October 2017 Information Line
By Rich Checkan
This past month has been a trying one.
As we released our September issue, Hurricane Harvey was unleashing torrential rain in Houston. Shortly thereafter, Hurricane Irma delivered catastrophic winds and rain to the Florida peninsula. Next up was Hurricane Maria… kicking the bankrupt U.S. territory of Puerto Rico while they were already down.
Then, as if that wasn’t enough, we witnessed the single largest mass killing in U.S. history a few days ago. Fifty-nine dead and five hundred twenty-seven wounded at the hands of one deranged lunatic.
The devastation due to these four events is massive, and none of them will soon be forgotten. Our thoughts, our prayers, and our hearts go out to the victims of these catastrophes.
I pray that none of us become so numb as to accept the Las Vegas massacre as simply the way things are in 2017. This is not how things should be. This is not acceptable. We should not be numb to such events.
Despite all this, I found reason to be encouraged this past month as well.
I had the chance to visit with many of our industry friends at the Banyan Hill Total Wealth Symposium a couple weeks ago in Hollywood, Florida… near Fort Lauderdale. And, although you could still see the damage, in varying states of recovery, from Hurricane Irma, the resilience of the locals I ran into was noteworthy.
Their spirits were high, even though they could have easily sat back and felt sorry for themselves. Rather, they happily went about the work of cleaning up and starting to rebuild.
This is the resolve I have come to know in my fellow Americans. This is and should be the norm.
While in Hollywood, I had a number of meetings with friends from the financial newsletter industry, bankers, asset managers, precious metals dealers, and brokers. There was much talk about the equities markets… eight years of boom… looking for signals of the inevitable bust. Some focused on the incredible rise in palladium prices which recently surpassed the price of platinum for the first time in fifteen years. And, there were plenty of stock picks to go around.
But, by far, the most talked about subjects were cryptocurrencies, the War on Cash, and gold. And, if you ask me, these topics will dominate our conversations for some time to come.
Most of the people I spoke with fell into two camps on cryptocurrencies…
- Cryptos offer great potential in many applications, but they will never be an accepted form of currency unless the central governments adopt the blockchain technology to issue their own centralized currencies.
- I’m too old and don’t understand it, so I’ll let my kids figure it out.
I will tell you, we are seeing the value of cryptocurrencies and cash in places like Venezuela and Puerto Rico.
In Venezuela, without the ability to get money out using cryptos or cash garnered on the black market, whole life savings could be lost. When traditional banks, exchanges, and economies fail, black markets will emerge to fill the need. And, make no mistake, money will go where it is treated best.
In Puerto Rico, where three-quarters of the 3.4 million people are expected to be without power through the end of October, where rationing to those with cash is the only option, credit cards and a cashless society don’t seem to be part of the solution.
Cash, cryptocurrencies, and gold all offer something a cashless society would eliminate… privacy and confidentiality. And, you don’t need to be a criminal to want or need both. Both should be fought for and preserved. Both would be sorely missed if relinquished. Both represent obstacles to overreaching government control… something our Forefathers warned us about… if we have the ears to listen…
"When government fears the people, there is liberty. When the people fear the government, there is tyranny." — Thomas Jefferson
Gold provides one other important benefit to the owner that government-issued fiat currencies never have provided and cryptocurrencies are too new and unproven to even consider providing. For millennia, gold has been a proven store of value.
Why own gold now more than ever?
Gold is a store of purchasing power, in a liquid form, for a potential financial crisis you hope you never have. Period. Full stop.
If you don’t have any, or if you don’t have enough, you should get some today. There is no better asset on earth to enable you to Keep What’s Yours!
But, you don’t need a natural or manmade disaster to benefit from gold ownership. If you haven’t shored up your gold and silver positions yet, call us today at 800-831-0007, or email us today to do so.
Now is the time to act…
Could Your IRA Be Losing You Money?
By Teri Lee
Does your IRA have what it takes to weather financial storms? You might want to reconsider which assets you’re allocating to your retirement portfolio.
A startling statistic from Fidelity reveals the average IRA balance—weighted in stocks—dropped from $94,100 to $89,300 from the first quarter of 2015 to the first quarter of 2016. One of the main purposes of opening an IRA is to preserve your purchasing power in the future—not cause it to dwindle.
Many investors increase their risk exposure by investing solely in assets like stocks and bonds, only to be left disappointed when their portfolio value plummets during times of uncertainty. But, there’s one tried-and-true way to add an extra layer of protection to your retirement portfolio against the uncertain—in fact, it may already be a part of your retirement plan. This is the IRA made for economic uncertainty, and it’ll help give you the security you can’t get with other IRAs…
Before you make any moves with your IRA, download our FREE IRA guide below to simplify the process and take the hassle away from retirement planning.
Gold Backed 'Petroyuan': Good News for Gold, Bad News for the Dollar
By Erin Fischer
China’s next move with crude oil could be big news for the U.S. dollar. As the world’s leading importer of crude oil and gold, China yields incredible power over both markets. Its latest announcement that it will be trading oil for a gold-backed yuan will effectively allow oil exporters to sidestep U.S. dollar-dominated trading sanctions in favor of the Chinese yuan.
The yuan will be made fully convertible to gold on the Shanghai and Hong Kong exchanges to make this deal more appealing to oil exporters. The Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange (INE) have successfully carried out a series of production environment tests that aim to have crude oil futures listed by the end of the year. If all goes as planned, these oil contracts will be traded on the INE and will mark the first Chinese futures contract to be open for trading by international firms.
Although some foreign oil exporters have expressed concern about a contract priced in yuan, a yuan backed by gold is likely to be more appealing to oil exporters, particularly those who want to avoid trading in U.S. dollars. Surenda Mehta, the national secretary of the Indian Bullion & Jewellers Association (IBJA) explains, “China is taking things one step further with these new gold-backed futures contracts. Gold solves the petroyuan’s concerns. Russia welcomed the petroyuan with opens arms. While on a standalone basis, the yuan might not be considered acceptable like the dollar, gold backing hedges that concern.”
The U.S. dollar has historically been the industry leader for international oil trade; however, China’s recent actions are likely to disturb this trend. The shift toward a gold-backed petroyuan and away from the petrodollar could be damaging for the U.S., who has controlled trading sanctions for several decades. This shift, however, is likely to be great news for gold.
Could an International Gold Standard Be Back in Sight?
The new plans to import oil with a gold-backed yuan are significant, as gold would become a form of international currency for the first time since 1971, when Nixon cut all remaining ties between gold and the dollar.
Nigam Arora, an international market analyst and the author of the Arora Report, believes this could be a monumental moment for gold. He explains, “China’s move is the beginning of gold standards for trade in a new form. Gold is becoming less of a commodity and more of a currency as the contract is backed by nothing other than gold. If this move takes hold, gold has the potential to go up by several folds.”
Essentially, as oil exporters continue to demand gold for their oil, the increased demand for physical gold will have a powerful effect on the gold price, causing it to soar in an effort to adjust to Chinese oil imports. Whenever the relationship between oil production and gold availability finally does stabilize, the effect will have devalued both the dollar and the yuan.
However, because China’s gold reserves and gold held by private individuals are so high, when the yuan is significantly devalued, the Chinese government will be able to make the yuan, private debt, and government debt redeemable in gold. Likewise, Russia also has enough gold in reserve to take similar actions. If both were to switch to gold-backed currency, they could then require exports be paid for in gold—and they’d certainly have enough to pay for imports with gold.
Although a gold-backed petroyuan is just the first step in a very long process, this shift may eventually reestablish the international gold standard. In the meantime, this shift could be very damaging to the U.S. economy, as U.S. dollar value and U.S. government deficit spending have been largely aided by international oil trade. Once the petrodollar system is subverted, we can expect a significant decline in the U.S. dollar.
Needless to say, investing in gold is now, more than ever, a necessary precaution against the tumultuous U.S. dollar. To add the world’s one true form of international currency to your portfolio, please call us at 800-831-0007 or email us.
The Inside Story
Gold as the Monetary Sun
By Jeff Thomas
Jeff Thomas, Feature Writer for Doug Casey’s International Man, is a good friend of ours and has been sharing his insights with Strategic Wealth Preservation (SWP) readers for many years. Jeff began studying economics in 1990 and credits his education to Sir John Templeton, Harry Schulz, Doug Casey, and other Austrian economists and investors. In the article below, Jeff makes a compelling argument about his view on gold’s position in the economic universe. To read more from Jeff, make sure to subscribe to SWP’s free newsletter here.
For millennia, people believed that the sun revolved around the earth, appearing, as it did, on the eastern horizon in the morning and setting on the western horizon in the evening.
Greek astronomer Aristarchus of Samos is generally credited with the concept that the universe is heliocentric, with all the planets revolving around the sun. Yet it took a further eighteen centuries before Nicolaus Copernicus came along and convinced people that this was the case.
So, we can be forgiven if we educated modern-day people sometimes have difficulty in understanding that gold is the monetary sun.
Even those of us who have been tracking gold’s progress for decades frequently give in to the ease of quoting gold’s value in terms of fiat currency—most commonly in U.S. dollars.
And yet, we have it the wrong way ‘round. Gold is in fact the center of the economic universe and all the fiat currencies (including cryptocurrencies) revolve around gold.
But, isn’t this an exercise in hair-splitting? After all, does it really matter whether we acknowledge “orocentricity”? Doesn’t it amount to the same thing?
Well, no, it doesn’t it. For those of us who deal frequently (or entirely) in U.S. dollars, there would be an inclination to say that, for more than four years, gold has been essentially stagnant, varying no more than $200 an ounce. But, during that time, the U.S. dollar has risen against major currencies. Although the price of gold has risen in this period, the U.S. dollar has risen more.
More to the point, this has been no accident. A major effort has existed to repeatedly knock down the value of gold in relation to the dollar. This is only possible in an environment in which public faith in the banking system and the stock market remain high. As soon as those two confidence bubbles burst, the dollar will decline rapidly in relation to gold, and gold will once more return to its intrinsic value, just as it has done time and time again for over 5,000 years.
It’s interesting to note that, throughout history, banks and governments have fiddled with the value of currencies, from the devaluation of the denarius in ancient Rome, through the increased mixture of copper in the coins, to the successful introduction of paper currency in China in the seventh century. (The practice later took off in Europe in the seventeenth century and continues today.)
Over the millennia, mankind has used cattle, tobacco, seashells, even tulips as currency, yet each of these has failed at some point. More importantly, all paper currencies that have ever existed, except the current ones, have not only failed, but have gone to zero in worth.
Which brings us around to gold once more. The “barbarous relic” as John Maynard Keynes called it, has easily outlived his opinion of it. But then, according to his contemporary, Friedrich Hayek, Mister Keynes was an exceptionally intelligent man who was so convinced of his superiority that he based all his economic theory on what he learned at Cambridge and never even bothered to attain a full education of Austrian economics, or even classical economics. Yet all world banks and governments today operate on the principles set down by the misinformed Mister Keynes.
You may be aware that the world is nearing an economic collapse of historic proportions. In attempting to understand the price of gold in the future, such notables as Eric Sprott, Peter Schiff, Jim Rickards, James Turk, Jim Sinclair and many others have all predicted that gold would have risen to at least $5,000 by now. Conversely, deflationist Harry Dent predicted that gold would drop below $750 by 2015.
Are all of these men fools? Far from it. They’ve merely been premature. As Eric Sprott has repeatedly stated, “I tend to confuse inevitable with imminent.” Even Harry Dent could conceivably still prove to be correct. A crash in the markets is almost certain to create an immediate downward spike in the price of gold, prior to the creation of currency by the central banks that would immediately follow, sending gold, eventually, to an unprecedented price. Such a crash would predictably cause a gold mania. $5,000 is in no way an unrealistic number.
Will it stop there? Well, in spite of the fact that virtually no one is even considering the possibility now, gold could conceivably go to $50,000, $500,000, $5,000,000, or beyond. Whilst this would appear to be an absolute absurdity to us at precedent, if hyperinflation kicks in, in the U.S., as it has in so many previous cases of currency collapses, there is literally no limit to how high the price can go. (I keep on my desk a $100,000,000,000,000 Zimbabwean bank note from 2008 as a reminder.)
If that’s the case, would it also be true that gold can’t be overpriced? In a word, no. Manias have a way of overshooting—creating prices that go far beyond common sense. In a mania, those who are knowledgeable keep their heads, whilst those who don’t understand the dramatic price rise, tend to assume that there’s no limit as to how high it can go. They’re the creators of bubbles, and a bubble can exist in gold, as in any other investment.
But a gold bubble, like any other bubble, would be temporary. Eventually, gold would return to its intrinsic value. It’s been said that 2,000 years ago an ounce of gold could buy a good toga and a pair of sandals. Today, an ounce of gold will still buy a good suit and a pair of shoes. If gold were to go to, say, $10,000 soon, it would be in a bubble. But, if, with inflation, the price of a good suit with shoes were to rise to $10,000, then gold would be quite comfortable at that level.
If gold rises well beyond the price of a suit and shoes as a result of a mania, those who know precious metals well will be seen to sell and move the proceeds into something that’s underpriced at the moment. Gold will once again, settle at a natural level.
Long after fiat currencies like the dollar, the euro, the SDR, bitcoin, etc. have gone the way of the dodo, gold will still be around and will remain the center of the economic universe.
Although gold will outlive us all, we can, by understanding “orocentricity,” provide ourselves with an insurance policy against the ravages of currency failure.