in this process of crypto evolution. I don’t yet know what the final version will look like or how it will be used.
Make no mistake. I would love to see a private sector solution to money. I firmly believe private industry can do a much better job of establishing a sound monetary system than any government can. After all, governments have been failing at sound money now for millennia. Special interests and mismanagement always, eventually, lead to the undoing of governmental solutions. History is littered with failed paper money experiments.
However, I am a bit skeptical that cryptocurrencies will prevail for one reason. Glen O. Kirsch always used to say, “He who has the gold makes the rules.” Of course, he was paraphrasing Brant Parker and Johnny Hart from the popular Wizard of Id comic strip, but the point is valid.
The way I see it, control of the money is essential to government control of the people. In my opinion, this is what is behind the “War on Cash” and the movement worldwide to a “Cashless Society.” It is all about controlling the money… holding on to the power.
So, no matter what great strides are made with cryptocurrencies, I expect governments to squash the movement like a bug the moment they feel the money supply—their power—is threatened.
For that reason, when looking for alternatives to fiat currency and alternatives to the U.S. dollar, I put my money in something proven over several millennia. I put my money into the world’s only real money.
I put my money into gold and silver (and platinum and palladium).
So, I will continue to monitor the crypto craze. I will continue to watch as the world becomes more and more uneasy. I will continue to watch as we poke several tigers around the world without any clear strategy in place for when the tiger gets mad and fights back.
I will continue to build my chaos hedge. And, I believe you should too.
Now, seems like a great time to take the proper steps to Keep What’s Yours!
Give us a call at 800-831-0007, or send an email to set-up a consultation. We can help.
What Does the Current Gold/Silver Ratio Mean for You?
By Rich Checkan
Simply put, now might be the best time to buy gold and silver for the next 5 to 6 years.
Let me explain…
The Gold/Silver Ratio (GSR), which reflects the amount of silver it takes to purchase one ounce of gold, fluctuates depending on the current value of gold and silver. If you’re looking to invest in either precious metal, monitoring the GSR for its highs and lows could impact your investment significantly. Historically, whenever the GSR has soared to highs above 70, investing in gold and silver has been quite fruitful.
Right now, the GSR hovers around 76, which means it takes approximately 76 ounces of silver to buy one ounce of gold. At times like these, when silver is highly undervalued compared to gold, there is typically a rush to take advantage of lower prices in the silver market.
In contrast, when the GSR drops below 35, as it did in April 2011 and in 1980, there is commonly a rapid surge in silver selling. During this type of market, when the GSR is at its low point, the price of gold is cheap compared to silver. In April 2011, for example, the ratio plummeted to a low of 32.4! At this ratio, silver was selling for $48 per ounce and gold for $1,500 per ounce. At those prices, it’s easy to see why investors were eager to sell silver. The ratio took an even larger plunge in 1980, when it dropped to around 18!
As mentioned above, due to the extreme levels of the current GSR, both gold and silver are incredible buys right now. At these lofty GSR levels, the market is signaling the low-point for both gold and silver prices.
Generally, silver tends to be more volatile than gold, thus resulting in comparatively larger moves up and down when market forces are active. On the whole, silver usually follows the movements of gold; however, it will occasionally gain strength on gold due to its numerous industrial uses. More importantly, silver is a much thinner market than gold. So, the same dollar has a bigger impact in the silver market than it does in the gold market.
Therefore, silver follows its leader—gold, but silver will invariably out-pace gold as they both move the same direction—either up or down.
A careful look at the above chart reveals that historically, the ratio is higher when the precious metals market isn’t performing well. This is exactly the point where we find ourselves today.
The Magic Number
When you see us talk about the GSR, we typically mention a ‘magic number’ of 80 for the ratio. The GSR has only reached 80 four times in the past two decades—the most recent occurrence was March of 2016. Each of the three previous times it reached 80, the ratio responded by correcting downward roughly 40% to 60%! This effect was the result of silver outpacing gold as both gold and silver prices rose from the lows.
In the chart mentioned above, you will notice that the timespan between the four instances that the GSR reached 80 is about 6 to 7 years. The time the GSR took to fall 40% to 60% after reaching 80 was roughly 2 to 3 years.
What This Means for You
Generally, it’s important to consider three courses of action when choosing to invest when the GSR is high…
- Insurance—If your overriding objective is to buy precious metals for insurance, consider buying some insurance—gold—here.
- Speculation—Considering the volatile nature of silver, with wider swings to the downside followed by wider swings to the upside, profit-motivated precious metals buyers may consider purchasing some silver here.
- Trading—Historically, this is the most common use of the GSR indicator. Traders will look to the height of the GSR—near this ‘magic number’ of 80—to sell some gold and buy some silver with the proceeds. Then, when the GSR hits new lows, they sell the silver and buy back gold.
Whether you choose gold or silver, we have two helpful tips you can consider before making your investment…
If insurance is your prime motivator, buy both gold and silver… but weight your purchase toward gold.
If profit is your prime motivator, buy both gold and silver… but weight your purchase in favor of silver.
Due to the GSR’s high levels, silver has been one of our most popular investments this summer—and for good reason. If you’re looking to silver as an investment while the GSR is at these high levels, we can now offer you 1-ounce silver rounds for as low as Spot + $0.99 per ounce* (our choice). You can also choose from 1-ounce gold bars for as low as Spot + $34 per ounce*.
As mentioned before, a high GSR is the ideal opportunity to start investing in gold and silver. After all, it tends to indicate the bottom for prices of both gold and silver.
For that reason, right now may very well be the best time for you to buy gold and silver for the next 5 to 6 years.
To learn more about how you can profit from the current GSR, call us at 800-831-0007 or email us to discuss your options.
*Prices subject to change based on market fluctuation and product availability. Prices reflected are for cash, check, or bank wire. Offer expires Friday, August 11, 2017.
Will Physical Currency Become a Thing of the Past?
By Walter Pehowich
Our friend, Walter Pehowich of Dillon Gage Metals, frequently shares his insights with readers of The Market Gage. Pehowich serves as Executive Vice President of Dillon Gage Metals and has over 38 years of experience in precious metals investment services. We found his recent article particularly relevant, considering investors’ current fascination with cryptocurrencies. Please read his comments below about where he sees cryptocurrencies and the U.S. dollar heading in the near future.
MONEY… Past and Present
We’ve come a long way from the first introduction of paper money here in the U.S. and now to a new way of mimicking cash, called “cryptocurrencies.” Is cash as we know it going away? Heading out each day, will all I need to carry in my pocket be a smart phone and a handkerchief?
Let’s start by looking at some of the significant steps on the history of money’s timeline:
- Paper money here in the U.S. was started in the year 1690 and issued by the Massachusetts Bay Colony to fund military expeditions.
- The first printed checks are traced to 1762 in England. The word “check” originated in England where serial numbers were placed on pieces of paper as a way to keep track of or “check” on them.
- The first credit card was issued by Diners Club in 1950, allowing members to charge the cost of restaurant bills only.
- Wire transfers originated in the 19th century, and since then, they have become one of the most successful methods of transferring money across the world.
- The first ATM machine was installed by Chemical Bank at their Rockville Centre in New York. The first ATMs were designed to dispense a fixed amount of cash when a user inserted a specially coded card.
The Advent of the Internet
The history of the Internet begins with the development of electronic computers in the 1950s. In 1960, the U.S. Government’s defense project called ARPANET was developed to interconnect several super-computer sites in our country, so that if any one of them is destroyed in a nuclear explosion, the defense system would continue to function.
In 1983, several researchers began to assemble the network of networks.
It wasn’t until 1990 that the Internet really took off, when computer scientist Tim Berners-Lee invented the World Wide Web.
Why have I changed gears, so to speak, from paper money to the Internet? It’s because of the many ways money transfers over the Internet. The most famous money transfer program, “PAYPAL,” was developed and launched in 1999.
Now we will examine the future in money transactions called “cryptocurrencies.”
With the extensive development of the Internet in ways we could never imagine, it’s not a surprise that a demand has increased for a way to transfer money quickly, seamlessly and anonymously. Banks are shaking in their shoes over this technology.
Even JP Morgan’s Chairman, Jamie Diamond, sees that his group must get involved in the new technology.
So, what are cryptocurrencies and what does the future hold?
The most famous cryptocurrency is “Bitcoin,” a virtual currency that is not controlled by any Central Bank. Instead, Bitcoins are created through a process called mining, in which a computer tries to solve a cryptographic problem. The total supply of Bitcoins is capped, which has led to comparisons with assets like gold.
To clear the air and try to explain the new technology in layman’s terms, let’s define both cryptocurrencies and blockchain technology. Blockchain is the technology that enables the existence of cryptocurrency. (Bitcoin is the name of the best-known cryptocurrency…the one for which blockchain technology was invented.) A cryptocurrency is a medium of exchange, such as the U.S. dollar, but it is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.
The mechanism for tracking the price and volume is like an exchange or blockchain that instantly documents and electronically publishes every transaction.
Some investors really believe this technology is the future, because they believe the world’s Monetary System has flaws and will eventually collapse. They claim that with all that’s going on in Washington, the dollar’s global dominance is coming to an end and will be replaced in the future with cryptocurrencies.
Whether you believe the dollar is doomed or not, this technology is here to stay and is catching on in a big way. Just in the past three months, investors pumped over 1 trillion dollars into cryptocurrencies.
Now many exchanges, like the (CME) Commodity Metals Exchange, are looking at blockchain technology for trading and operations.
With the shift of everything to the Internet, it’s no wonder that money has slowly started to become digital, too. But, the path to widespread individual acceptance is a long one. And, we are in the early stages.
So, what do you do now in uncertain times like these? Gold is always an important asset to include in your portfolio. Since the early civilizations, gold has always held its value due to its rarity and incredible beauty. At ASI, we’re here to help you adapt to this increasingly digital market and take the necessary steps to secure your wealth and Keep What’s Yours! If you’re interested in using gold to protect yourself and your loved ones from the turbulent U.S. dollar, feel free to call us at 800-831-0007 or email us.
Population Growth in China and India Bodes Well for Gold
By Adriane Berg
If you’re nearing your retirement, you may be wondering what steps you should take to ensure you do have a comfortable retirement. As this stage of life approaches, it is important to consider 'age appropriate' investing. To make smart investment choices, it is wise to take into consideration the aging populations around us.
India and China Poised for Growth
Due to growing populations in both India and China, the demand for gold is likely to surge in coming years. India, for example, boasts a large millennial population—with years of spending ahead of them—that was raised to view gold as a valuable investment.
Demographics may not be the only factor influencing purchasing power, but aging populations in the U.S. and China, along with an increasing Indian middle-class, portends well for gold. Gold is an ancient and entrenched asset for older Chinese individuals, who have accumulated a large supply of gold in their lifetime. According to the World Gold Council, China and India account for 62% of gold jewelry demand, with a growing market for gold bars and coins.
In August 2016, The Reserve Bank of India (RBI) formed a committee to track personal household finance in India. 75% of Indian saving is done by households, as compared to corporate or individual saving in the West. Of that, 66% is invested in real estate and gold. How big is the market?
The UN Population Prospects report has continuously revised upward the population of India, which is slated to surpass that of China by 2028. Both populations are over the 1.3 billion mark. These are potential gold buyers.
The Indian population, which has a median age of 27 years, is far younger than the Chinese population. The emerging Indian middle class has years of wealth accumulation ahead of them and a cultural and historic penchant for owning gold.
In an October 2016 article, ‘India and China’s love affair with gold turns financial,’ published in the Financial Times, author Henry Sanderson quotes Sunil Kashyap, Managing Director in Global Banking and Markets at Scotiabank in India, as follows: “The basic premise is unchanged, even if you look at millennials… It’s been drilled into them that you have to keep some savings in gold. The only issue is there are many more distractions and many more opportunities for them to spend money elsewhere.”
What Changing Demographics Mean for the U.S.
America’s fastest growing demographic is people over the age of 85, with 10,000 baby boomers turning 65 each day. We are moving toward a more conservative wealth stage, where inflation, dollar strength, and lowered taxes become more important than aggressive growth. This changing focus fits well with the attributes of gold.
In addition, we are also apt to concentrate on legacy building. Physical gold is a viable candidate for generational wealth. In last month’s Retirement Report, I specifically mentioned the Dynasty Trust and the reason why gold is a perfect funding tool.
These changing global demographics are significant for gold, and similarly significant for industrial metals like silver, platinum and palladium.
Boomers and millennials bring with them very specific investment values. Among them are sustainable energy, healthcare safety, and responsibility for planetary environmental change. Cutting edge technologies for energy-saving, emission reduction, and infection control have proved to be dependent on precious metals or the mining of these metals for their by-products. As precious metals proponents promote this connection with value investing, there is a strong chance that lagging U.S. attention will turn to metals. Couple this with the sheer strength of East and Central Asian investors, and younger investors may enjoy investment in precious metals in the decades ahead.
What You Can Learn from Younger Investors
I'm not suggesting you become a gold bug. But, I do expect precious metals to be the hard-working, inflation fighting, wealth protecting, legacy building asset that makes your portfolio shine. Diversifying your portfolio with precious metals has historically proven to be one of the best ways to protect your wealth and save for retirement.
Worldwide, the retirement-age population is steadily growing, and with this has come an increased demand for precious metals. For more information about how you can use precious metals to prepare yourself for retirement, call ASI at 800-831-0007 or email us.