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Should I Buy Silver Eagle Coins, Silver Maple Leaf Coins, or Silver Bullion Bars?

People invest in precious metals for a variety of different reasons. Not only do precious metals offer important portfolio diversification benefits, but they can also offer a store of value, an inflation hedge, and protection in the event of a financial system crisis.

When we talk about precious metals, gold is often the metal that comes to mind. That’s understandable, as gold has been used as a store of value for thousands of years. However, for those looking to invest in precious metals, silver offers an excellent alternative to gold. 

Let’s take a look at the key features of silver and explore some of the best ways of gaining exposure to this precious metal.

Silver vs. Gold for Investment

Both silver and gold have many attractions as investments. However, it’s important to realize that the two metals are very different and have unique properties.

Here’s a look at some key differences between the two metals from an investment perspective.

Affordability

One of the main advantages of investing in silver, over gold, is that silver is considerably more affordable than gold.

For example, 1/10th troy ounce gold coins—the minimum size recommended for investment—cost about USD $150 as of this writing. Even a gram of gold will cost close to USD $50 at current prices.

In contrast, silver coins such as the Silver Eagle can currently be purchased for under USD $20.

This means that buying a position in silver is significantly easier than buying a position in gold. Silver is very affordable. Therefore, even with just a small capital outlay, investors can add diversification to their portfolios through precious metals.  

Similarly, it’s also easy to sell silver in small amounts. This is especially true if it is bought in coin form. There are usually only small costs associated with the sale of coins. But more on that later.

Supply/Demand

Gold and silver have very different supply and demand drivers.

With gold, most of the metal’s demand comes from investment and jewelry demand. In contrast, almost half of silver’s demand comes from industrial use. The other half consists of investment and jewelry demand.

On the supply side, while gold is often mined directly, silver is usually not. Silver is usually produced as a result of mining other minerals such as gold, zinc, and copper. This means that unlike gold, if the price of silver rises, it is unlikely to result in the opening of new mines. Therefore, supply will be relatively constant.

From an investor’s perspective, this is a positive. With a constant amount of supply, an increase in demand has the ability to increase the price of the metal significantly. For this reason, a bull market in silver has the potential to be more powerful than a bull market in gold.

In recent years, the primary supply of silver has fallen.

This is because a number of major silver producers have been having trouble keeping up with production levels. This could have positive implications for the price of silver if demand rises in the future.

Correlations and Sensitivities

It’s also worth noting the different relationships of the two metals.

Gold tends to have a strong relationship with monetary variables such as inflation and interest rates. To illustrate the connection, we plotted the gold price and the US 10-Year Bond Index, which correlates to both inflation and interest rates.

In contrast, silver is more sensitive to economic variables, such as industrial production and manufacturing demand.

This means that the two metals may perform differently at different stages of the economic cycle.

For example, if inflation is increasing at a high rate, gold may perform well. In contrast, if demand for industrial products such as electronics and solar cells is increasing, silver may perform well.

Because the two metals have different sensitivities, many precious metals investors choose to own both silver and gold. This has the effect of reducing the risk to their portfolios.

Volatility

Investors should be aware that the price of silver is significantly more volatile than that of gold. In other words, silver’s price movements are more magnified.

To illustrate the difference in volatility between the two metals, it’s worth looking at their performance in recent years.

At its peak in 2011, gold traded around USD $1,900/oz. Today, it is hovering around USD $1,300/oz. That’s a drop of over 30%.

In contrast, silver almost touched USD $50/oz in 2011, according to Thomson Reuters. Today it sits below USD $17/oz—a fall of nearly 70%.

To give you another example, let’s take a look at the chart below that plots gold and silver prices from 1975.

The lesson here is that when gold and silver fall in price, silver is likely to fall further than gold. However, the relationship works in reverse too. During a bull market in precious metals, silver can outperform gold by a wide margin.  

What This Means for Investors

The different characteristics of silver and gold mean that the two different precious metals may appeal to different types of investors.

Silver offers an excellent option for those looking to buy small quantities of precious metals. It can also be a good investment for those who do not mind large price movements.

In contrast, for those with more capital or those looking for less price movement, gold or a blended portfolio of gold and silver could be a good option.

Both metals, however, offer a proven store of value and a hedge against inflation. They also offer diversification against stocks, bonds, and property. Furthermore, they can offer protection from a financial system crisis.

With that in mind, owning both gold and silver together should be a consideration for investors seeking higher returns and lower risk.

Pros and Cons

Let’s summarize what we have covered above. Here’s a recap of the pros and cons of both silver and gold from an investment point of view.

Silver

Pros:

  • Offers a store of value and an inflation hedge 
  • Offers diversification benefits and monetary protection
  • Is more affordable than gold
  • Available in different forms such as silver coins or bars
  • Can rise more than gold in a bull market

Cons:

  • Sensitive to the industrial cycle
  • Can fall more than gold in a bear market

Gold

Pros:

  • Offers a store of value and an inflation hedge
  • Offers diversification benefits and monetary protection
  • Can fall less than silver in a bear market

Cons:

  • Considerably more expensive than silver
  • Can rise less than silver in a bull market

Key Takeaways:

  • Both silver and gold can offer a store of value and an inflation hedge 
  • Both can offer diversification benefits and monetary protection
  • Silver and gold have different demand drivers
  • Silver and gold are sensitive to different variables
  • Silver is more affordable than gold.
  • Silver's movements are more magnified than gold’s
  • Silver can outperform gold in bull markets
  • Silver will underperform gold in bear markets

Silver Bars vs. Silver Coins

There are a number of ways to buy silver.

Many investors choose to invest in physical silver through the purchase of silver bullion bars. Alternatively, some investors purchase sovereign silver coins such as the Silver Eagle coin or the Silver Maple Leaf coin.

Both silver bullion bars and Silver Eagle/Silver Maple Leaf coins are widely recognized worldwide. Furthermore, they can be bought at reasonably small premiums above the spot price of silver. For this reason, they are both highly liquid and easy to trade.

Before we look at specific silver products, let’s take a look at the advantages and disadvantages between owning silver bars or silver coins.

Silver Bullion Bars

Silver bullion bars are rectangular slabs of silver that are produced by private mints.

There are two main types of silvers bars: cast bars and minted bars. Cast bars are created by heating the metal until it is a liquid. The liquid is then poured into a mold to create a solid bar of silver. This process is both simple and cost-effective. As a result, bullion bars can often be bought at relatively low prices.

Silver cast bars come in different sizes, usually from 100 oz to 1,000 oz. These bars are often favored by serious precious metal investors looking to buy large quantities of silver at the lowest price possible. This is because large silver cast bars can offer the lowest premium over the spot price, and take less space to store.

These bars offer excellent value, but the downside is that they cannot be broken down into smaller amounts. Plus, they are often irregular in weight and shape.

In contrast, small minted bars (10 oz) are cleaner and more refined than 100 oz or 1,000 oz cast bars. The minting process takes cast bars and transforms them into polished, refined bars of standard sizes. 10 oz bars are typically packaged to prevent oxidation.

The manufacturing process of minted bars is more costly, and these bars therefore command higher premiums than larger bars. However, while they are more expensive, small minted bars do have their advantages.

They give investors the flexibility to sell smaller amounts of silver at any time. They are also easier to resell as they usually don’t have to be tested for quality. Therefore, these bars are much more suitable for smaller private investors.

Silver Coins

Silver coins are produced by sovereign governments and have legal tender status. They generally come in different sizes, ranging from 1 oz to 5 oz with 1 oz coins being the most standard and liquid choice.

Given their small size and denominations, silver coins are easy to trade and highly liquid. Because they have legal tender status, they retain more of their value and are easier to resell.

Another advantage of coins is that their bid-ask spread is typically lower than that of bullion bars. This means that the costs of buying and selling coins are lower.

A side note: when buying precious metals, investors should always look at the spread between the purchase and selling prices. The spread will have a big effect on final profits.

Minting and distribution costs are high compared to to the value of the silver in the coin. As a result, silver coins are often sold at a higher premium above silver spot prices than silver bullion bars.

In the next section, we’ll take a deeper a look at two popular silver coins, the Silver Eagle and the Silver Maple Leaf.

What This Means for Investors

The unique attributes of bars and coins mean that the different silver products will appeal to different types of investors.

Bars offer an excellent choice for those looking to buy large quantities of the metal.

In contrast, for those looking to buy smaller amounts of silver or those looking to trade often, coins may be a good option.

Pros and Cons

Bars

Pros:

  • Good for buying large quantities of silver
  • Easy to store
  • Can be purchased at a discount to the spot price

Cons:

  • Large bars cannot be broken down into smaller increments
  • Harder to resell

Coins

Pros:

  • Smaller in size
  • Have legal tender status
  • Are easier to resell

Cons:

  • Are sold at a premium to the spot price

Key Takeaways:

  • Silver bullion bars and silver coins are popular ways of buying physical silver.
  • There are two types of bars: cast (large) and minted (small).
  • Silver bullion bars are an effective way of purchasing large quantities of silver.
  • Bars can be bought at prices close to the spot price of silver but will generally sell below the spot price.
  • Silver coins are an effective way of buying smaller amounts of silver.
  • Sovereign silver coins have legal tender status and are highly liquid.
  • They cost more but can generally be sold at a premium to the spot price of silver. 

Silver Eagle Coins

The American Silver Eagle is a bullion coin produced by the US Mint. It has been minted since the 1980s and features a modern interpretation of Adolph A. Weinman's classic "Walking Liberty" design on its front.

Silver Eagle coins are minted from 99.9% pure silver. They contain one troy ounce of the metal. They are minted with the legal value of one US dollar and are legal tender anywhere in the US. However, the current market price is currently close to 20 times the tender value.

Key advantages of buying Silver Eagle coins are that they are easily recognizable and are the most liquid form of silver bullion available. They are both small in size and highly liquid. Therefore, they are easy to trade.  A disadvantage of Silver Eagle coins is that because they are so popular, they are sold at a hefty premium to the spot price of silver.

Silver Eagle coins are well-suited to smaller investors with limited capital. Investors looking to buy large quantities of silver may be interested in purchasing large bars or Monster Boxes of Eagles.

Insider’s Advice on Silver Monster Boxes

Monster Boxes are sealed boxes sold by the US mint. They contain 500 Silver Eagle coins (500 oz). Despite the large quantity purchase, coins in a Monster Box usually sell at a small premium over loose coins. This is because the minting costs are the same.  Furthermore, the US mint charges for the cost of the box. 

Why would large investors consider buying Monster Boxes if they can’t get a discount? 

The answer is that sealed Monster Boxes also sell for a higher premium than loose coins. Usually, the spread between purchase and sale price is narrower than for loose coins. 

The reason for the lower spread is that buyers know that the coins held in a sealed Monster box are uncirculated and perfect. Therefore, there is no need to inspect the coins. 

However, it's important to note that as soon as the seal on the Monster Box is broken, the coins will be priced as loose coins. Therefore, investors cannot sell a partial box without losing some value.

Pros and Cons

Silver Eagle Coins

Pros:

  • Are easily recognizable
  • Are highly liquid
  • Have legal tender status
  • Are easy to trade

Cons:

  • Sold at a premium to the spot price of silver

Silver Monster Boxes

Pros:

  • Are an effective way of buying large quantities of Silver Eagle coins

Cons:

  • Sell at a small premium to loose coins
  • Lose value if seal on box is broken

Canadian Silver Maple Leaf Coins

Another popular silver coin, the Canadian Silver Maple Leaf bullion coin also contains one troy ounce of silver. However, this coin is minted from 99.99% pure silver. The Maple Leaf has been produced since 1988. It has always featured Queen Elizabeth II on its front.

The maple leaf, which the coin is named after, is featured on the back of the coin. However, there has been a host of special edition coins that have been released over the years. The last redesign of the coin in 2014 saw new security features introduced to discourage counterfeiting.

The Silver Maple Leaf coin is legal tender in Canada and is minted with a legal value of five Canadian dollars. This is approximately 25% of the current market value of the coin. With the exception of its higher purity and legal value, the Silver Maple Leaf is almost identical to a Silver Eagle coin from an investment perspective.

The Maple Leaf is a beautiful, easily recognizable sovereign coin that is both highly liquid and easy to trade. It usually sells at a lower premium over the spot price than the Silver Eagle. 

Pros:

  • Are easily recognizable
  • Are highly liquid
  • Have legal tender status
  • Are easy to trade
  • Has security features
  • Usually sells at a lower premium over the spot price than the Silver Eagle 

Cons:

  • Sold at a premium to the spot price of silver

A Word of Caution About Other Sovereign Coins, Specialty Coins, and Rounds

There are several other well-known sovereign coins available such as the Britannia (Great Britain) and the Philharmonic (Austria). Most of these coins offer similar advantages to the Eagle and Maple coins.

They are beautiful coins that are easily recognizable, reasonably liquid, and well-accepted. As such, they retain their value and are decent investments. However, there is less demand for these coins from investors in North America.

Many private mints offer a wide choice of silver coins (sometimes called rounds).  Because of minting costs, these coins usually still sell at a significant premium over spot prices.

Buyers should be aware that because these coins are not standard products, produced by a sovereign mint, they are not as recognizable. As a result, they generally sell at a discount over the spot price (at best spot price minus melting costs). And generally, these coins are very poor investments.

Similarly, sovereign mints will often offer special edition coins (commemorative coins or minted coins). These are sold at much higher premiums than standard Eagle or Maple coins.  Unfortunately, the premiums usually disappear when the coins are resold; therefore, these coins are not recommended as investments.

Investors should be aware that many bullion dealers will steer potential customers toward purchasing special edition coins and various types of commemorative silver coins. This is because these coins generate higher margins for dealers.

Unfortunately, none of these dealers will offer you any premium when you try to sell the coins back.  

Bullion Bars

As we discussed before, silver bullion bars come in a variety of different sizes.

Smaller investors may be interested in smaller minted silver bars in sizes such as 1 oz or 10 oz. In contrast, investors looking to purchase large quantities of the precious metal might be more interested in larger casted 100 oz or 1,000 oz bars.

Smaller minted bars share many of the same attributes as silver coins. They are well-accepted, highly liquid, and easy to trade.

Larger casted bars often have irregularities in shape and size and are therefore generally purchased by institutional investors and commercial buyers who do not mind the appearance of the product.

Pros:

  • Good value for buying large quantities of silver
  • Easy to store
  • Lowest premium over the silver spot price

Cons:

  • Large bars cannot be broken down for small purchases
  • Harder to resell as they have to be re-assayed

What This Means for Investors

Both silver bullion bars and silver coins are effective ways of purchasing physical silver. However, some investors will prefer to buy bars while others will prefer to buy coins.

For those looking to buy large quantities of silver with the lowest premiums over the spot price, large silver bars are likely to be the most effective way to buy silver.

Silver bullion bars are easy to store and transfer. Therefore, they are an excellent option for the serious precious metal investor who is not interested in taking delivery of the silver, and will keep the bars within the chain of custody in an LBMA approved vaulting facility.

Investors looking to acquire smaller quantities of silver are better off buying Silver Eagle coins, Maple Leaf coins, other well-known sovereign coins, or possibly smaller 10 oz bars. These silver coins and bars are recognizable all over the world. They are also highly liquid and very easy to trade.

A side note: Investors interested in taking delivery of their coins outside LBMA vaulting facilities should understand that they will break the chain of custody. This means that they are limiting their resell options and may lose some value upon resale.

Should they wish to have some silver holdings on hand, it is advisable to only buy and store the most recognizable and established Silver Eagle or Maple Leaf coins.

Key Takeaways:

  • Both Silver Eagle and Silver Maple Leaf coins are easily recognizable.
  • These coins are highly liquid and easy to trade.
  • Both coins have legal tender status.
  • A Silver Monster box offers 500 Silver Eagle coins.
  • Investors should proceed with caution with regard to specialty coins.
  • Specialty coins often do not make good investments.

Conclusion

Precious metals can play an important role in investors’ portfolios. They have the ability to add diversification and provide a store of value. They can also provide inflation protection and monetary system protection.

While gold is generally the most popular precious metal, silver offers an excellent alternative. Silver has several unique features that make it an attractive investment. Silver is considerably more affordable than gold. It also has the potential to significantly outperform gold during a bull run.

Many investors choose to invest in physical silver by purchasing silver bullion or silver coins. Both bullion and coins are effective ways of purchasing silver. Both are widely recognized, highly liquid, and easy to trade.

Silver bars are best suited to investors who are looking to purchase large quantities of the metal at competitive prices and store it in an LBMA approved vault. Coins are best suited to investors looking to buy small quantities of the metal, especially those who want to take delivery of their coins outside of LBMA vaulting facilities.

Free Ebook: Investing in Precious Metals 101: How to Buy and Store Physical Gold and Silver

Download Investing in Precious Metals 101 for everything you need to know before buying gold and silver. Learn how to make asset correlation work for you, how to buy metal (plus how much you need), and which type of gold makes for the safest investment. You’ll also get tips for finding a dealer you can trust and discover what professional storage offers that the banking system can’t. It’s the definitive guide for investors new to the precious metals market. Get it now.

 

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Here’s Why You Shouldn’t Store Precious Metals Yourself (Hint: It’s More Than The Risk Of Theft)

There’s nothing like holding a gold coin in the palm of your hand. So it’s not surprising that many investors prefer to store precious metals at home or somewhere nearby.

But is it worth the trouble?

While I agree that having some precious metals stored safely at home may benefit you in the event of a major crisis paralyzing the financial system, that should amount only to a small portion of your holdings.

Here’s why.

Why You Shouldn’t Store Precious Metals Yourself

Let’s begin with the obvious reason.

During my five years as partner and CEO of the Hard Assets Alliance, I can’t recount the number of clients whose precious metals stored at home were stolen. Even worse, in many cases, the burglars were family members who knew about the secret stash.

In a few rare occasions, my clients were forced to turn over all their precious holdings with a gun held to their head. Now, how many times have we had a crisis that would require immediate access to our physical gold? None.

Put simply, the risk of losing your precious metals is much higher when you store yourself rather than with a credible third party.

Another reason is financial.

Investors who want to take their precious metals outside LBMA-approved vaulting facilities must understand that by doing that, they are breaking the chain of custody.

And once that happens, your precious metals generally lose some of their value. That’s because outside LBMA, you don’t have access to a competitive secondary market. Which means you’ll most likely resell your holdings at a lower price due to limited local demand.

Aside note: If you still want to take delivery, I recommend buying and storing the most recognizable and liquid sovereign coins.

But before you do that, read on.

Why Precious Metals at Home Won’t Serve Their Purpose (Especially for Americans)

Besides excellent long-term returns, most investors buy precious metals for two reasons.

First, precious metals are a critical asset class in every portfolio as they are not correlated to stocks and bonds. Second and most importantly, gold and silver is insurance against all sorts of social and financial crises.

If you are an American, you are living in one of the wealthiest and most stable countries in the world.

Trends like the polarization of our political debate, excess debt, rising cultural intolerance, and increasing interdependence of our too-big-to-fail financial organizations are worrying.   

And unless our politicians start addressing these underlying issues—which is unlikely—our country will face many challenges in the future. The pent-up tension might eventually break out into civil unrest or possibly worse. 

But due to its geographic location and powerful military, the US is likely to be safe from external invasion and be able to keep law and order in case of unrest.

The financial risks that I think will haunt our country in the coming years are a different story.

So first and foremost, I look at precious metals as a long-term investment and a time-tested crisis hedge for my portfolio. Plus, it’s the best insurance available against currency devaluation. These are the most pressing issues today.

For my precious metals investment to be useful in these scenarios, my primary concern must be liquidity, especially in times of crisis.

That’s why I store my precious metals in a world-class, LBMA-approved vault within the chain of custody. This option gives me access to the most liquid precious metals market in the world.

That means I’ll be able to sell my precious metals for the best price in the market at any time.

Plus, it’s much more practical and convenient than taking my stash of coins under the mattress to the local dealer. And if need be, I can get my precious metals delivered to me within a couple of days. 

So why should I take all these risks when I can keep my precious metals investment safe, insured, and within the chain of custody?

I truly believe there’s no better way than buy-and-store programs to hold precious metals.

Free ebook: Investing in Precious Metals 101: How to Buy and Store Physical Gold and Silver

Learn how to make asset correlation work for you, how to buy metal (plus how much you need), and which type of gold makes for the safest investment. You’ll also get tips for finding a dealer you can trust and discover what professional storage offers that the banking system can’t.

It’s the definitive guide for investors new to the precious metals market. Get it now.

 

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How to Protect All of Your Assets (Including Gold) from Government Seizure

On April 5, 1933, President Franklin D. Roosevelt issued an executive order making private ownership of gold illegal. The order forced Americans to sell their bullion to the Treasury at the then legal price of $20.32. 

Gold ownership remained illegal in the US until 1974. 

Failure to tender your gold could get you a maximum fine of $10,000 (492 ounces of gold or approximately $625,000 at today’s prices) and up to 10 years’ imprisonment. 

Franklin’s order was also followed by the Gold Reserve Act of 1934.  The act lifted the nominal price of gold from $20.67 to $35.

The penalties were exceptionally high to ensure compliance with what was a disguised 42% tax on savers. 

Is it possible that our indebted government could force similar measures on gold owners today? We can’t rule it out, but it’s less likely to happen today than it was in the 1930s.

Why the US Is Not Likely to Confiscate Gold Today

Desperate times call for desperate measures. Franklin’s order was justified as a measure to overcome the Great Depression.

Nobody knows how severe the next recession will be and what measures it may call for. However, gold will be less of a target for a few obvious reasons.

First, the US dollar is no longer backed by gold reserves.  Second, gold represents a tiny portion of today’s financial assets.  For this reason, it’s unlikely to be the prime target for taxation or seizure.

All the gold ever mined is worth about $7.5 trillion as of this writing.  Meanwhile, total financial assets make up $294 trillion globally.  Why would government focus on gold ownership when gold is a mere 2.5% of total assets today?

There is much larger fish to fry.

However, in times like these, nobody is safe. And there’s no guarantee that gold owners won’t become the targets of desperate governments. When things go sour, anyone who owns tangible assets is a potential target for any form of taxation or confiscation.

Why You Should Use Gold as a Hedge

What can investors do to protect all of their assets from the risk of government seizure?

First, you have to understand how government seizes assets from citizens—and what actions may not be politically acceptable even in desperate times.

Outright default on insolvent pension funds would be political suicide. No sane politician would ever campaign for that. However, a progressive default through debt monetization (e.g. quantitative easing) would be more likely.

This means that the dollar is almost certain to lose its value against hard assets like gold. 

There are more reasons why investing in precious metals is safer than hoarding cash.

Cash is convenient and essential, but holding large sums in cash exposes you to a bigger risk of seizure and devaluation.

Bail-ins of bank accounts with savings that exceed the FDIC insurance level ($250,000) will be more politically legitimate than taxing those who have no savings. Most voters simply won’t feel sorry for the rich.

That’s why gold is a much safer store of value in the long run despite the risk of seizure.

How to Minimize the Gold Seizure Risk

This risk can be minimized, too.

If it ever happens again, it will likely be focused on domestic holdings—as it was in 1933.

The untouchable billionaires and politicians have their assets tucked away in foreign trusts and will make sure they are kept safe there.  The US government will save itself the trouble and chase domestic holdings instead.

The middle class and small entrepreneurs will once again be the prime targets of government seizure and taxation.

To avoid this, I’d recommend investors storing their metals in a safe foreign jurisdiction like Switzerland or Singapore.

With your gold stored abroad, you may have some time to react.  

If you feel the threat is product specific, you can liquidate those products and diversify into other precious metals products. Another option would be to take delivery before such a legislation comes into effect.

However, no risk can be fully eliminated. There is no perfect solution. Nonetheless, diversification can be an essential element of an overall protection strategy against an increasingly uncertain future.

Free ebook: Investing in Precious Metals 101: How to Buy and Store Physical Gold and Silver

Learn how to make asset correlation work for you, how to buy metal (plus how much you need), and which type of gold makes for the safest investment. You’ll also get tips for finding a dealer you can trust and discover what professional storage offers that the banking system can’t.

It’s the definitive guide for investors new to the precious metals market. Get it now.


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All the Reasons Cryptocurrencies Will Never Replace Gold as Your Financial Hedge

The cryptocurrency craze continues.

Having seen the astounding rise in Bitcoin’s value, those who remained on the sidelines are now kicking themselves for not buying it when it was first released. Surely, they’d be millionaires by now.

But is the meteoric rise of Bitcoin and other cryptocurrencies really an indication of true value?

It seems that more and more people justify investing in cryptocurrencies—even at current record prices—by claiming that they’re an effective hedge against the instability of fiat currencies.

But is it true?

Sure, a fiat money system where central banks can and do literally print money at will has its weaknesses. That’s why hard assets like gold are so popular among smart investors: as real stores of value, they provide a safety net against currency depreciation.

However, it’s doubtful that the same applies to cryptocurrencies. Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge.

Here are six reasons why.

#1: Cryptocurrencies Are More Similar to a Fiat Money System Than You Think.

The definition of “fiat money” is a currency that is legal tender but not backed by a physical commodity.

Since the United States abandoned the gold standard in the 1970s, this has been the case with all major currencies, including the US dollar.

Ever since then, US money supply has kept increasing, and so has the national debt. In contrast, the dollar’s purchasing power has been on the decline.

Take a look at this historical gold price chart

The huge spike in gold prices started right around the time when the Bretton Woods agreement collapsed in 1971 and US paper dollars couldn’t be converted to gold anymore. A clear sign of the decline in the dollar’s purchasing power since the move into a pure fiat money system.

It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just... well, artificial.

You can’t compare that to the physical constraint on gold’s supply.

Some countries are also exploring the idea of introducing government-backed cryptocurrencies, which would take them one step closer toward fiat-currency status.

As Russia, India, and Estonia are considering their own digital money, Dubai has already taken it one step further. In September, the kingdom announced that it has signed a deal to launch its own blockchain-based currency known as emCash.

So ask yourself, how can you effectively hedge against a fiat money system with another type of fiat money?

#2: Gold Has Always Had and Will Always Have an Accessible Liquid Market.

An asset is only valuable if other people are willing to trade it in return for goods, services, or other assets.

Gold is one of the most liquid assets in existence. You can convert it into cash on the spot, and its value is not bound by national borders. Gold is gold—anywhere you travel in the world, you can exchange gold for whatever the local currency is.

The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.

What makes gold so liquid is the immense size of its market. The larger the market for an asset, the more liquid it is. According to the World Gold Council, the total value of all gold ever mined is about $7.8 trillion.

By comparison, the total size of the cryptocurrency market stands at about $161 billion as of this writing—and that market cap is split among 1,170 different cryptocurrencies.

That’s a long shot from becoming as liquid and widely accepted as gold.

#3: The Majority of Cryptocurrencies Will Be Wiped Out.

Many Wall Street veterans compare the current rise of cryptocurrencies to the Internet in the early 1990s.

Most stocks that had risen in the first wave of the Internet craze were wiped out after the burst of the dot-com bubble in 2000. The crash, in turn, gave rise to more sustainable Internet companies like Google and Amazon, which thrive to this day.

The same will probably happen with cryptocurrencies. Most of them will get wiped out in the first serious correction. Only a few will become the standard, and nobody knows which ones at this point.

And if major countries like the US jump in and create their own digital currency, they will likely make competing “private” currencies illegal. This is no different from how privately issued banknotes are illegal (although they were legal during the Free Banking Era of 1837–1863).

So while it’s likely that cryptocurrencies will still be around years from now, the question is, which ones? There is no need for such guesswork when it comes to gold.

#4: Lack of Security Undermines Cryptocurrencies’ Effectiveness.

Security is a major drawback facing the cryptocurrency community. It seems that every other month, there is some news of a major hack involving a Bitcoin exchange.

In the past few months, the relatively new cryptocurrency Ether has been a target for hackers. The combined total amount stolen has almost reached $82 million.

Bitcoin, of course, has been the largest target. Based on current prices, just one robbery that took place in 2011 resulted in the hackers taking hold of over $3.7 billion worth of bitcoin—a staggering figure. With security issues surrounding cryptocurrencies still not fully rectified, their capability as an effective hedge is compromised.

When was the last time you heard of a gold depository being robbed? Not to mention the fact that most depositories have full insurance coverage.

#5: Hype and Speculation Continue to Drive Cryptocurrencies’ Value.

Since the beginning of the year, the value of Bitcoin has more than quadrupled—a tremendous spike in value that has sent investors rushing to invest in cryptocurrencies. But could this be nothing more than a market bubble?

One of the world’s most successful hedge fund managers, Ray Dalio of Bridgewater Associates, certainly seems to think so.

In September 2017, he told CNBC, “It's not an effective storehold of wealth because it has volatility to it, unlike gold. Bitcoin is a highly speculative market. Bitcoin is a bubble.”

The spike in Bitcoin prices seems to only lend credence to this view. With such an extreme degree of volatility, cryptocurrencies’ value as a hedge is questionable. Most people buy them for the sole reason of selling them later at higher prices.

This is pure speculation, not hedging.

#6: Cryptocurrencies Do Not Have Gold’s History as a Store of Value.

Cryptocurrencies have been around for less than a decade, whereas gold has been used as a store of value for thousands of years. Because of this long history, we know for a fact that stocks and bonds have low or negative correlations with gold, particularly during periods of economic recession. This makes gold a powerful hedge.

What little data we have on cryptocurrencies does not show the same. Consider this year alone: while the US stock market continues to run record highs, the same goes for Bitcoin.

It’s true that gold has also gone up, but the correlation has been very low and, during times of recessions, tends to swing to the negative side, as you can see in the graph below.

Since 2010, there have been 15 times where the S&P 500 has seen drops of 5% or more. Out of those 15 stock market downturns, Bitcoin has been down for 10 of them.

How is that a good hedge?

Get a Free Ebook on Precious Metals Investing

The free ebook, Investing in Precious Metals 101, tells you everything you need to know: which type of gold to buy and which to stay away from… how to avoid common mistakes… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your copy now.


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All the Reasons Cryptocurrencies Will Never Replace Gold as Your Financial Hedge

The cryptocurrency craze continues.

Having seen the astounding rise in Bitcoin’s value, those who remained on the sidelines are now kicking themselves for not buying it when it was first released. Surely, they’d be millionaires by now.

But is the meteoric rise of Bitcoin and other cryptocurrencies really an indication of true value?

It seems that more and more people justify investing in cryptocurrencies—even at current record prices—by claiming that they’re an effective hedge against the instability of fiat currencies.

But is it true?

Sure, a fiat money system where central banks can and do literally print money at will has its weaknesses. That’s why hard assets like gold are so popular among smart investors: as real stores of value, they provide a safety net against currency depreciation.

However, it’s doubtful that the same applies to cryptocurrencies. Despite what the crypto-evangelists will tell you, digital tokens will never and can never replace gold as your financial hedge.

Here are six reasons why.

#1: Cryptocurrencies Are More Similar to a Fiat Money System Than You Think.

The definition of “fiat money” is a currency that is legal tender but not backed by a physical commodity.

Since the United States abandoned the gold standard in the 1970s, this has been the case with all major currencies, including the US dollar.

Ever since then, US money supply has kept increasing, and so has the national debt. In contrast, the dollar’s purchasing power has been on the decline.

Take a look at this historical gold price chart

The huge spike in gold prices started right around the time when the Bretton Woods agreement collapsed in 1971 and US paper dollars couldn’t be converted to gold anymore. A clear sign of the decline in the dollar’s purchasing power since the move into a pure fiat money system.

It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity. And while total supply is artificially constrained, that constraint is just... well, artificial.

You can’t compare that to the physical constraint on gold’s supply.

Some countries are also exploring the idea of introducing government-backed cryptocurrencies, which would take them one step closer toward fiat-currency status.

As Russia, India, and Estonia are considering their own digital money, Dubai has already taken it one step further. In September, the kingdom announced that it has signed a deal to launch its own blockchain-based currency known as emCash.

So ask yourself, how can you effectively hedge against a fiat money system with another type of fiat money?

#2: Gold Has Always Had and Will Always Have an Accessible Liquid Market.

An asset is only valuable if other people are willing to trade it in return for goods, services, or other assets.

Gold is one of the most liquid assets in existence. You can convert it into cash on the spot, and its value is not bound by national borders. Gold is gold—anywhere you travel in the world, you can exchange gold for whatever the local currency is.

The same cannot be said about cryptocurrencies. While they’re being accepted in more and more places, broad, mainstream acceptance is still a long way off.

What makes gold so liquid is the immense size of its market. The larger the market for an asset, the more liquid it is. According to the World Gold Council, the total value of all gold ever mined is about $7.8 trillion.

By comparison, the total size of the cryptocurrency market stands at about $161 billion as of this writing—and that market cap is split among 1,170 different cryptocurrencies.

That’s a long shot from becoming as liquid and widely accepted as gold.

#3: The Majority of Cryptocurrencies Will Be Wiped Out.

Many Wall Street veterans compare the current rise of cryptocurrencies to the Internet in the early 1990s.

Most stocks that had risen in the first wave of the Internet craze were wiped out after the burst of the dot-com bubble in 2000. The crash, in turn, gave rise to more sustainable Internet companies like Google and Amazon, which thrive to this day.

The same will probably happen with cryptocurrencies. Most of them will get wiped out in the first serious correction. Only a few will become the standard, and nobody knows which ones at this point.

And if major countries like the US jump in and create their own digital currency, they will likely make competing “private” currencies illegal. This is no different from how privately issued banknotes are illegal (although they were legal during the Free Banking Era of 1837–1863).

So while it’s likely that cryptocurrencies will still be around years from now, the question is, which ones? There is no need for such guesswork when it comes to gold.

#4: Lack of Security Undermines Cryptocurrencies’ Effectiveness.

Security is a major drawback facing the cryptocurrency community. It seems that every other month, there is some news of a major hack involving a Bitcoin exchange.

In the past few months, the relatively new cryptocurrency Ether has been a target for hackers. The combined total amount stolen has almost reached $82 million.

Bitcoin, of course, has been the largest target. Based on current prices, just one robbery that took place in 2011 resulted in the hackers taking hold of over $3.7 billion worth of bitcoin—a staggering figure. With security issues surrounding cryptocurrencies still not fully rectified, their capability as an effective hedge is compromised.

When was the last time you heard of a gold depository being robbed? Not to mention the fact that most depositories have full insurance coverage.

#5: Hype and Speculation Continue to Drive Cryptocurrencies’ Value.

Since the beginning of the year, the value of Bitcoin has more than quadrupled—a tremendous spike in value that has sent investors rushing to invest in cryptocurrencies. But could this be nothing more than a market bubble?

One of the world’s most successful hedge fund managers, Ray Dalio of Bridgewater Associates, certainly seems to think so.

In September 2017, he told CNBC, “It's not an effective storehold of wealth because it has volatility to it, unlike gold. Bitcoin is a highly speculative market. Bitcoin is a bubble.”

The spike in Bitcoin prices seems to only lend credence to this view. With such an extreme degree of volatility, cryptocurrencies’ value as a hedge is questionable. Most people buy them for the sole reason of selling them later at higher prices.

This is pure speculation, not hedging.

#6: Cryptocurrencies Do Not Have Gold’s History as a Store of Value.

Cryptocurrencies have been around for less than a decade, whereas gold has been used as a store of value for thousands of years. Because of this long history, we know for a fact that stocks and bonds have low or negative correlations with gold, particularly during periods of economic recession. This makes gold a powerful hedge.

What little data we have on cryptocurrencies does not show the same. Consider this year alone: while the US stock market continues to run record highs, the same goes for Bitcoin.

It’s true that gold has also gone up, but the correlation has been very low and, during times of recessions, tends to swing to the negative side, as you can see in the graph below.

Since 2010, there have been 15 times where the S&P 500 has seen drops of 5% or more. Out of those 15 stock market downturns, Bitcoin has been down for 10 of them.

How is that a good hedge?

Get a Free Ebook on Precious Metals Investing

The free ebook, Investing in Precious Metals 101, tells you everything you need to know: which type of gold to buy and which to stay away from… how to avoid common mistakes… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your copy now.

 

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Why MarketWatch’s “Seven Reasons To Sell Gold Now” Aren’t Good Reasons At All

Last week, MarketWatch ran an article written by InvestorPlace editor Jeff Reeves and titled, “Seven Reasons to Sell Gold Now.”

It offered the usual cookie-cutter reasons that gold supposedly is not a good investment right now: lack of inflation, tighter monetary policy in the US, and a “risk-on” market environment, just to mention a few.

All in all, I think the article missed the mark, so here’s a rebuttal for each argument.

1. Charts look positive

Reeves claims in his article that the gold charts “look ugly.” His reasoning is that “the charts show a breakdown as gold has been stuck in a near-constant decline for the past two weeks after peaking at $1,350 or so in early September.”

I beg to differ. While charts can be interpreted in various ways, based on the time frames selected and the message that’s being relayed, gold charts do not look ugly.  

Technical analysts typically use chart time frames ranging from six months to three years, and most have turned decidedly more bullish. You can clearly see this in the one-year chart.


Source: Hard Assets Alliance

Notice the series of higher highs gold has made since the January level of $1,130. Each move higher has been met with a subsequent decline, but each decline has been smaller than the up-move.

These “two steps forward, one step back”  increases are a bullish signal and show a healthy market advance.

Additionally, despite the recent pullback, gold is trading above its 50-day and 200-day moving averages, both of which are critical support levels and indicators of a positive trend.

2. Inflation does matter—but in the context of interest rates

Reeves states in his article, “It’s clear that gold prices are not getting a tailwind from inflationary pressures.”

Pigeon-holing gold as an inflation hedge is a common mistake investors and analysts make. Yes, gold has done and can do very well during times of higher inflation, but the actual driver is real interest rates.

As you can see in the chart below, gold has steadily marched higher while the real rate on the 10-year Treasury has moved largely sideways in the past year.


Click to enlarge

3. The Fed has been tightening policy for almost two years

“It’s hard to imagine gold finding a footing,” Reeves writes, “as the dollar stays strong and tight monetary policy keeps inflation well in hand.”

But that’s not what we’re seeing.

During this cycle of monetary tightening, the fed funds rate—the rate controlled by the Fed to influence borrowing costs—has been raised four times.

  • December 2015: raised by 25 basis points
  • December 2016: raised by 25 basis points
  • March 2017: raised by 25 basis points
  • June 2017: raised by 25 basis points

Since this time, gold has rallied almost 25% from $1,050/oz. to $1,300.

Longer-term rates, often used to gauge investors’ expectations for inflation and economic growth, remain mostly unchanged from two years ago.

All the while, stock markets have continued to make record highs, but are still underperforming gold since December 2015.

Furthermore, Reeves states that gold will struggle as the US dollar remains strong amid tighter monetary policy.

The US dollar has declined more than 10% against major currencies this year—despite two rate hikes and the Fed’s announcement that it plans to reduce its massive balance sheet.

I think this provides a solid case for higher gold prices.

4. Price targets?

Reeves points out that while Goldman Sachs is bullish on gold, “its three-month target of $1,260 and its 12-month target of $1,250 are below where gold currently trades.”

Price targets are just that: targets.

For almost any investment, they are generally worth about as much as the virtual paper they’re written on.

At least stocks have fundamentals like revenue, earnings, and multiples you can build a price target around. Commodities, on the other hand, are known for wild and unpredictable moves, rendering price targets mostly useless.

You can find, or pay for, forecasts to substantiate almost any investment thesis, so this is probably the weakest argument to not purchase gold right now. In fact, taking a contrarian view to major Wall Street firms is often a recipe for success.

I suggest you do a quick search of gold price forecasts from the past few years. You’ll find projections from well-known and respected analysts ranging from $10,000 to $700 per ounce.

Picking a mid-point or throwing a dart may have more predictive value.

5. There’s always a bull market somewhere

Reeves suggests we’re in a “risk-on market,” saying that even though gold has outperformed this year, “how long will that last?”

This is flawed thinking, in my opinion.

Given the plethora of financial markets and investment options, you can always find an industry, economy, or company where investors are taking on added risk.

This is simply a function of capitalism and asset allocation.

“Risk-on/risk-off markets” has become a buzzword in the financial media, but risk is a very nuanced factor, not a binary option.

Yes, gold can benefit from heightened volatility and fear, but at the end of the day, it’s a source of portfolio diversification and insurance.

6. Mounting geopolitical tensions

Reeves thinks that despite increasing global turmoil, “the world keeps turning and the indifferent West isn’t all that concerned.”

That almost sounds like a joke.

The mounting tensions with North Korea have been a key driver of gold’s strong performance this year.

Sure, not every piece of breaking news and not every missile test is met with a spike in gold prices, but the erratic nature of this conflict and the involved parties will continue to cause investors to flock to safe-haven assets.

And it looks more and more likely that the mudslinging from both sides will eventually result in some kind of military action.

Again, these are not simple binary events where it’s either risk-off or risk-on. There are many possible outcomes, with a variety of risks to investors.

7. The Bitcoin effect

Reeves believes that since gold and Bitcoin recently have moved together, their movements are forever correlated.

However, that might not be the case.

The real value of Bitcoin and other cryptocurrencies may be in the blockchain technology they’re built upon.

Major banks are investing huge sums in the blockchain, so its role in the financial markets will likely be transformative.

However, as we wrote earlier this week, Bitcoin is likely in a major bubble.

The rise of this digital currency has been parabolic, going from $600 to $5,000 in less than a year.

Who knows where the price will eventually settle. What I don’t understand is how investors can perceive it to be an actual alternative to the US dollar or gold.

And how could mere numbers on a screen be a true store of value, especially with all the arbitrary regulation that is now building around it?


Click to enlarge

If anything, the rush into Bitcoin and the loss of confidence the bursting of this latest bubble will cause may remind investors of the time-tested virtues of gold—and the reasons investors have sought its safety for thousands of years.

Get a Free Ebook on Precious Metals Investing

Gold is becoming a desirable asset again, with top asset managers like Goldman Sachs calling it “the true currency of last resort.” So consider allocating 10–15% of your portfolio to physical gold and silver.

The free ebook, Investing in Precious Metals 101, tells you everything you need to know: which type of gold to buy and which to stay away from… how to avoid common mistakes… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your copy now.


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


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Why MarketWatch’s “Seven Reasons To Sell Gold Now” Aren’t Good Reasons At All

Last week, MarketWatch ran an article written by InvestorPlace editor Jeff Reeves and titled, “Seven Reasons to Sell Gold Now.”

It offered the usual cookie-cutter reasons that gold supposedly is not a good investment right now: lack of inflation, tighter monetary policy in the US, and a “risk-on” market environment, just to mention a few.

All in all, I think the article missed the mark, so here’s a rebuttal for each argument.

1. Charts look positive 

Reeves claims in his article that the gold charts “look ugly.” His reasoning is that “the charts show a breakdown as gold has been stuck in a near-constant decline for the past two weeks after peaking at $1,350 or so in early September.”

I beg to differ. While charts can be interpreted in various ways, based on the time frames selected and the message that’s being relayed, gold charts do not look ugly.  

Technical analysts typically use chart time frames ranging from six months to three years, and most have turned decidedly more bullish. You can clearly see this in the one-year chart.


Source: Hard Assets Alliance

Notice the series of higher highs gold has made since the January level of $1,130. Each move higher has been met with a subsequent decline, but each decline has been smaller than the up-move.

These “two steps forward, one step back”  increases are a bullish signal and show a healthy market advance.

Additionally, despite the recent pullback, gold is trading above its 50-day and 200-day moving averages, both of which are critical support levels and indicators of a positive trend.

2. Inflation does matter—but in the context of interest rates

Reeves states in his article, “It’s clear that gold prices are not getting a tailwind from inflationary pressures.”

Pigeon-holing gold as an inflation hedge is a common mistake investors and analysts make. Yes, gold has done and can do very well during times of higher inflation, but the actual driver is real interest rates.

As you can see in the chart below, gold has steadily marched higher while the real rate on the 10-year Treasury has moved largely sideways in the past year.


Click to enlarge

3. The Fed has been tightening policy for almost two years

“It’s hard to imagine gold finding a footing,” Reeves writes, “as the dollar stays strong and tight monetary policy keeps inflation well in hand.”

But that’s not what we’re seeing.

During this cycle of monetary tightening, the fed funds rate—the rate controlled by the Fed to influence borrowing costs—has been raised four times.

  • December 2015: raised by 25 basis points
  • December 2016: raised by 25 basis points
  • March 2017: raised by 25 basis points
  • June 2017: raised by 25 basis points

Since this time, gold has rallied almost 25% from $1,050/oz. to $1,300.

Longer-term rates, often used to gauge investors’ expectations for inflation and economic growth, remain mostly unchanged from two years ago.

All the while, stock markets have continued to make record highs, but are still underperforming gold since December 2015.

Furthermore, Reeves states that gold will struggle as the US dollar remains strong amid tighter monetary policy.

The US dollar has declined more than 10% against major currencies this year—despite two rate hikes and the Fed’s announcement that it plans to reduce its massive balance sheet.

I think this provides a solid case for higher gold prices.

4. Price targets?

Reeves points out that while Goldman Sachs is bullish on gold, “its three-month target of $1,260 and its 12-month target of $1,250 are below where gold currently trades.”

Price targets are just that: targets.

For almost any investment, they are generally worth about as much as the virtual paper they’re written on.

At least stocks have fundamentals like revenue, earnings, and multiples you can build a price target around. Commodities, on the other hand, are known for wild and unpredictable moves, rendering price targets mostly useless.

You can find, or pay for, forecasts to substantiate almost any investment thesis, so this is probably the weakest argument to not purchase gold right now. In fact, taking a contrarian view to major Wall Street firms is often a recipe for success.

I suggest you do a quick search of gold price forecasts from the past few years. You’ll find projections from well-known and respected analysts ranging from $10,000 to $700 per ounce.

Picking a mid-point or throwing a dart may have more predictive value.

5. There’s always a bull market somewhere

Reeves suggests we’re in a “risk-on market,” saying that even though gold has outperformed this year, “how long will that last?”

This is flawed thinking, in my opinion.

Given the plethora of financial markets and investment options, you can always find an industry, economy, or company where investors are taking on added risk.

This is simply a function of capitalism and asset allocation.

“Risk-on/risk-off markets” has become a buzzword in the financial media, but risk is a very nuanced factor, not a binary option.

Yes, gold can benefit from heightened volatility and fear, but at the end of the day, it’s a source of portfolio diversification and insurance.

6. Mounting geopolitical tensions

Reeves thinks that despite increasing global turmoil, “the world keeps turning and the indifferent West isn’t all that concerned.”

That almost sounds like a joke.

The mounting tensions with North Korea have been a key driver of gold’s strong performance this year.

Sure, not every piece of breaking news and not every missile test is met with a spike in gold prices, but the erratic nature of this conflict and the involved parties will continue to cause investors to flock to safe-haven assets.

And it looks more and more likely that the mudslinging from both sides will eventually result in some kind of military action.

Again, these are not simple binary events where it’s either risk-off or risk-on. There are many possible outcomes, with a variety of risks to investors.

7. The Bitcoin effect

Reeves believes that since gold and Bitcoin recently have moved together, their movements are forever correlated.

However, that might not be the case.

The real value of Bitcoin and other cryptocurrencies may be in the blockchain technology they’re built upon.

Major banks are investing huge sums in the blockchain, so its role in the financial markets will likely be transformative.

However, as we wrote earlier this week, Bitcoin is likely in a major bubble.

The rise of this digital currency has been parabolic, going from $600 to $5,000 in less than a year.

Who knows where the price will eventually settle. What I don’t understand is how investors can perceive it to be an actual alternative to the US dollar or gold.

And how could mere numbers on a screen be a true store of value, especially with all the arbitrary regulation that is now building around it?


Click to enlarge

If anything, the rush into Bitcoin and the loss of confidence the bursting of this latest bubble will cause may remind investors of the time-tested virtues of gold—and the reasons investors have sought its safety for thousands of years.

Have you opened your golden bank account yet?

As more and more pundits—and ordinary people—turn bullish on cryptocurrencies, it’s time to become a contrarian and put some money into real crisis insurance. Learn more here about a SmartMetals account from the Hard Assets Alliance. It makes it easy to buy and sell your gold, and offers low-cost storage options in six ultra-secure non-bank vaults around the world. Or buy competitively priced gold coins and bars for delivery directly from our bullion store.

 

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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


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Is This the Top for the Cryptocurrency Craze? Introducing Jesus Coin

Question: How do you recognize a bubble that’s ready to burst?

The answer is twofold:

  1. When people start going crazy over a certain asset—even the ones who couldn’t have cared less a year earlier.
  1. When people start doing insane things with that particular asset.

For example, in 2006, I read that some homeowners were taking out home equity loans to purchase Super Bowl tickets.

Using your house as an ATM was just fine, because everybody knew that home prices would always go up. It was almost a natural law, like the sun rising in the East.

When I read the Super Bowl story, I remember thinking: This is going to crash.

That people were willing to risk the roof over their head to buy tickets for a football game (yes, even that football game) seemed to be the epitome of irrational exuberance.

This week, I had a similar A-ha moment when I first heard about Jesus Coin.

Decentralizing Jesus on the Blockchain

When you visit the website of this new cryptocurrency, it’s impossible not to think that it’s a hoax.

The homepage states: “Jesus Coin has been developed as the currency of God’s Son. Unlike morally bereft cryptocurrencies, Jesus Coin has the unique advantage of providing global access to Jesus that’s safer and faster than ever before.”

The three main benefits of Jesus Coin are supposedly sin forgiveness through outsourcing, “record transaction speeds between you and God’s son,” and a predicted $50 billion market cap.

Jesus Christ is named as the founder and CEO of the company, with the positions of trustee and public relations officer being held by Judas Iscariot and Saint Peter, respectively.

The Jesus Coin ICO

Jesus Coin is compliant with the ERC20 Ethereum token standard. 1 Ethereum (ETH) equals 12 Jesus Coins (JC) in the initial pricing, and seed creation will be capped at 13 million JC.

The crowdsale spans roughly three and a half months, from September 12 to December 25. Trading is scheduled to begin on December 27.

The ICO has so far raised 200 ETH. At the time of this writing, that would be about $33,000.

The founders assert in their whitepaper that “Jesus would be pumped to have his own coin,” a notion that most Christians probably wouldn’t share.

After all, one of the few passages in the New Testament that depict Jesus as truly outraged is Matthew 21:12–13, where he overturns the tables of the money changers in the temple.

But whatever you think about Jesus Coin’s philosophy—if you can call it that—the main point here is that it’s as good a bubble-top indicator as I’ve ever seen.

As Cryptocurrencies Fail, Gold Will Pick Up the Slack

If you still doubt that the current crypto craze is unsustainable, look at this infographic contrarian analyst Jared Dillian posted in a Business Insider article on the “Everything Bubble.”

There are only 180 UN-recognized paper currencies in the world, but a stunning 1,072 cryptocurrencies… and a new one is added nearly every day.

Gold, on the other hand, has proven itself to be a timeless store of value. And the best part is, you can put it in your pocket or under your mattress—or bury it in your backyard if you’re so inclined.

In a recent Metal Masters interview, Real Vision co-founder Grant Williams said holding gold in his hand for the first time answered a lot of questions for him: “People get stuck in this trap of ‘Why does it have value?’ These are the wrong questions to ask because you’re driving yourself mad. It does. Pure and simple.”

Get a Free Ebook on Precious Metals Investing

Gold is becoming a desirable asset again, with top asset managers like Goldman Sachs calling it “the true currency of last resort.” So consider allocating 10–15% of your portfolio to physical gold and silver.

The free ebook, Investing in Precious Metals 101, tells you everything you need to know: which type of gold to buy and which to stay away from… how to avoid common mistakes… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your copy now.


Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

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Is This the Top for the Cryptocurrency Craze? Introducing Jesus Coin

Question: How do you recognize a bubble that’s ready to burst?

The answer is twofold:

  1. When people start going crazy over a certain asset—even the ones who couldn’t have cared less a year earlier.
  1. When people start doing insane things with that particular asset.

For example, in 2006, I read that some homeowners were taking out home equity loans to purchase Super Bowl tickets.

Using your house as an ATM was just fine, because everybody knew that home prices would always go up. It was almost a natural law, like the sun rising in the East.

When I read the Super Bowl story, I remember thinking: This is going to crash.

That people were willing to risk the roof over their head to buy tickets for a football game (yes, even that football game) seemed to be the epitome of irrational exuberance.

This week, I had a similar A-ha moment when I first heard about Jesus Coin.

Decentralizing Jesus on the Blockchain

When you visit the website of this new cryptocurrency, it’s impossible not to think that it’s a hoax.

The homepage states: “Jesus Coin has been developed as the currency of God’s Son. Unlike morally bereft cryptocurrencies, Jesus Coin has the unique advantage of providing global access to Jesus that’s safer and faster than ever before.”

The three main benefits of Jesus Coin are supposedly sin forgiveness through outsourcing, “record transaction speeds between you and God’s son,” and a predicted $50 billion market cap.

Jesus Christ is named as the founder and CEO of the company, with the positions of trustee and public relations officer being held by Judas Iscariot and Saint Peter, respectively.

The Jesus Coin ICO

Jesus Coin is compliant with the ERC20 Ethereum token standard. 1 Ethereum (ETH) equals 12 Jesus Coins (JC) in the initial pricing, and seed creation will be capped at 13 million JC.

The crowdsale spans roughly three and a half months, from September 12 to December 25. Trading is scheduled to begin on December 27.

The ICO has so far raised 200 ETH. At the time of this writing, that would be about $33,000.

The founders assert in their whitepaper that “Jesus would be pumped to have his own coin,” a notion that most Christians probably wouldn’t share.

After all, one of the few passages in the New Testament that depict Jesus as truly outraged is Matthew 21:12–13, where he overturns the tables of the money changers in the temple.

But whatever you think about Jesus Coin’s philosophy—if you can call it that—the main point here is that it’s as good a bubble-top indicator as I’ve ever seen.

As Cryptocurrencies Fail, Gold Will Pick Up the Slack

If you still doubt that the current crypto craze is unsustainable, look at this infographic contrarian analyst Jared Dillian posted in a Business Insider article on the “Everything Bubble.”

There are only 180 UN-recognized paper currencies in the world, but a stunning 1,072 cryptocurrencies… and a new one is added nearly every day.

Gold, on the other hand, has proven itself to be a timeless store of value. And the best part is, you can put it in your pocket or under your mattress—or bury it in your backyard if you’re so inclined.

In a recent Metal Masters interview, Real Vision co-founder Grant Williams said holding gold in his hand for the first time answered a lot of questions for him: “People get stuck in this trap of ‘Why does it have value?’ These are the wrong questions to ask because you’re driving yourself mad. It does. Pure and simple.”

Get a Free Ebook on Precious Metals Investing

Gold is becoming a desirable asset again, with top asset managers like Goldman Sachs calling it “the true currency of last resort.” So consider allocating 10–15% of your portfolio to physical gold and silver.

The free ebook, Investing in Precious Metals 101, tells you everything you need to know: which type of gold to buy and which to stay away from… how to avoid common mistakes… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your copy now.

 

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Are Millennials Better Investors Than Boomers and Gen-Xers?

Poor, spoiled, disadvantaged Millennials.

The myth of the underdog youngster has been going around in the media for years.

He’s the poor schmuck who at age 32 still hunkers down in Mom and Dad’s basement because his post-graduate education only fetches him a position as PhD burger flipper at the Scottish restaurant chain which shall not be named.

Marriage and homeownership? Not for this guy. According to the myth, he’ll be lucky if he can dig himself out from under his student loan debt one day and afford an apartment that isn’t populated with stoner roommates and cockroaches.

However, when you take a closer look at the Legg-Mason 2017 Global Investment Survey, an in-depth annual study of investing styles, it paints quite a different picture.

Baltimore-based Legg-Mason, by the way, is a global asset management company that has conducted its surveys for the past five years, aiming to better understand investors’ hopes, fears, and motivations.

Here are some of the amazing results.

Millennials Aren’t Half As Bad As Their Reputation

The first surprise when analyzing the survey is that Millennials (18–35 years old) seem to be sophisticated investors who actually have a leg up on the older generations, the Gen-Xers (36–52) and Baby Boomers (53–71).

Only 14% of Millennials say that don’t have any savings or investments, compared to 19% of Boomers.

The generation that might have suffered the most in the financial crash of 2008 are the Gen-Xers, a cohort that generational researcher Neil Howe compares to the overlooked and unloved middle child: a full 25% of them say they don’t have any savings or investments.

Asked about their investment approach in the past three years, fewer Millennials and Boomers—11% and 9%, respectively—admit to fear-based investing than Gen-Xers with 13%.

Work, Life, and Retirement Goals Achieved? Check

Millennials also seem more accomplished overall than the older generations when it comes to life goals.

More Gen-Xers (50%) and Boomers (46%) feel that they have yet to achieve their top goal of earning “as much money as I can,” whereas only 43% of Millennials stated the same.

Of course, making a lot of money may not even be one of Millennials’ top priorities.

In a subsequent question that asked which work life goals they had already achieved, 48% of Millennials said, “to work just enough to have a nice lifestyle”—a goal that didn’t even make the top five on Gen-Xers’ and Boomers’ priority lists.

When looking at Millennials’ home life goals, it becomes obvious that the stereotype of the young slacker is far from correct.

51% of Millennials found it important to “build an inheritance for my children/heirs.” 57% said they’d already achieved their goal of living on their own, 49% had gotten married, and 48% had started a family.

An astonishing 45% of Millennials already own a home.

Millennials’ attitude toward money is characterized by a frugality we don’t see in their older counterparts. As a result, getting out of debt is one of the retirement goals 37% of them have already achieved. Only 26% of Gen-Xers and 36% of Boomers claim to be so lucky.

Equally amazing: more Millennials (24%) than Gen-Xers (15%) say they’ve achieved early retirement.

Moreover, 31% of them say they live abroad (only 19% of Gen-Xers and 7% of Boomers do), and 33% of them say they own a vacation home. Only 21% of Gen-Xers and 15% of Boomers can afford that kind of luxury.

Millennials: The Most Conservative Investors with the Highest Returns

Most Millennials say they’re “very optimistic” about their investments for the coming year, whereas most Gen-Xers and Boomers state that they’re cautiously optimistic.

On the other hand, a full 57% of Millennials confess that their saving and investment decisions are strongly influenced by the 2008 crash, while a whopping 56% of Boomers state their decisions are “not at all” influenced by the crash.

The question is whether the Boomers’ carefree attitude represents forward thinking or dangerous amnesia.

Another one of the big surprises of the Legg-Mason survey is that Millennials—the youngest and purportedly least experienced group—report the highest returns (9.22%) on their income-producing investments, exceeding their expectations of 9.18%.

Gen-Xers sought more modest returns of 7.02% and got 8.14%.

On the other hand, Boomers’ real returns proved disappointing: they sought an 8.81% yield, but only received 5.66%.

What’s interesting is that at the same time, 85% Millennials describe their overall risk tolerance in long-term investing as “very conservative” or “somewhat conservative,” whereas only 77% of Gen-Xers and 74% of Boomers do.

With 24%, Boomers showed the highest number of “somewhat aggressive” investment behavior.

Are Millennials Savvier Than Everyone Else?

So how come that Millennials, though more risk-averse than their older counterparts, get the highest returns?

One of the answers might be international diversification. Millennials have it, Boomers don’t. Gen-Xers lie somewhere in the middle.

According to the survey, 88% of Millennials hold foreign investments, and only 33% hold investments inside their home country. The Boomers’ numbers are reversed—83% invest at home and only 40% abroad.

Asked about recent investment decisions they are pleased with, 18% of Millennials and 14% of Gen-Xers cite “investing abroad.” Only 1% of Boomers said the same.

30% of Boomers consider “global uncertainty” as a major barrier to international investing, but only 18% of Millennials and 24% of Gen-Xers think so.

Both Millennials and Gen-Xers think that the UK, Japan, and China represent the best places to invest over the next 12 months; Millennials also frequently name Europe.

On the other hand, a full 51% of Boomers say they don’t know where the best foreign investment opportunities lie… an uncertainty that is shared by only 15% of Millennials and 32% of Gen-Xers.

Gen-Xers and Boomers: Way Behind in Preparing for Retirement

How disadvantaged Gen-Xers have been in their work and home life becomes clear when we compare personal income. While Gen-Xers should currently be in their prime earning years, their median income ($71,875) actually lags that of Millennials ($76,945).

Boomers are on average the poorest with a median income of $41,850, although this might be explained by the fact that many of them are already retired.

At $100,674, Millennials have saved only about $10,000 less for their retirement via Defined Contribution (DC) plans than their older brethren, the GenXers. Boomers, who are already entering retirement, are the worst off with only $125,358.

Millennials also look much better prepared in terms of asset allocation. Unlike Gen-Xers and Boomers, their portfolios are much more diversified across all asset classes—with a relatively even distribution between cash (25%), equities (20%), fixed income (17%), investment real estate (14%), and non-traditional investments (13%).

With 11%, Millennials also own the highest percentage of physical gold. (Learn more about precious metals investing in this free report.) GenXers come in second with a 7% allocation to gold and silver.

Boomers, overall, seem to be the least diversified investors: 77% of their assets are in cash, equities, and fixed income, with a meager 8% in investment real estate, 4% in non-traditional investments, and just 2% in precious metals.

That means without a sufficient amount of “crisis insurance,” when the next recession or stock market collapse hits, our oldest generation will also be the most vulnerable.

Millennials, for all the abuse they take in the media and the narratives of the older generations, are by and large a much more put-together generation than we give them credit for. Consider that the next time you read what a bunch of good-for-nothings they are.

Get a Free Ebook on Precious Metals Investing

Everyone should have some crisis insurance in the form of physical gold and silver. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to avoid common mistakes inexperienced investors make… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your free copy now.


Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Are Millennials Better Investors Than Boomers and Gen-Xers?

Poor, spoiled, disadvantaged Millennials.

The myth of the underdog youngster has been going around in the media for years.

He’s the poor schmuck who at age 32 still hunkers down in Mom and Dad’s basement because his post-graduate education only fetches him a position as PhD burger flipper at the Scottish restaurant chain which shall not be named.

Marriage and homeownership? Not for this guy. According to the myth, he’ll be lucky if he can dig himself out from under his student loan debt one day and afford an apartment that isn’t populated with stoner roommates and cockroaches.

However, when you take a closer look at the Legg-Mason 2017 Global Investment Survey, an in-depth annual study of investing styles, it paints quite a different picture.

Baltimore-based Legg-Mason, by the way, is a global asset management company that has conducted its surveys for the past five years, aiming to better understand investors’ hopes, fears, and motivations.

Here are some of the amazing results.

Millennials Aren’t Half As Bad As Their Reputation

The first surprise when analyzing the survey is that Millennials (18–35 years old) seem to be sophisticated investors who actually have a leg up on the older generations, the Gen-Xers (36–52) and Baby Boomers (53–71).

Only 14% of Millennials say that don’t have any savings or investments, compared to 19% of Boomers.

The generation that might have suffered the most in the financial crash of 2008 are the Gen-Xers, a cohort that generational researcher Neil Howe compares to the overlooked and unloved middle child: a full 25% of them say they don’t have any savings or investments.

Asked about their investment approach in the past three years, fewer Millennials and Boomers—11% and 9%, respectively—admit to fear-based investing than Gen-Xers with 13%.

Work, Life, and Retirement Goals Achieved? Check

Millennials also seem more accomplished overall than the older generations when it comes to life goals.

More Gen-Xers (50%) and Boomers (46%) feel that they have yet to achieve their top goal of earning “as much money as I can,” whereas only 43% of Millennials stated the same.

Of course, making a lot of money may not even be one of Millennials’ top priorities.

In a subsequent question that asked which work life goals they had already achieved, 48% of Millennials said, “to work just enough to have a nice lifestyle”—a goal that didn’t even make the top five on Gen-Xers’ and Boomers’ priority lists.

When looking at Millennials’ home life goals, it becomes obvious that the stereotype of the young slacker is far from correct.

51% of Millennials found it important to “build an inheritance for my children/heirs.” 57% said they’d already achieved their goal of living on their own, 49% had gotten married, and 48% had started a family.

An astonishing 45% of Millennials already own a home.

Millennials’ attitude toward money is characterized by a frugality we don’t see in their older counterparts. As a result, getting out of debt is one of the retirement goals 37% of them have already achieved. Only 26% of Gen-Xers and 36% of Boomers claim to be so lucky.

Equally amazing: more Millennials (24%) than Gen-Xers (15%) say they’ve achieved early retirement.

Moreover, 31% of them say they live abroad (only 19% of Gen-Xers and 7% of Boomers do), and 33% of them say they own a vacation home. Only 21% of Gen-Xers and 15% of Boomers can afford that kind of luxury.

Millennials: The Most Conservative Investors with the Highest Returns

Most Millennials say they’re “very optimistic” about their investments for the coming year, whereas most Gen-Xers and Boomers state that they’re cautiously optimistic.

On the other hand, a full 57% of Millennials confess that their saving and investment decisions are strongly influenced by the 2008 crash, while a whopping 56% of Boomers state their decisions are “not at all” influenced by the crash.

The question is whether the Boomers’ carefree attitude represents forward thinking or dangerous amnesia.

Another one of the big surprises of the Legg-Mason survey is that Millennials—the youngest and purportedly least experienced group—report the highest returns (9.22%) on their income-producing investments, exceeding their expectations of 9.18%.

Gen-Xers sought more modest returns of 7.02% and got 8.14%.

On the other hand, Boomers’ real returns proved disappointing: they sought an 8.81% yield, but only received 5.66%.

What’s interesting is that at the same time, 85% Millennials describe their overall risk tolerance in long-term investing as “very conservative” or “somewhat conservative,” whereas only 77% of Gen-Xers and 74% of Boomers do.

With 24%, Boomers showed the highest number of “somewhat aggressive” investment behavior.

Are Millennials Savvier Than Everyone Else?

So how come that Millennials, though more risk-averse than their older counterparts, get the highest returns?

One of the answers might be international diversification. Millennials have it, Boomers don’t. Gen-Xers lie somewhere in the middle.

According to the survey, 88% of Millennials hold foreign investments, and only 33% hold investments inside their home country. The Boomers’ numbers are reversed—83% invest at home and only 40% abroad.

Asked about recent investment decisions they are pleased with, 18% of Millennials and 14% of Gen-Xers cite “investing abroad.” Only 1% of Boomers said the same.

30% of Boomers consider “global uncertainty” as a major barrier to international investing, but only 18% of Millennials and 24% of Gen-Xers think so.

Both Millennials and Gen-Xers think that the UK, Japan, and China represent the best places to invest over the next 12 months; Millennials also frequently name Europe.

On the other hand, a full 51% of Boomers say they don’t know where the best foreign investment opportunities lie… an uncertainty that is shared by only 15% of Millennials and 32% of Gen-Xers.

Gen-Xers and Boomers: Way Behind in Preparing for Retirement

How disadvantaged Gen-Xers have been in their work and home life becomes clear when we compare personal income. While Gen-Xers should currently be in their prime earning years, their median income ($71,875) actually lags that of Millennials ($76,945).

Boomers are on average the poorest with a median income of $41,850, although this might be explained by the fact that many of them are already retired.

At $100,674, Millennials have saved only about $10,000 less for their retirement via Defined Contribution (DC) plans than their older brethren, the GenXers. Boomers, who are already entering retirement, are the worst off with only $125,358.

Millennials also look much better prepared in terms of asset allocation. Unlike Gen-Xers and Boomers, their portfolios are much more diversified across all asset classes—with a relatively even distribution between cash (25%), equities (20%), fixed income (17%), investment real estate (14%), and non-traditional investments (13%).

With 11%, Millennials also own the highest percentage of physical gold. (Learn more about precious metals investing in this free report.) GenXers come in second with a 7% allocation to gold and silver.

Boomers, overall, seem to be the least diversified investors: 77% of their assets are in cash, equities, and fixed income, with a meager 8% in investment real estate, 4% in non-traditional investments, and just 2% in precious metals.

That means without a sufficient amount of “crisis insurance,” when the next recession or stock market collapse hits, our oldest generation will also be the most vulnerable.

Millennials, for all the abuse they take in the media and the narratives of the older generations, are by and large a much more put-together generation than we give them credit for. Consider that the next time you read what a bunch of good-for-nothings they are.

Get a Free Ebook on Precious Metals Investing

Everyone should have some crisis insurance in the form of physical gold and silver. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to avoid common mistakes inexperienced investors make… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Real Vision’s Grant Williams: History Is About to Repeat Itself Again… and It Might Get Ugly

Grant Williams believes that the 76 million retiring Baby Boomers will trigger a major pension crisis. He should know, because he’s been studying financial history and telltale crisis patterns for nearly two decades.

“With that potentially bad situation we could face,” the seasoned asset manager and co-founder of Real Vision TV said in a recent Metal Masters interview, “holding physical metal, somewhere safe, somewhere outside the banking system, is just a sensible precaution to take.”

His outlook has changed drastically since he started his first job trading Japanese markets in 1986: “What I walked into at that time was one of the greatest bull market bubbles the world had ever seen, in the Japanese equity market and real estate market.”

During this heyday, precious metals weren’t on his radar at all—until a year later, when he witnessed his first stock market crash and started asking some inconvenient questions.

History Does Repeat Itself…Again and Again

“I’ve always been a fan of history,” says Williams, who also writes the wildly popular macroeconomic newsletter, Things That Make You Go Hmmm… “So I read financial history and I just kept reading. And it was clear to me that at this point in time, I needed to buy some gold.”

Until then, the gold price didn’t mean much to him, except as an indicator of other things, so he considers the crashes he witnessed in his career wake-up calls and blessings in disguise.

The 1987 crash, he says, was more like “a bad day at the office; it came and went so fast… The bounce-back was quick, but it was a real shock to the system that that could happen.” When the dotcom bubble burst, he was well prepared. “I recognized the madness for what it was much sooner… and so that taught me that markets can reverse and just go down.”

He remembers reading a story about a boy from Chicago who studied in Weimar Germany, and his parents sent him tuition and rent money every month. At some point, “the Reichsmark was going through the roof—four billion to one, compared to one to one a few months earlier—and this kid, with his one hundred dollars that his parents sent him… ended up buying the entire street he lived on, all the houses, and became a landlord.”

We Might Need Crisis Insurance Soon

Over the years, his study of monetary history and current economic events has convinced him that it would be prudent to hold some gold as crisis insurance.

“I remember I wanted just to buy an ounce of gold… and I very consciously took cash to pay for this thing. I handed over $333 in paper, and [the dealer] gave me this coin.” The experience of holding physical gold in your hand, he says, answers a lot of questions. “People get stuck in this trap of ‘Why does it have value?’ These are the wrong questions to ask, because you’re driving yourself mad. It does. Pure and simple.”

Value Investing with Gold

Williams says gold is still undervalued: “At heart, I’m a value investor, and I think gold offers incredible value now.”

He says he’s followed the gold market ever since that pivotal day and recommends that everyone should have at least some allocation to precious metals: “I think if you don’t own some gold in your portfolio now, you either don’t understand history, or you don’t want to understand history.”

Click here to watch the full interview with Grant Williams for more insights about gold and the historical warning signs of a looming crisis.


Source: Hard Assets Alliance


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


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Real Vision’s Grant Williams: History Is About to Repeat Itself Again… and It Might Get Ugly

Grant Williams believes that the 76 million retiring Baby Boomers will trigger a major pension crisis. He should know, because he’s been studying financial history and telltale crisis patterns for nearly two decades.

“With that potentially bad situation we could face,” the seasoned asset manager and co-founder of Real Vision TV said in a recent Metal Masters interview, “holding physical metal, somewhere safe, somewhere outside the banking system, is just a sensible precaution to take.”

His outlook has changed drastically since he started his first job trading Japanese markets in 1986: “What I walked into at that time was one of the greatest bull market bubbles the world had ever seen, in the Japanese equity market and real estate market.”

During this heyday, precious metals weren’t on his radar at all—until a year later, when he witnessed his first stock market crash and started asking some inconvenient questions.

History Does Repeat Itself…Again and Again

“I’ve always been a fan of history,” says Williams, who also writes the wildly popular macroeconomic newsletter, Things That Make You Go Hmmm… “So I read financial history and I just kept reading. And it was clear to me that at this point in time, I needed to buy some gold.”

Until then, the gold price didn’t mean much to him, except as an indicator of other things, so he considers the crashes he witnessed in his career wake-up calls and blessings in disguise.

The 1987 crash, he says, was more like “a bad day at the office; it came and went so fast… The bounce-back was quick, but it was a real shock to the system that that could happen.” When the dotcom bubble burst, he was well prepared. “I recognized the madness for what it was much sooner… and so that taught me that markets can reverse and just go down.”

He remembers reading a story about a boy from Chicago who studied in Weimar Germany, and his parents sent him tuition and rent money every month. At some point, “the Reichsmark was going through the roof—four billion to one, compared to one to one a few months earlier—and this kid, with his one hundred dollars that his parents sent him… ended up buying the entire street he lived on, all the houses, and became a landlord.”

We Might Need Crisis Insurance Soon

Over the years, his study of monetary history and current economic events has convinced him that it would be prudent to hold some gold as crisis insurance.

“I remember I wanted just to buy an ounce of gold… and I very consciously took cash to pay for this thing. I handed over $333 in paper, and [the dealer] gave me this coin.” The experience of holding physical gold in your hand, he says, answers a lot of questions. “People get stuck in this trap of ‘Why does it have value?’ These are the wrong questions to ask, because you’re driving yourself mad. It does. Pure and simple.”

Value Investing with Gold

Williams says gold is still undervalued: “At heart, I’m a value investor, and I think gold offers incredible value now.”

He says he’s followed the gold market ever since that pivotal day and recommends that everyone should have at least some allocation to precious metals: “I think if you don’t own some gold in your portfolio now, you either don’t understand history, or you don’t want to understand history.”

Click here to watch the full interview with Grant Williams for more insights about gold and the historical warning signs of a looming crisis.


Source: Hard Assets Alliance


Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

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Real Vision’s Grant Williams: History Is About to Repeat Itself Again… and It Might Get Ugly

Grant Williams believes that the 76 million retiring Baby Boomers will trigger a major pension crisis. He should know, because he’s been studying financial history and telltale crisis patterns for nearly two decades.

“With that potentially bad situation we could face,” the seasoned asset manager and co-founder of Real Vision TV said in a recent Metal Masters interview, “holding physical metal, somewhere safe, somewhere outside the banking system, is just a sensible precaution to take.”

His outlook has changed drastically since he started his first job trading Japanese markets in 1986: “What I walked into at that time was one of the greatest bull market bubbles the world had ever seen, in the Japanese equity market and real estate market.”

During this heyday, precious metals weren’t on his radar at all—until a year later, when he witnessed his first stock market crash and started asking some inconvenient questions.

History Does Repeat Itself…Again and Again

“I’ve always been a fan of history,” says Williams, who also writes the wildly popular macroeconomic newsletter, Things That Make You Go Hmmm… “So I read financial history and I just kept reading. And it was clear to me that at this point in time, I needed to buy some gold.”

Until then, the gold price didn’t mean much to him, except as an indicator of other things, so he considers the crashes he witnessed in his career wake-up calls and blessings in disguise.

The 1987 crash, he says, was more like “a bad day at the office; it came and went so fast… The bounce-back was quick, but it was a real shock to the system that that could happen.” When the dotcom bubble burst, he was well prepared. “I recognized the madness for what it was much sooner… and so that taught me that markets can reverse and just go down.”

He remembers reading a story about a boy from Chicago who studied in Weimar Germany, and his parents sent him tuition and rent money every month. At some point, “the Reichsmark was going through the roof—four billion to one, compared to one to one a few months earlier—and this kid, with his one hundred dollars that his parents sent him… ended up buying the entire street he lived on, all the houses, and became a landlord.”

We Might Need Crisis Insurance Soon

Over the years, his study of monetary history and current economic events has convinced him that it would be prudent to hold some gold as crisis insurance.

“I remember I wanted just to buy an ounce of gold… and I very consciously took cash to pay for this thing. I handed over $333 in paper, and [the dealer] gave me this coin.” The experience of holding physical gold in your hand, he says, answers a lot of questions. “People get stuck in this trap of ‘Why does it have value?’ These are the wrong questions to ask, because you’re driving yourself mad. It does. Pure and simple.”

Value Investing with Gold

Williams says gold is still undervalued: “At heart, I’m a value investor, and I think gold offers incredible value now.”

He says he’s followed the gold market ever since that pivotal day and recommends that everyone should have at least some allocation to precious metals: “I think if you don’t own some gold in your portfolio now, you either don’t understand history, or you don’t want to understand history.”

Click here to watch the full interview with Grant Williams for more insights about gold and the historical warning signs of a looming crisis.


Source: Hard Assets Alliance

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Marc Faber: In the Age of Cyber-Terrorism, Every Investor Must Own Gold

Take it from “Dr. Doom”: own some physical gold and keep it out of the banking system.

Dr. Marc Faber, a legendary investor and the editor/publisher of the Gloom, Boom & Doom Report, is well known for his contrarian investing style.

In a recent Metal Masters interview with the Hard Assets Alliance, he noted that the biggest geopolitical risk for Americans today is not a conventional war but rather cyber-attacks that could take down the US power grid.

In such a scenario, gold would become an irreplaceable medium of exchange. But it’s not the only reason to own gold today.

Diversified Assets Outside the Banking System

Faber grew up in Switzerland right after World War II, a tough time that caused his family to distrust paper money and taught him the importance of precious metals as a safety net.

Faber remembers how his father talked about rich people as millionaires. That, in the ‘50s and ‘60s and ‘70s, was a lot of money. Today, a million is nothing at all—small change. Unfortunately. When people talk about, ‘Oh, there is no inflation in the system,’ this is nonsense. Compared to assets, money has lost a tremendous amount of purchasing power.”

After working on Wall Street for over two decades, Faber’s assets consisted mainly of bonds, equities, and real estate. He says it was in the 1990s when he realized that “it’s good to have a diversified asset outside the banking system and not financially related” and began to purchase some physical gold every month.

The Fed largely ignores gold as an asset, he says, because “gold is an embarrassment to central banks.”

When the Lights Go Out, Bitcoin Goes Too

Regarding a possible war, Faber believes it’s unlikely that anyone will ever invade China or the United States. He thinks the true vulnerability lies in “wars that are fought not with tanks—they are fought by, say, somebody could switch off the light in New York, or the electricity, or the Internet. If you switched off the Internet, what would happen?”

This is where the merits of gold bullion become obvious, he says: “In these times, you actually want to have access to something physical that is a recognized medium of exchange.”

“Gold Is Driven by Money Printing”

When the Fed pursues loose monetary policies, Faber states, the people who benefit the most are the super-elite, the 0.01%. They have been moving ahead while the average American suffers: “50% of American people have no assets. … They don’t benefit from money printing. Actually, they’re hurt because their cost of living is going up, and it’s going up more than the CPI would indicate.”

He believes “that the recovery, globally, is very weak” and the rapidly growing unfunded liabilities are a clear threat that could lead to another financial collapse.

“By being in equities and by being in gold, and also having some exposure to bonds, you have some diversification,” he says. “Then you can hope when the hour of truth occurs, you will only lose, say, 50% of your assets, but your neighbor loses everything. So relatively speaking, you will have done very well.”

Click here to watch the full interview with Marc Faber for more advice on how to weather a crisis.


Source: Hard Assets Alliance


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Marc Faber: In the Age of Cyber-Terrorism, Every Investor Must Own Gold

Take it from “Dr. Doom”: own some physical gold and keep it out of the banking system.

Dr. Marc Faber, a legendary investor and the editor/publisher of the Gloom, Boom & Doom Report, is well known for his contrarian investing style.

In a recent Metal Masters interview with the Hard Assets Alliance, he noted that the biggest geopolitical risk for Americans today is not a conventional war but rather cyber-attacks that could take down the US power grid.

In such a scenario, gold would become an irreplaceable medium of exchange. But it’s not the only reason to own gold today.

Diversified Assets Outside the Banking System

Faber grew up in Switzerland right after World War II, a tough time that caused his family to distrust paper money and taught him the importance of precious metals as a safety net.

Faber remembers how his father talked about rich people as millionaires. That, in the ‘50s and ‘60s and ‘70s, was a lot of money. Today, a million is nothing at all—small change. Unfortunately. When people talk about, ‘Oh, there is no inflation in the system,’ this is nonsense. Compared to assets, money has lost a tremendous amount of purchasing power.”

After working on Wall Street for over two decades, Faber’s assets consisted mainly of bonds, equities, and real estate. He says it was in the 1990s when he realized that “it’s good to have a diversified asset outside the banking system and not financially related” and began to purchase some physical gold every month.

The Fed largely ignores gold as an asset, he says, because “gold is an embarrassment to central banks.”

When the Lights Go Out, Bitcoin Goes Too

Regarding a possible war, Faber believes it’s unlikely that anyone will ever invade China or the United States. He thinks the true vulnerability lies in “wars that are fought not with tanks—they are fought by, say, somebody could switch off the light in New York, or the electricity, or the Internet. If you switched off the Internet, what would happen?”

This is where the merits of gold bullion become obvious, he says: “In these times, you actually want to have access to something physical that is a recognized medium of exchange.”

“Gold Is Driven by Money Printing”

When the Fed pursues loose monetary policies, Faber states, the people who benefit the most are the super-elite, the 0.01%. They have been moving ahead while the average American suffers: “50% of American people have no assets. … They don’t benefit from money printing. Actually, they’re hurt because their cost of living is going up, and it’s going up more than the CPI would indicate.”

He believes “that the recovery, globally, is very weak” and the rapidly growing unfunded liabilities are a clear threat that could lead to another financial collapse.

“By being in equities and by being in gold, and also having some exposure to bonds, you have some diversification,” he says. “Then you can hope when the hour of truth occurs, you will only lose, say, 50% of your assets, but your neighbor loses everything. So relatively speaking, you will have done very well.”

Click here to watch the full interview with Marc Faber for more advice on how to weather a crisis.


Source: Hard Assets Alliance

 

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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

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The Next Tech Crash Could Delay Your Retirement by a Decade

The S&P 500 Information Technology Index recently surpassed its previous peak of 988.49 set in March 2000. It took a whopping 17 years to recoup the massive losses from the implosion of the dot-com bubble.

Not even the Federal Reserve chairman at the time, Alan Greenspan, could rein in the enthusiasm of the tech disciples with his oft-quoted 1998 “Irrational Exuberance” speech about market valuation. Valuations stretched to epic proportions as companies with little revenue and no chance to make a profit rushed to join the IPO party.

Even profitable, higher-quality names fell victim to the Ponzi scheme as growth expectations became unreasonable. In December 1999, well-known PaineWebber (now UBS) analyst Walter Piecyk assigned a $1,000 price target to Qualcomm based on the growth of wireless technology—after the company had already risen from $25 per share to more than $500 in the previous year.

It was a sure sign of the times.

Just three months later, the NASDAQ peaked at 5,132 and begun its long downward slog to 1,114 in 2002, changing the investment landscape and the dreams of many soon-to-be retirees in the process. It took many years for the index to reach this level again.

Odds are you were not entirely invested or perhaps even in the market when this occurred. However, working in retail brokerage at the time, I saw many millions in paper profits vanish and investors’ visions of retirement wiped out in months.

Only six years later, in 2008, it would happen again, albeit due to different culprit: the subprime housing market collapsed, and financial markets ground to halt.

One would hope that two vicious declines in less than a 10-year period taught mainstream investors the value of diversification and asset allocation—but all the signs point to the contrary.

IPOs Are Being Delayed

The first warning sign is the current number of IPOs. After rising to 275 new listings in 2014, IPO activity dropped off to just 105 last year, a sign that companies are finding it harder to attract capital at desired valuations.

2017’s eagerly anticipated IPO stocks, Snapchat (SNAP) and Blue Apron (APRN), have each lost approximately 50% of their respective market values.

Blue Apron, which tried to raise $30 million, was forced to cut its IPO price to $10 in the final stages to shore up demand. (It had initially wanted to raise $480 million and offer shares in the $15 to $17 range.) Both companies are burning through cash at staggering rates.

Additionally, many companies have delayed IPOs this year due to “unfavorable market conditions,” a.k.a. weak investor demand. The demand for new listings is generally a good indicator of market cycles and investor sentiment toward risk.

The Big Five Are Propping Up the Whole Market

Another notable development is the concentration of companies making up the NASDAQ.

The combined market caps of Apple (AAPL), Alphabet/Google (GOOGL), Microsoft (MSFT), Facebook (FB), and Amazon (AMZN) now exceed $3 trillion—that means these five companies comprise almost a quarter of the entire $12.5 trillion index containing more than 3,100 companies.


Source: Bloomberg

If these five companies were a separate index, it would be larger than the total value of stocks in any single equity market worldwide, except the five largest: the US, China, Japan, Hong Kong, and the UK.

The market value of the “Big Five” has shot up 30% so far in 2017, with Apple rising almost 40% and Amazon 25% to more than $1,000 per share.

Due to its impressive ascent this year, Apple is well on its way to becoming the first company to be valued at $1 trillion—a truly impressive and well-deserved feat, given the domination of the iPhone over the past decade.

However, 75% of sell-side analysts still rate the company a “buy” in anticipation of strong iPhone demand when the 8th version is released later this year.

Reminiscent of the $1,000 Qualcomm price target in 1999, TheStreet.com just predicted Apple’s valuation to reach $2 trillion within 10 years. It based their forecast on the company’s huge cash position and ability to make acquisitions—never mind that it’s still $170 billion away from even the $1 trillion mark.

The ETF and Index Fund Craze

A key driver of market concentration and a potential source of risk is the proliferation of low-cost ETFs and index funds, or so-called passive investments.

Retail investors can now buy ETFs tracking specific sectors and industries at virtually no cost. The net expense ratio for Vanguard’s Information Technology Index Fund (VITAX) is 10 basis points: $50 per year on a $50,000 investment. Its top holdings are Apple, Microsoft, Google, and Facebook.

According to a Bank of America Merrill Lynch study, since 2007, $1.3 trillion has flowed out of actively managed bond and stock funds and $3.1 trillion into passive bond and stock funds. Last year alone, US investors pulled $340 billion from active investment managers, mostly from mutual funds, and allocated $504 billion to passive alternatives.


Source: ValueWalk

Because they’re so popular and easily accessible, passive investment options have encouraged scores of new investors to jump into the market, often with little to no due diligence. In addition, many brokerages have lowered their fees for buying individual stocks. Companies like Robinhood Financial even offer free trading for most listed US equities and ETFs.

This concentration will act as a double-edged sword when (not if) the market undergoes a correction. As fast as these companies and funds gained value over the past few years, they will decline even faster.

As the old saying goes, “Stocks often take the escalator on the way up, but the elevator on the way down.”

The current bull market is the second longest in history—and the longer it continues, the higher expectations will become.

Last quarter, Facebook’s revenues grew at a staggering 45% to $9.3 billion, but down from 60% growth a year earlier. When companies begin struggling to meet analyst expectations, or run short of non-GAAP tricks, such as using stock-based compensation to beat earnings numbers, they will drop precipitously.

A Bad Environment for Stocks and Funds, But a Good One for Gold

As investors are growing more skeptical about the market’s ability to sustain or exceed current valuations, it’s no coincidence that gold was up 9% in 2016 and is up 10% year to date.

Additionally, in their failed attempts to overhaul healthcare, restructure tax policy, and launch infrastructure projects, the Trump administration is starting to look more like an episode of Survivor than a team leading the world’s largest economy.


Source: New York Post

Furthermore, mounting tensions with North Korea and the Fed’s upcoming foray into reducing its massive balance sheet have investors on high alert.

Any of these factors, on top of a possible government shutdown at the end of September when the debt ceiling will likely be raised again, could send gold soaring well into the $1,300 range.

Now is the time to evaluate your portfolio and consider adding or increasing exposure to an asset that’s not correlated to most traditional stock and ETF investments.

Gold is the cheapest it’s been relative to the S&P 500 since 2005. Despite the yellow metal’s poor performance from 2012 to 2015, it has matched the performance of the S&P 500 ETF (SPY) since 2005.


Source: Bloomberg

How would a 50% decline in the US stock market over the next two years affect your portfolio? Could you hold for a decade while it recovers, or would it ruin your retirement plans?

Gold, as a form of financial insurance, is still attractively priced, despite rising 20% since December 2015. Allocating a percentage of your portfolio to precious metals can mitigate losses during a bear market and preserve your purchasing power if the US dollar depreciates.

Get a Free Ebook on Precious Metals Investing

Right now is still a good time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to avoid common mistakes inexperienced investors make… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your free copy now.


Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

The Next Tech Crash Could Delay Your Retirement by a Decade

The S&P 500 Information Technology Index recently surpassed its previous peak of 988.49 set in March 2000. It took a whopping 17 years to recoup the massive losses from the implosion of the dot-com bubble.

Not even the Federal Reserve chairman at the time, Alan Greenspan, could rein in the enthusiasm of the tech disciples with his oft-quoted 1998 “Irrational Exuberance” speech about market valuation. Valuations stretched to epic proportions as companies with little revenue and no chance to make a profit rushed to join the IPO party.

Even profitable, higher-quality names fell victim to the Ponzi scheme as growth expectations became unreasonable. In December 1999, well-known PaineWebber (now UBS) analyst Walter Piecyk assigned a $1,000 price target to Qualcomm based on the growth of wireless technology—after the company had already risen from $25 per share to more than $500 in the previous year.

It was a sure sign of the times.

Just three months later, the NASDAQ peaked at 5,132 and begun its long downward slog to 1,114 in 2002, changing the investment landscape and the dreams of many soon-to-be retirees in the process. It took many years for the index to reach this level again.

Odds are you were not entirely invested or perhaps even in the market when this occurred. However, working in retail brokerage at the time, I saw many millions in paper profits vanish and investors’ visions of retirement wiped out in months.

Only six years later, in 2008, it would happen again, albeit due to different culprit: the subprime housing market collapsed, and financial markets ground to halt.

One would hope that two vicious declines in less than a 10-year period taught mainstream investors the value of diversification and asset allocation—but all the signs point to the contrary.

IPOs Are Being Delayed

The first warning sign is the current number of IPOs. After rising to 275 new listings in 2014, IPO activity dropped off to just 105 last year, a sign that companies are finding it harder to attract capital at desired valuations.

2017’s eagerly anticipated IPO stocks, Snapchat (SNAP) and Blue Apron (APRN), have each lost approximately 50% of their respective market values.

Blue Apron, which tried to raise $30 million, was forced to cut its IPO price to $10 in the final stages to shore up demand. (It had initially wanted to raise $480 million and offer shares in the $15 to $17 range.) Both companies are burning through cash at staggering rates.

Additionally, many companies have delayed IPOs this year due to “unfavorable market conditions,” a.k.a. weak investor demand. The demand for new listings is generally a good indicator of market cycles and investor sentiment toward risk.

The Big Five Are Propping Up the Whole Market

Another notable development is the concentration of companies making up the NASDAQ.

The combined market caps of Apple (AAPL), Alphabet/Google (GOOGL), Microsoft (MSFT), Facebook (FB), and Amazon (AMZN) now exceed $3 trillion—that means these five companies comprise almost a quarter of the entire $12.5 trillion index containing more than 3,100 companies.


Source: Bloomberg

If these five companies were a separate index, it would be larger than the total value of stocks in any single equity market worldwide, except the five largest: the US, China, Japan, Hong Kong, and the UK.

The market value of the “Big Five” has shot up 30% so far in 2017, with Apple rising almost 40% and Amazon 25% to more than $1,000 per share.

Due to its impressive ascent this year, Apple is well on its way to becoming the first company to be valued at $1 trillion—a truly impressive and well-deserved feat, given the domination of the iPhone over the past decade.

However, 75% of sell-side analysts still rate the company a “buy” in anticipation of strong iPhone demand when the 8th version is released later this year.

Reminiscent of the $1,000 Qualcomm price target in 1999, TheStreet.com just predicted Apple’s valuation to reach $2 trillion within 10 years. It based their forecast on the company’s huge cash position and ability to make acquisitions—never mind that it’s still $170 billion away from even the $1 trillion mark.

The ETF and Index Fund Craze

A key driver of market concentration and a potential source of risk is the proliferation of low-cost ETFs and index funds, or so-called passive investments.

Retail investors can now buy ETFs tracking specific sectors and industries at virtually no cost. The net expense ratio for Vanguard’s Information Technology Index Fund (VITAX) is 10 basis points: $50 per year on a $50,000 investment. Its top holdings are Apple, Microsoft, Google, and Facebook.

According to a Bank of America Merrill Lynch study, since 2007, $1.3 trillion has flowed out of actively managed bond and stock funds and $3.1 trillion into passive bond and stock funds. Last year alone, US investors pulled $340 billion from active investment managers, mostly from mutual funds, and allocated $504 billion to passive alternatives.


Source: ValueWalk

Because they’re so popular and easily accessible, passive investment options have encouraged scores of new investors to jump into the market, often with little to no due diligence. In addition, many brokerages have lowered their fees for buying individual stocks. Companies like Robinhood Financial even offer free trading for most listed US equities and ETFs.

This concentration will act as a double-edged sword when (not if) the market undergoes a correction. As fast as these companies and funds gained value over the past few years, they will decline even faster.

As the old saying goes, “Stocks often take the escalator on the way up, but the elevator on the way down.”

The current bull market is the second longest in history—and the longer it continues, the higher expectations will become.

Last quarter, Facebook’s revenues grew at a staggering 45% to $9.3 billion, but down from 60% growth a year earlier. When companies begin struggling to meet analyst expectations, or run short of non-GAAP tricks, such as using stock-based compensation to beat earnings numbers, they will drop precipitously.

A Bad Environment for Stocks and Funds, But a Good One for Gold

As investors are growing more skeptical about the market’s ability to sustain or exceed current valuations, it’s no coincidence that gold was up 9% in 2016 and is up 10% year to date.

Additionally, in their failed attempts to overhaul healthcare, restructure tax policy, and launch infrastructure projects, the Trump administration is starting to look more like an episode of Survivor than a team leading the world’s largest economy.


Source: New York Post

Furthermore, mounting tensions with North Korea and the Fed’s upcoming foray into reducing its massive balance sheet have investors on high alert.

Any of these factors, on top of a possible government shutdown at the end of September when the debt ceiling will likely be raised again, could send gold soaring well into the $1,300 range.

Now is the time to evaluate your portfolio and consider adding or increasing exposure to an asset that’s not correlated to most traditional stock and ETF investments.

Gold is the cheapest it’s been relative to the S&P 500 since 2005. Despite the yellow metal’s poor performance from 2012 to 2015, it has matched the performance of the S&P 500 ETF (SPY) since 2005.


Source: Bloomberg

How would a 50% decline in the US stock market over the next two years affect your portfolio? Could you hold for a decade while it recovers, or would it ruin your retirement plans?

Gold, as a form of financial insurance, is still attractively priced, despite rising 20% since December 2015. Allocating a percentage of your portfolio to precious metals can mitigate losses during a bear market and preserve your purchasing power if the US dollar depreciates.

Get a Free Ebook on Precious Metals Investing

Right now is still a good time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to avoid common mistakes inexperienced investors make… the best storage options… why you should insist on allocated gold accounts… and more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Former Lehman Brothers Trader: Unpredictable Government Actions Make It Smart to Hold Gold

What does a hot-shot Wall Street trader see in physical gold? And why would he be adamant about holding it?

Jared Dillian, former head of ETF Trading at Lehman Brothers, is an acclaimed financial author and investment strategist at Mauldin Economics. He first discovered gold in 2005 when the launch of the SPDR Gold Shares ETF (GLD) drew his attention to the yellow metal.

“It was a cool idea, this way to securitize gold,” Dillian said in a recent Metal Masters interview with the Hard Assets Alliance. “But I didn’t know anything about gold. And I’m like, ‘Who wants gold? Why would you want that?’”

Once he started looking into precious metals versus paper money, he quickly became bullish on gold: “An ounce of gold will buy you a nice suit today, it bought you a nice suit 20 years ago, it bought you a nice suit 200 years ago… Dollars have depreciated over time; pretty much any fiat currency has. So when I look at gold, I don’t look at it like, it’s going to go up and I’m going to get rich. It’s actually not a trade—it’s the furthest thing from a trade. It’s a way to maintain your purchasing power over time.”

The All-Weather Investment

Dillian, who grew up in a poor town in eastern Connecticut, was only 27 when he started working as a trader at Lehman Brothers. Three years later, he was running the ETF desk and trading a billion dollars per day on a regular basis.

Being used to the typical New England thrift, he admits that he didn’t fully understand that world until after he left it in 2008. “You know, I would bring in a can of beans for lunch, with a can opener, and open the can of beans, and bring a plastic fork and eat beans for, like, 49 cents.”

This attitude also informs Dillian’s stance on gold: “It’s hard to predict what governments are going to do, so it’s smart to hold some all the time. It’s really an all-weather investment.”

The Fed’s Playing It Fast and Loose

He believes we’re seeing signs that inflation is creeping up—asset inflation, that is, which the Fed deliberately ignores. “Central banks today say there is no inflation. There’s no inflation of toys or TVs or haircuts, but there is inflation of houses and Amazon stock and Treasury bonds, and lots of financial assets.”

The reason for this predicament, he says, is the Fed’s ultra-loose monetary policy, which has kept real interest rates at negative levels for a very long time. “I would call that irresponsible central banking, and we’re dealing with it today, still.”

There’s no sign, Dillian insists, that at least developed-world central banks are learning from the dire experiences of the recent past. “They’re actually kind of getting worse.”

Trading Gold vs. Investment Gold

He advises investors to own both “trading gold” like mining stocks and ETFs, and “investment gold” in the form of bullion that they just buy and hold: “10 to 15 percent is probably a pretty good guideline.”

Even if you’re bullish on gold, though, you shouldn’t get too exuberant, Dillian warns, because a price spike is almost always associated with a financial or political crisis. “Remember, gold is not a trade that’s ever going to make you happy… I hate to say it, but it’s a hedge, it’s an insurance policy. You just do it.”

Click here to watch the full interview with Jared Dillian for more insights about gold and the markets.


Source: Hard Assets Alliance


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

Former Lehman Brothers Trader: Unpredictable Government Actions Make It Smart to Hold Gold

What does a hot-shot Wall Street trader see in physical gold? And why would he be adamant about holding it?

Jared Dillian, former head of ETF Trading at Lehman Brothers, is an acclaimed financial author and investment strategist at Mauldin Economics. He first discovered gold in 2005 when the launch of the SPDR Gold Shares ETF (GLD) drew his attention to the yellow metal.

“It was a cool idea, this way to securitize gold,” Dillian said in a recent Metal Masters interview with the Hard Assets Alliance. “But I didn’t know anything about gold. And I’m like, ‘Who wants gold? Why would you want that?’”

Once he started looking into precious metals versus paper money, he quickly became bullish on gold: “An ounce of gold will buy you a nice suit today, it bought you a nice suit 20 years ago, it bought you a nice suit 200 years ago… Dollars have depreciated over time; pretty much any fiat currency has. So when I look at gold, I don’t look at it like, it’s going to go up and I’m going to get rich. It’s actually not a trade—it’s the furthest thing from a trade. It’s a way to maintain your purchasing power over time.”

The All-Weather Investment

Dillian, who grew up in a poor town in eastern Connecticut, was only 27 when he started working as a trader at Lehman Brothers. Three years later, he was running the ETF desk and trading a billion dollars per day on a regular basis.

Being used to the typical New England thrift, he admits that he didn’t fully understand that world until after he left it in 2008. “You know, I would bring in a can of beans for lunch, with a can opener, and open the can of beans, and bring a plastic fork and eat beans for, like, 49 cents.”

This attitude also informs Dillian’s stance on gold: “It’s hard to predict what governments are going to do, so it’s smart to hold some all the time. It’s really an all-weather investment.”

The Fed’s Playing It Fast and Loose

He believes we’re seeing signs that inflation is creeping up—asset inflation, that is, which the Fed deliberately ignores. “Central banks today say there is no inflation. There’s no inflation of toys or TVs or haircuts, but there is inflation of houses and Amazon stock and Treasury bonds, and lots of financial assets.”

The reason for this predicament, he says, is the Fed’s ultra-loose monetary policy, which has kept real interest rates at negative levels for a very long time. “I would call that irresponsible central banking, and we’re dealing with it today, still.”

There’s no sign, Dillian insists, that at least developed-world central banks are learning from the dire experiences of the recent past. “They’re actually kind of getting worse.”

Trading Gold vs. Investment Gold

He advises investors to own both “trading gold” like mining stocks and ETFs, and “investment gold” in the form of bullion that they just buy and hold: “10 to 15 percent is probably a pretty good guideline.”

Even if you’re bullish on gold, though, you shouldn’t get too exuberant, Dillian warns, because a price spike is almost always associated with a financial or political crisis. “Remember, gold is not a trade that’s ever going to make you happy… I hate to say it, but it’s a hedge, it’s an insurance policy. You just do it.”

Click here to watch the full interview with Jared Dillian for more insights about gold and the markets.


Source: Hard Assets Alliance

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

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Solar, Bubble, Banks, War, and Legal Tender: Five Reasons Why You Should Buy Silver Now

Unlike its big brother, gold, physical silver is coveted for both investment purposes and industrial usage. Right now, silver prices are in a bit of a slump—in other words, it’s the perfect time to load up on this precious metal while it’s down. Here are some good reasons why silver should be on every investor’s radar.

Reason #1: Silver Is Being Used Up in China’s Solar Boom.

By far the largest application of industrial silver today is in solar panels—and Chinese demand for solar energy is skyrocketing. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020 in order to combat air pollution and to comply with the Paris Climate Accord.

Amazingly, China is already investing more in clean-energy developments than the European Union:

Source: e3g.org

Last month, China revealed a newly built 250-acre solar farm shaped like a panda—the first of 100 such solar plants planned for the Asian region in the coming years. Displaying typical Chinese efficiency, the solar farm in Datong was proposed in May 2016 and became operational only 14 months later. Over the next 25 years, it will provide the same power as burning one million tons of coal.

No wonder last year was the strongest so far for solar-related silver demand. Leading analysts believe that this trend will continue a while longer—even though Tesla’s SolarCity is getting ready to replace silver with the much cheaper copper in its PV panels.

Specialist consultancy Metals Focus said it expected 2017 silver demand from the solar sector to ease only slightly compared to last year, remaining the second highest on record.

And the supply is finite. The chart below shows official global silver reserves, that is, the amount of silver that is considered to be recoverable from mines—which is only 571,000 tonnes.

Source: Statista

Reason #2: The US Stock Bubble Is Getting Ready to Burst.

How many screaming superlatives can a market take before it collapses? We will probably find out soon.

It seems that US equities are hitting new record highs every day, but the writing is most certainly on the wall. By mid-July, the Case-Shiller P/E Ratio hovered above 30 (the 100-year median is around 16). That is reminiscent of the height of the dot-com bubble and the weeks leading up to the 1929 stock market crash.

One yardstick of the growing insanity is the money-burning tech companies whose shares keep going up no matter what.

Take Netflix (NFLX), for example, which casually announced in an April letter to shareholders that it expects a negative free cash flow (FCF) of $2 billion this year, up from “only” $1.7 billion in 2016.

Last October, the company said it would have to raise another $800 million in debt (adding to the over $2.2 billion it already had), all in the name of adding quality content, aka movies and TV shows, to the site.

It’s no secret in investment circles that Netflix doesn’t really make money, a negligible fact that hasn’t kept the stock from skyrocketing.

In its mid-July Q2 earnings report, the company proudly reported that it had added 5.2 million new subscribers in the last quarter, crushing Wall Street estimates and propelling the stock upward by more than 10%.

Never mind that Q2 free cash flow was minus $608 million, a year-over-year increase in losses of $354 million. Investors gobbled up the “good news” and sent shares soaring to new heights of over $188 in July.

We see a similar picture with social-media giants like Twitter and Snapchat, which are virtual money pits.

Of course, there is no way that this can go on. And as stocks are being caught out in the rain, gold and silver will get their day in the sun, as has historically been the case.

Reason #3: European Banks Are Still in Big Trouble.

The ongoing debt crisis in the EU has recently been dwarfed by the global outcry revolving around the much-despised Trump administration and its draconic trade policies. However, while Europe’s woes may be forgotten for the moment, they have been anything but resolved.

In June, the UK Telegraph commented that “Italy’s long-simmering banking crisis has erupted again. The emergency plan to wind down two Venetian lenders at a cost of up to €17bn is a fiasco of the first order.” This, the article continues, could push Italian debt to 133% of GDP.

Research by Italian investment bank Mediobanca found that 114 of Italy’s 500 banks have “Texas Ratios” of over 100% (non-performing loans divided by tangible book value plus reserves; a TR of over 100% is considered critical).

24 of the endangered banks reportedly have ratios of over 200%, among them some of Italy’s biggest banks, like Monte dei Paschi di Siena with a TR of 269%, and Veneto Banca with a TR of 239%.

But the problem extends to the entire European Union. According to a Reuters article, “the total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world.”

Clearly, this is a level that is unsustainable in the long run. And if you don’t believe that Italy’s problems could have a major impact on US investors, remember how the US subprime mortgage crash and subsequent financial crisis affected the entire world.

In today’s interconnected global economy, any severe financial crisis in one part of the world can cause tidal waves in another. And when that happens, gold and silver are the ultimate safe-haven assets.

Reason #4: The Risk of Military Conflict Continues to Escalate.

Tensions between the US and North Korea continue to escalate as Kim Jong-Un has now threatened a nuclear strike against the United States.

This direct threat came after CIA Director Mike Pompeo said that the US needs to find a way to separate North Korea from the system: “The North Korean people I’m sure are lovely people and would love to see [Kim Jong-Un] go.”

In response, the North Korean Foreign Ministry stated, “Should the US dare to show us even the slightest sign of attempt to remove our supreme leadership, we will strike a merciless blow at the heart of the US with our powerful nuclear hammer, honed and hardened over time.”

By some estimates, Pyongyang could have a nuclear-capable ICBM as early as next year.

And North Korea is not the US government’s only worry. President Trump vehemently opposes the Joint Comprehensive Plan of Action (JCPOA), a treaty signed by the US, Iran, and five other countries in 2015. However, to renege on that agreement and to stop Iran from pursuing nuclear weapons, says retired Army General Paul Eaton, “would require regime change, which requires full-scale invasion, which is not tenable.”

Iran, Eaton warns, would be a much more dangerous enemy than Saddam Hussein’s Iraq. A large-scale attack on Iran would likely involve the US’s NATO allies as well as Israel… and if Russia were to come to Iran’s aid, we might have World War III on our hands.

It doesn’t have to come to war, though, for precious metals prices to rise. The threats and growing tensions are enough to drive more investors to the safety of gold and silver—yet another reason to get some bullion now.

Reason #5: Silver Is Again Becoming Real Money.

Gold and silver are making a return as sound money.

Article 1, Section 10, of the US Constitution demands that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” And more and more states are putting precious metals back on the books.

Six US states have put precious metals back onto their radar, and the seventh just followed suit: as of August 9, Arizona will acknowledge gold and silver as legal tender. Four other states are on the road to accepting bullion as currency—also, Utah and Texas plan to set up bullion depositories to help private investors keep their gold investments secure.

Here’s a map of US states with current or pending legislation to accept precious metals as legal tender:

Source: Capital Gold Group

As a consequence of this legal change, if you live in one of the participating states and your gold and silver appreciates in price, there will be no state capital gains taxes since currency isn’t subject to taxation.

Get a Free Ebook on Precious Metals Investing

Historically, precious metals prices rise in the fall months, so right now is a good time to add some physical gold at lower prices to your portfolio. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.


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Solar, Bubble, Banks, War, and Legal Tender: Five Reasons Why You Should Buy Silver Now

Unlike its big brother, gold, physical silver is coveted for both investment purposes and industrial usage. Right now, silver prices are in a bit of a slump—in other words, it’s the perfect time to load up on this precious metal while it’s down. Here are some good reasons why silver should be on every investor’s radar.

Reason #1: Silver Is Being Used Up in China’s Solar Boom.

By far the largest application of industrial silver today is in solar panels—and Chinese demand for solar energy is skyrocketing. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020 in order to combat air pollution and to comply with the Paris Climate Accord.

Amazingly, China is already investing more in clean-energy developments than the European Union:


Source: e3g.org

Last month, China revealed a newly built 250-acre solar farm shaped like a panda—the first of 100 such solar plants planned for the Asian region in the coming years. Displaying typical Chinese efficiency, the solar farm in Datong was proposed in May 2016 and became operational only 14 months later. Over the next 25 years, it will provide the same power as burning one million tons of coal.

No wonder last year was the strongest so far for solar-related silver demand. Leading analysts believe that this trend will continue a while longer—even though Tesla’s SolarCity is getting ready to replace silver with the much cheaper copper in its PV panels.

Specialist consultancy Metals Focus said it expected 2017 silver demand from the solar sector to ease only slightly compared to last year, remaining the second highest on record.

And the supply is finite. The chart below shows official global silver reserves, that is, the amount of silver that is considered to be recoverable from mines—which is only 571,000 tonnes.


Source: Statista

Reason #2: The US Stock Bubble Is Getting Ready to Burst.

How many screaming superlatives can a market take before it collapses? We will probably find out soon.

It seems that US equities are hitting new record highs every day, but the writing is most certainly on the wall. By mid-July, the Case-Shiller P/E Ratio hovered above 30 (the 100-year median is around 16). That is reminiscent of the height of the dot-com bubble and the weeks leading up to the 1929 stock market crash.

One yardstick of the growing insanity is the money-burning tech companies whose shares keep going up no matter what.

Take Netflix (NFLX), for example, which casually announced in an April letter to shareholders that it expects a negative free cash flow (FCF) of $2 billion this year, up from “only” $1.7 billion in 2016.

Last October, the company said it would have to raise another $800 million in debt (adding to the over $2.2 billion it already had), all in the name of adding quality content, aka movies and TV shows, to the site.

It’s no secret in investment circles that Netflix doesn’t really make money, a negligible fact that hasn’t kept the stock from skyrocketing.

In its mid-July Q2 earnings report, the company proudly reported that it had added 5.2 million new subscribers in the last quarter, crushing Wall Street estimates and propelling the stock upward by more than 10%.

Never mind that Q2 free cash flow was minus $608 million, a year-over-year increase in losses of $354 million. Investors gobbled up the “good news” and sent shares soaring to new heights of over $188 in July.

We see a similar picture with social-media giants like Twitter and Snapchat, which are virtual money pits.

Of course, there is no way that this can go on. And as stocks are being caught out in the rain, gold and silver will get their day in the sun, as has historically been the case.

Reason #3: European Banks Are Still in Big Trouble.

The ongoing debt crisis in the EU has recently been dwarfed by the global outcry revolving around the much-despised Trump administration and its draconic trade policies. However, while Europe’s woes may be forgotten for the moment, they have been anything but resolved.

In June, the UK Telegraph commented that “Italy’s long-simmering banking crisis has erupted again. The emergency plan to wind down two Venetian lenders at a cost of up to €17bn is a fiasco of the first order.” This, the article continues, could push Italian debt to 133% of GDP.

Research by Italian investment bank Mediobanca found that 114 of Italy’s 500 banks have “Texas Ratios” of over 100% (non-performing loans divided by tangible book value plus reserves; a TR of over 100% is considered perilous).

24 of the endangered banks reportedly have ratios of over 200%, among them some of Italy’s biggest banks, like Monte dei Paschi di Siena with a TR of 269%, and Veneto Banca with a TR of 239%.

But the problem extends to the entire European Union. According to a Reuters article, “the total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world.”

Clearly, this is a level that is unsustainable in the long run. And if you don’t believe that Italy’s problems could have a major impact on US investors, remember how the US subprime mortgage crash and subsequent financial crisis affected the entire world.

In today’s interconnected global economy, any severe financial crisis in one part of the world can cause tidal waves in another. And when that happens, gold and silver are the ultimate safe-haven assets.

Reason #4: The Risk of Military Conflict Continues to Escalate.

Tensions between the US and North Korea continue to escalate as Kim Jong-Un has now threatened a nuclear strike against the United States.

This direct threat came after CIA Director Mike Pompeo said that the US needs to find a way to separate North Korea from the system: “The North Korean people I’m sure are lovely people and would love to see [Kim Jong-Un] go.”

In response, the North Korean Foreign Ministry stated, “Should the US dare to show us even the slightest sign of attempt to remove our supreme leadership, we will strike a merciless blow at the heart of the US with our powerful nuclear hammer, honed and hardened over time.”

By some estimates, Pyongyang could have a nuclear-capable ICBM as early as next year.

And North Korea is not the US government’s only worry. President Trump vehemently opposes the Joint Comprehensive Plan of Action (JCPOA), a treaty signed by the US, Iran, and five other countries in 2015. However, to renege on that agreement and to stop Iran from pursuing nuclear weapons, says retired Army General Paul Eaton, “would require regime change, which requires full-scale invasion, which is not tenable.”

Iran, Eaton warns, would be a much more dangerous enemy than Saddam Hussein’s Iraq. A large-scale attack on Iran would likely involve the US’s NATO allies as well as Israel… and if Russia were to come to Iran’s aid, we might have World War III on our hands.

It doesn’t have to come to war, though, for precious metals prices to rise. The threats and growing tensions are enough to drive more investors to the safety of gold and silver—yet another reason to get some bullion now.

Reason #5: Silver Is Again Becoming Real Money.

Gold and silver are making a return as sound money.

Article 1, Section 10, of the US Constitution demands that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” And more and more states are putting precious metals back on the books.

Six US states have put precious metals back onto their radar, and the seventh just followed suit: as of August 9, Arizona will acknowledge gold and silver as legal tender. Four other states are on the road to accepting bullion as currency—also, Utah and Texas plan to set up bullion depositories to help private investors keep their gold investments secure.

Here’s a map of US states with current or pending legislation to accept precious metals as legal tender:


Source: Capital Gold Group

As a consequence of this legal change, if you live in one of the participating states and your gold and silver appreciates in price, there will be no state capital gains taxes since currency isn’t subject to taxation.

Get a Free Ebook on Precious Metals Investing

Historically, precious metals prices rise in the fall months, so right now is a good time to add some physical gold at lower prices to your portfolio. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.

 

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...and be the first to read what we post the moment we post it!

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Ethereum vs. Tangibleum: Why Cryptocurrencies Can Never Replace Physical Gold

On June 11, 2017, Bitcoin reached its all-time high of $3,025.47… followed by a 27.7% plunge only four days later.

By July 12, it had lost a total of $12 billion off its value within a month.

Ethereum, another popular cryptocurrency, increased its market share from a mere 5% at the beginning of the year to a breathtaking 30% in June, only to plummet 65% from its record-high by mid-July.

One man who wouldn’t be surprised in the least by this insane level of volatility is Raoul Pal, founder of the monthly investment publication Global Macro Investor and Real Vision television. He is convinced that Bitcoin and other cryptocurrencies are in a bubble and will blow up someday, because “anything that moves exponentially always does.”

A self-proclaimed former Bitcoin “evangelist,” Pal sold his entire position when the currency hit the $2,000 range, for a tenfold return on his investment. Now, he said in an interview at the recent Strategic Investment Conference in Orlando, Florida, he’s watching from the sidelines.

Here are the main problems with Bitcoin as Pal sees them:

1. Bitcoin is not a reliable store of value.

Bitcoin, by design, is limited to 21 million currency units. This arbitrary limit is what makes its value go up as more and more units are being mined. Turns out, though, the cryptocurrency is running into problems as it becomes too popular for its own good.

Bitcoin transactions have skyrocketed in the past years, but since they are being processed in 1MB-size “blocks,” the system has become so sluggish that a purchase might take hours to confirm.

Source: blockchain.info

As a result, rivaling factions in the Bitcoin community have proposed two different software updates to solve the conundrum, but the chances of finding a unanimous solution are slim.

Here’s where Bitcoin’s most coveted trait—the lack of central oversight—might become its downfall, because who will make the decision which method to adopt?

Apparently, the two factions are so at odds that some people call it a “civil war in the blockchain community.”

Raoul Pal does not approve of any of the two proposed alterations: “Now they’re talking about the hard forks changing it, and even if they don’t, the fact that they could, what does that mean in the future? Suddenly, we get to 21 million Bitcoins and they go, ‘No, we were only joking, we’ll print another 21 million.’”

Which, of course, would be the death knell for Bitcoin’s credibility.

How that compares to gold:

Unlike Bitcoin’s, the scarcity of physical gold is not an arbitrary one. Its availability is naturally limited by the number of new gold discoveries and the number of mines being built.

During gold price slumps like the one we saw from 2011 to 2016, very few mining companies will take on the arduous task of building a new mine, which can take five to eight years and several billion dollars, and assumes huge political and regulatory risk.

In gold bear markets, only the highest-grade gold can be mined economically and exploration budgets are slashed, further exacerbating the cycle. As a consequence, gold supply shrinks in years of low prices… and is slow to pick up again as the price rises.

According to figures from a 2013 gold report by Visual Capitalist, all the gold that has been mined throughout human history would fit into a 66-foot cube. Another mind-blowing number: the average grade of gold deposits is 1.01 gram of gold per metric ton of ore (1.01 g/t). That’s the weight of a paperclip or a quarter teaspoon of sugar.

Only 4.5% of all gold deposits in the world have more than 10 g/t. The highest-grade known deposit in the world—the Tau Tona deposit in South Africa—is 28 g/t.

2. Bitcoin is not the only fish in the pond anymore.

Aside from direct competitors like Ethereum, Pal points out that the Indians have already shifted to a cashless society. “This was the great Western Union/Swift payment system we were going to dump on Bitcoin. Well, India went and did it for 1.1 billion people. It’s 50 times faster than Bitcoin, and it’s rolled out and working now.”

If anybody can do it—and do it better and faster—then maybe it’s not that interesting, he concludes.

It looks like cryptocurrencies are becoming a dime a dozen. So far in 2017, there have been about 20 initial coin offerings (ICOs) per month. An ICO is the cryptocurrency equivalent of an IPO in stocks. That means approximately 140 new cryptocurrencies have been launched in 2017… and we’re not even at the end of the year.

Nonetheless, investors are still throwing money at these ICOs. If you had any doubt that cryptocurrencies may be in a bubble, this is a pretty convincing figure.

How that compares to gold:

Even though there are other precious metals like silver, platinum, and palladium, gold has no real competition.

Silver, for example, is typically a byproduct of other mining (gold, copper, zinc, and lead) and not as valuable as gold. To carry around $10,000 in silver would require a suitcase, whereas the same amount in gold fits conveniently into your pocket. And unlike silver, which has many industrial applications in which it gets used up, most of the gold that has ever been mined is still in existence.

Why is gold more popular than platinum or palladium? My guess is that it’s easy to identify by color, whereas the other two could be mistaken for silver. Also, platinum scratches more easily than 14-karat gold and therefore isn’t well suited for certain types of jewelry like rings.

Since antiquity, gold has always been the top choice in cultures where precious metals represented the medium of exchange—and it’s still the top choice as a crisis hedge around the globe.

3. Bitcoin’s blockchain technology will soon be like the Internet—everyone has it.

Looking at the recent developments in blockchain technology, says Pal, big corporations and industry sectors would rather develop their own private ledger systems than using Bitcoin’s public one. It’s entirely possible, he says, that a bunch of insurance companies might get together and create the “insurance blockchain.”

“The Bitcoin community always thinks everybody needs to be on this public ledger,” Pal says. “They don’t realize that they’re a solution looking for a problem. That’s not what everybody needs.”

And as more and more blockchain systems get rolled out, the technology, says Pal, will go the way of broadband and cloud computing, “where you have so many people competing that the value of blockchain technology goes to zero.”

Some investment pros believe that Bitcoin still has a long way to climb once hedge funds rush in—maybe reaching another fivefold return from Bitcoin’s June heights. Pal is skeptical, though: “I don’t know any hedge fund managers who would want to buy into an exponential move.” In any case, he says, “I don’t have the mindset to trade a bubble.”

How that compares to gold:

We already saw that gold is rare enough to be a true store of value. There’s no danger of it becoming ubiquitous, even if a dozen super-high-grade deposits were discovered tomorrow.

And here’s another important point I made in a recent article: If ever the lights go out—for example, due to an electromagnetic pulse, either as an act of war or through a strong solar flare—Bitcoin and Ethereum will vanish instantly. The physical gold you stashed away, on the other hand, will still be there and ready to use as needed.

Get a Free Ebook on Precious Metals Investing

Historically, precious metals prices rise in the fall months, so right now is a good time to add some physical gold at lower prices to your portfolio. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Ethereum vs. Tangibleum: Why Cryptocurrencies Can Never Replace Physical Gold

On June 11, 2017, Bitcoin reached its all-time high of $3,025.47… followed by a 27.7% plunge only four days later.

By July 12, it had lost a total of $12 billion off its value within a month.

Ethereum, another popular cryptocurrency, increased its market share from a mere 5% at the beginning of the year to a breathtaking 30% in June, only to plummet 65% from its record-high by mid-July.

One man who wouldn’t be surprised in the least by this insane level of volatility is Raoul Pal, founder of the monthly investment publication Global Macro Investor and Real Vision television. He is convinced that Bitcoin and other cryptocurrencies are in a bubble and will blow up someday, because “anything that moves exponentially always does.”

A self-proclaimed former Bitcoin “evangelist,” Pal sold his entire position when the currency hit the $2,000 range, for a tenfold return on his investment. Now, he said in an interview at the recent Strategic Investment Conference in Orlando, Florida, he’s watching from the sidelines.

Here are the main problems with Bitcoin as Pal sees them:

1. Bitcoin is not a reliable store of value.

Bitcoin, by design, is limited to 21 million currency units. This arbitrary limit is what makes its value go up as more and more units are being mined. Turns out, though, the cryptocurrency is running into problems as it becomes too popular for its own good.

Bitcoin transactions have skyrocketed in the past years, but since they are being processed in 1MB-size “blocks,” the system has become so sluggish that a purchase might take hours to confirm.


Source: blockchain.info

As a result, rivaling factions in the Bitcoin community have proposed two different software updates to solve the conundrum, but the chances of finding a unanimous solution are slim.

Here’s where Bitcoin’s most coveted trait—the lack of central oversight—might become its downfall, because who will make the decision which method to adopt?

Apparently, the two factions are so at odds that some people call it a “civil war in the blockchain community.”

Raoul Pal does not approve of any of the two proposed alterations: “Now they’re talking about the hard forks changing it, and even if they don’t, the fact that they could, what does that mean in the future? Suddenly, we get to 21 million Bitcoins and they go, ‘No, we were only joking, we’ll print another 21 million.’”

Which, of course, would be the death knell for Bitcoin’s credibility.

How that compares to gold:

Unlike Bitcoin’s, the scarcity of physical gold is not an arbitrary one. Its availability is naturally limited by the number of new gold discoveries and the number of mines being built.

During gold price slumps like the one we saw from 2011 to 2016, very few mining companies will take on the arduous task of building a new mine, which can take five to eight years and several billion dollars, and assumes huge political and regulatory risk.

In gold bear markets, only the highest-grade gold can be mined economically and exploration budgets are slashed, further exacerbating the cycle. As a consequence, gold supply shrinks in years of low prices… and is slow to pick up again as the price rises.

According to figures from a 2013 gold report by Visual Capitalist, all the gold that has been mined throughout human history would fit into a 66-foot cube. Another mind-blowing number: the average grade of gold deposits is 1.01 gram of gold per metric ton of ore (1.01 g/t). That’s the weight of a paperclip or a quarter teaspoon of sugar.

Only 4.5% of all gold deposits in the world have more than 10 g/t. The highest-grade known deposit in the world—the Tau Tona deposit in South Africa—is 28 g/t.

2. Bitcoin is not the only fish in the pond anymore.

Aside from direct competitors like Ethereum, Pal points out that the Indians have already shifted to a cashless society. “This was the great Western Union/Swift payment system we were going to dump on Bitcoin. Well, India went and did it for 1.1 billion people. It’s 50 times faster than Bitcoin, and it’s rolled out and working now.”

If anybody can do it—and do it better and faster—then maybe it’s not that interesting, he concludes.

It looks like cryptocurrencies are becoming a dime a dozen. So far in 2017, there have been about 20 initial coin offerings (ICOs) per month. An ICO is the cryptocurrency equivalent of an IPO in stocks. That means approximately 140 new cryptocurrencies have been launched in 2017… and we’re not even at the end of the year.

Nonetheless, investors are still throwing money at these ICOs. If you had any doubt that cryptocurrencies may be in a bubble, this is a pretty convincing figure.

How that compares to gold:

Even though there are other precious metals like silver, platinum, and palladium, gold has no real competition.

Silver, for example, is typically a byproduct of other mining (gold, copper, zinc, and lead) and not as valuable as gold. To carry around $10,000 in silver would require a suitcase, whereas the same amount in gold fits conveniently into your pocket. And unlike silver, which has many industrial applications in which it gets used up, most of the gold that has ever been mined is still in existence.

Why is gold more popular than platinum or palladium? My guess is that it’s easy to identify by color, whereas the other two could be mistaken for silver. Also, platinum scratches more easily than 14-karat gold and therefore isn’t well suited for certain types of jewelry like rings.

Since antiquity, gold has always been the top choice in cultures where precious metals represented the medium of exchange—and it’s still the top choice as a crisis hedge around the globe.

3. Bitcoin’s blockchain technology will soon be like the Internet—everyone has it.

Looking at the recent developments in blockchain technology, says Pal, big corporations and industry sectors would rather develop their own private ledger systems than using Bitcoin’s public one. It’s entirely possible, he says, that a bunch of insurance companies might get together and create the “insurance blockchain.”

“The Bitcoin community always thinks everybody needs to be on this public ledger,” Pal says. “They don’t realize that they’re a solution looking for a problem. That’s not what everybody needs.”

And as more and more blockchain systems get rolled out, the technology, says Pal, will go the way of broadband and cloud computing, “where you have so many people competing that the value of blockchain technology goes to zero.”

Some investment pros believe that Bitcoin still has a long way to climb once hedge funds rush in—maybe reaching another fivefold return from Bitcoin’s June heights. Pal is skeptical, though: “I don’t know any hedge fund managers who would want to buy into an exponential move.” In any case, he says, “I don’t have the mindset to trade a bubble.”

How that compares to gold:

We already saw that gold is rare enough to be a true store of value. There’s no danger of it becoming ubiquitous, even if a dozen super-high-grade deposits were discovered tomorrow.

And here’s another important point I made in a recent article: If ever the lights go out—for example, due to an electromagnetic pulse, either as an act of war or through a strong solar flare—Bitcoin and Ethereum will vanish instantly. The physical gold you stashed away, on the other hand, will still be there and ready to use as needed.

Get a Free Ebook on Precious Metals Investing

Historically, precious metals prices rise in the fall months, so right now is a good time to add some physical gold at lower prices to your portfolio. But before you buy, make sure to do your homework first.

The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Weakening US Economy Could Ignite Rally in Gold

One possible effect of the “America First” approach the Trump Administration vowed to take was a weaker US dollar. Shortly after we wrote about this earlier this year, the dollar index began a steady march lower, retreating 7% in just five months, from 102 in March to its current level of 95.

Not surprisingly, gold has risen almost 10% in US dollar terms during this time.

As recently as six months ago, many investors expected the dollar to continue its rally of the past few years based on stronger economic growth, via Trump’s agenda items, and tighter monetary policy by the Federal Reserve.

However, despite high expectations, so far Trump’s efforts to overhaul healthcare and reform taxes have fallen flat and have been short on substance. In addition, the continued investigation of Trump’s Russia ties has caused more investors to grow skeptical about the chances for meaningful reform, beyond unilateral executive action.

In a surprise move, the International Monetary Fund (IMF) just slashed its GDP growth forecast for the United States from 2.3% to 2.1%. It also cut its 2018 forecast from 2.5% to 2.1%. This type of revision hasn’t been seen anywhere in the world except for Brazil and South Africa, two deeply troubled economies.

The Fed has made good on two interest rate hikes so far in 2017, but based on weaker-than-forecast inflation and growth numbers, it will likely fall short of the four rate hikes it planned late last year. According to the Fed’s preferred method, Core PCE price deflator, inflation has been running well below 2%.

Economic growth, too, has been lacking—in the first quarter, it was just 1.2%, with consumer spending increasing only 0.6% year-over-year. Initial second-quarter GDP numbers are due on July 28 and may prove pivotal in the Fed’s decisions for the balance of the year. The Atlanta Fed is forecasting 2.4% growth, down significantly from the May 1 estimate of 4.3%.

But despite two rate hikes and impending balance sheet reduction, the 10-year yield has moved 15% lower since early March while the dollar has been weakening—both contrary to many forecasts at the start of 2017.

Typically, the Fed will raise rates when it thinks the economy is firing on all cylinders. But it’s becoming more evident that the Fed is now attempting to tighten policy into an economy that is weaker than in previous cycles. As exhibited by declining Treasury yields and very modest inflation, this is at odds with conventional market forces and investors’ expectations for growth.

At this point, Yellen may be forced to raise rates later this year. She needs to at least come close to the four rate hikes outlined for 2017 in order to have some ammunition if the economy falls into recession. Fed fund futures are currently putting the odds of one more rate hike at about 50%.

In the meantime, the Fed will continue to jawbone the market, a favorite tactic to influence investor behavior since it embarked on years of massive monetary accommodation to resuscitate the economy after the Financial Crisis.

However, the same way investors are growing leery of Washington’s political rhetoric, they are also putting less weight on the endless parade of speeches by voting members of the Fed—specifically, Janet Yellen, Stan Fischer, Bill Dudley, and Lael Brainard—in an effort to manipulate markets without doing anything.

Capital Goes Where Treated Best

While the dollar has been slumping and Treasury yields declining, quite the opposite is happening in Europe, where structural reform now looks more promising.

A huge rally has been underway in the euro, an indication of the demand for European assets. Also, German Bund yields have risen significantly, albeit from a low base, well out of the negative territory seen last summer.

The ECB is now about to embark on a similar adventure as the Federal Reserve is currently undergoing, normalizing monetary policy after years of quantitative easing and extremely low interest rates. Only time will tell if it has more initial success, but so far it looks promising on both the financial and political fronts.

As global investors continue to reprice expectations for structural reforms in the US and Europe, capital will continue to migrate into growth assets and safe-haven investments as an alternative to markets perceived as riskier.  

A Positive Development for Gold

After trading as low as $1,050 per ounce in December 2015, gold has rallied over $200 to its current level of $1,255. The move higher has been filled with bouts of brief sell-offs and volatility, only to continue making “higher highs” and “lower lows,” technically a very positive development. 

Source: gold price per ounce chart by Hard Assets Alliance

This has tested many investors’ patience and conviction, but those who bought on the dip have been rewarded.

As famous investor John Templeton stated, “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." 

And there is no shortage of potential catalysts to move this rally in precious metals, both gold and silver, beyond the skepticism phase: military intervention on North Korea, government shutdown as the debt ceiling is reached in September, further implications of Trump’s collusion with Russia, and the beginning of balance sheet reduction later this year by the Fed, to name just a few.

Any one of these has the potential to make the 20% move we’ve already witnessed in gold look like peanuts. If you have not done so already, now is the time to add the ultimate hard asset to your portfolio, while pessimism is still high, and protect the wealth you’ve worked so hard to accumulate.

Get a Free Ebook on Precious Metals Investing

Right now is the perfect time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first. The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.


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...and be the first to read what we post the moment we post it!

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Weakening US Economy Could Ignite Rally in Gold

One possible effect of the “America First” approach the Trump Administration vowed to take was a weaker US dollar. Shortly after we wrote about this earlier this year, the dollar index began a steady march lower, retreating 7% in just five months, from 102 in March to its current level of 95.

Not surprisingly, gold has risen almost 10% in US dollar terms during this time.

As recently as six months ago, many investors expected the dollar to continue its rally of the past few years based on stronger economic growth, via Trump’s agenda items, and tighter monetary policy by the Federal Reserve.

However, despite high expectations, so far Trump’s efforts to overhaul healthcare and reform taxes have fallen flat and have been short on substance. In addition, the continued investigation of Trump’s Russia ties has caused more investors to grow skeptical about the chances for meaningful reform, beyond unilateral executive action.

In a surprise move, the International Monetary Fund (IMF) just slashed its GDP growth forecast for the United States from 2.3% to 2.1%. It also cut its 2018 forecast from 2.5% to 2.1%. This type of revision hasn’t been seen anywhere in the world except for Brazil and South Africa, two deeply troubled economies.

The Fed has made good on two interest rate hikes so far in 2017, but based on weaker-than-forecast inflation and growth numbers, it will likely fall short of the four rate hikes it planned late last year. According to the Fed’s preferred method, Core PCE price deflator, inflation has been running well below 2%.

Economic growth, too, has been lacking—in the first quarter, it was just 1.2%, with consumer spending increasing only 0.6% year-over-year. Initial second-quarter GDP numbers are due on July 28 and may prove pivotal in the Fed’s decisions for the balance of the year. The Atlanta Fed is forecasting 2.4% growth, down significantly from the May 1 estimate of 4.3%.

But despite two rate hikes and impending balance sheet reduction, the 10-year yield has moved 15% lower since early March while the dollar has been weakening—both contrary to many forecasts at the start of 2017.

Typically, the Fed will raise rates when it thinks the economy is firing on all cylinders. But it’s becoming more evident that the Fed is now attempting to tighten policy into an economy that is weaker than in previous cycles. As exhibited by declining Treasury yields and very modest inflation, this is at odds with conventional market forces and investors’ expectations for growth.

At this point, Yellen may be forced to raise rates later this year. She needs to at least come close to the four rate hikes outlined for 2017 in order to have some ammunition if the economy falls into recession. Fed fund futures are currently putting the odds of one more rate hike at about 50%.

In the meantime, the Fed will continue to jawbone the market, a favorite tactic to influence investor behavior since it embarked on years of massive monetary accommodation to resuscitate the economy after the Financial Crisis.

However, the same way investors are growing leery of Washington’s political rhetoric, they are also putting less weight on the endless parade of speeches by voting members of the Fed—specifically, Janet Yellen, Stan Fischer, Bill Dudley, and Lael Brainard—in an effort to manipulate markets without doing anything.

Capital Goes Where Treated Best

While the dollar has been slumping and Treasury yields declining, quite the opposite is happening in Europe, where structural reform now looks more promising.

A huge rally has been underway in the euro, an indication of the demand for European assets. Also, German Bund yields have risen significantly, albeit from a low base, well out of the negative territory seen last summer.

The ECB is now about to embark on a similar adventure as the Federal Reserve is currently undergoing, normalizing monetary policy after years of quantitative easing and extremely low interest rates. Only time will tell if it has more initial success, but so far it looks promising on both the financial and political fronts.

As global investors continue to reprice expectations for structural reforms in the US and Europe, capital will continue to migrate into growth assets and safe-haven investments as an alternative to markets perceived as riskier.  

A Positive Development for Gold

After trading as low as $1,050 per ounce in December 2015, gold has rallied over $200 to its current level of $1,260. The move higher has been filled with bouts of brief sell-offs and volatility, only to continue making “higher highs” and “lower lows,” technically a very positive development.


Source: gold price per ounce chart by Hard Assets Alliance

This has tested many investors’ patience and conviction, but those who bought on the dip have been rewarded.

As famous investor John Templeton stated, “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." 

And there is no shortage of potential catalysts to move this rally in precious metals, both gold and silver, beyond the skepticism phase: military intervention on North Korea, government shutdown as the debt ceiling is reached in September, further implications of Trump’s collusion with Russia, and the beginning of balance sheet reduction later this year by the Fed, to name just a few.

Any one of these has the potential to make the 20% move we’ve already witnessed in gold look like peanuts. If you have not done so already, now is the time to add the ultimate hard asset to your portfolio, while pessimism is still high, and protect the wealth you’ve worked so hard to accumulate.

Get a Free Ebook on Precious Metals Investing

Right now is the perfect time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first. The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.

 

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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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Subprime Auto Loans Up, Car Sales Down: Why This Could Be Good for Gold

BY SHANNARA JOHNSON

The latest monthly motor vehicle sales report released on July 3 paints a grim picture for US car sales. Overall June sales dropped by 3% compared to June of last year—the sixth successive month of lower year-over-year sales.

General Motors, Ford, and Fiat Chrysler were among the greatest losers with declines between 4.7% and 7%. Japan’s top sellers fared a little better, with Nissan seeing 2% growth and Toyota a 2.1% gain.

Economists and Street pundits seem to be stumped as to why Americans are so reluctant to buy cars. Hypotheses that are being bounced around range from tight credit markets to costlier car loans, to negative consumer sentiment about the economy.

Sales have fallen off a cliff, compared to 2016, a record year for the auto industry. In the first six months of this year, vehicle sales hit their lowest point since 2014, and consumer traffic at dealerships fell to a five-year low.

Who’s the main culprit here? Many signs point to subprime auto loans…

Subprime Auto Loans: A Wolf in Sheep’s Clothing

As car sales are plunging, the number of risky car loans is rising… and so are incidents of credit fraud. In a UBS survey, one in five borrowers admitted that their applications contained inaccuracies.

However, lenders are actively participating in building this particular Potemkin village. The biggest auto loan provider, Santander, is under investigation in at least 30 states for fraudulent lending practices and recently settled a lawsuit for $25 million.

Rating service Moody’s reported that Santander verified the incomes of just 8% of borrowers whose loans it recently packaged into a $1 billion bond issue. Furthermore, on top of unverified income, 9% of those borrowers had low or no credit scores and no co-signer.

A FICO score below 640 is deemed subprime. At the end of the first quarter, 22.3% of Santander’s retail installment contracts (RICs) showed credit scores under 540. Only 13.8% of borrowers had scores over 640.

Unsurprisingly, 12.8% of these loans were delinquent by the end of the first quarter, handing Santander a net loss of $72 million for the quarter—and further losses are expected.

Loan duration has dramatically risen as well. In the 1990s, a typical auto loan was 48 months. But due to climbing car prices and stagnating incomes, buyers are now asking for longer loan terms to reduce monthly payment amounts.

The fastest-rising class of loans is now 73–84 months, unprecedented for a quickly depreciating asset like a car. 32.1% of new vehicle loans in Q4 2016 were in that group, compared with 29% year over year. Even in the used-car financing segment, those “eternity loans” made up 18% of share.

More traditional banks like Wells Fargo have started to reduce their auto loan business amid deteriorating loan performance. The bank reduced overall loan origination by 30% and curtailed exposure to subprime loans by 27% in the first quarter.

Wells Fargo’s CEO Tim Sloan said auto loans are currently the business with the biggest potential for a “negative credit event.”

However, while major Wall Street banks like Wells Fargo and JPMorgan are more reluctant than last year to make car loans on their own balance sheets, they packaged more loans from finance companies into bonds in Q1 2017 than in last year’s first quarter, and are still among the top underwriters of the securities.

How This Could Be Good for Gold

Thankfully, this is unlikely to become a rerun of the 2008 subprime mortgage collapse.

Compared to the $8.4 trillion mortgage market, the US auto loan sector is small with only $1.1 trillion in loans. It’s also not nearly as leveraged through securitized products—and a car is much easier to repossess than a home.

However, that doesn’t mean a potential implosion of this shaky sector isn’t a threat to the US economy.

It’s quite likely that the exuberant 2016 auto sales figures were inflated by easy-to-get subprime loans with low, long-term payments, enticing buyers to purchase more car than they could afford.

Now that the loans are beginning to deteriorate and subprime buyers are no longer in the market or tapped out, we’re beginning to see the real picture—which is much less rosy than it seemed just a year ago.

Given that the auto sector is a massive part of the economy, this could be an early warning sign of a slowing economy. That, in turn, would be good for the gold price. If the Federal Reserve feels compelled to slow down or even reverse its ramping up of interest rates, gold is poised to rise.

The writing is on the wall: the Atlanta Fed just revised its GDP estimate for the second quarter to 2.7%, from previously 3%.

Get a Free Ebook on Precious Metals Investing

Right now is a great time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first. The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

Subprime Auto Loans Up, Car Sales Down: Why This Could Be Good for Gold

The latest monthly motor vehicle sales report released on July 3 paints a grim picture for US car sales. Overall June sales dropped by 3% compared to June of last year—the sixth successive month of lower year-over-year sales.

General Motors, Ford, and Fiat Chrysler were among the greatest losers with declines between 4.7% and 7%. Japan’s top sellers fared a little better, with Nissan seeing 2% growth and Toyota a 2.1% gain.

Economists and Street pundits seem to be stumped as to why Americans are so reluctant to buy cars. Hypotheses that are being bounced around range from tight credit markets to costlier car loans, to negative consumer sentiment about the economy.

Sales have fallen off a cliff, compared to 2016, a record year for the auto industry. In the first six months of this year, vehicle sales hit their lowest point since 2014, and consumer traffic at dealerships fell to a five-year low.

Who’s the main culprit here? Many signs point to subprime auto loans…

Subprime Auto Loans: A Wolf in Sheep’s Clothing

As car sales are plunging, the number of risky car loans is rising… and so are incidents of credit fraud. In a UBS survey, one in five borrowers admitted that their applications contained inaccuracies.

However, lenders are actively participating in building this particular Potemkin village. The biggest auto loan provider, Santander, is under investigation in at least 30 states for fraudulent lending practices and recently settled a lawsuit for $25 million.

Rating service Moody’s reported that Santander verified the incomes of just 8% of borrowers whose loans it recently packaged into a $1 billion bond issue. Furthermore, on top of unverified income, 9% of those borrowers had low or no credit scores and no co-signer.

A FICO score below 640 is deemed subprime. At the end of the first quarter, 22.3% of Santander’s retail installment contracts (RICs) showed credit scores under 540. Only 13.8% of borrowers had scores over 640.

Unsurprisingly, 12.8% of these loans were delinquent by the end of the first quarter, handing Santander a net loss of $72 million for the quarter—and further losses are expected.

Loan duration has dramatically risen as well. In the 1990s, a typical auto loan was 48 months. But due to climbing car prices and stagnating incomes, buyers are now asking for longer loan terms to reduce monthly payment amounts.

The fastest-rising class of loans is now 73–84 months, unprecedented for a quickly depreciating asset like a car. 32.1% of new vehicle loans in Q4 2016 were in that group, compared with 29% year over year. Even in the used-car financing segment, those “eternity loans” made up 18% of share.

More traditional banks like Wells Fargo have started to reduce their auto loan business amid deteriorating loan performance. The bank reduced overall loan origination by 30% and curtailed exposure to subprime loans by 27% in the first quarter.

Wells Fargo’s CEO Tim Sloan said auto loans are currently the business with the biggest potential for a “negative credit event.”

However, while major Wall Street banks like Wells Fargo and JPMorgan are more reluctant than last year to make car loans on their own balance sheets, they packaged more loans from finance companies into bonds in Q1 2017 than in last year’s first quarter, and are still among the top underwriters of the securities.

How This Could Be Good for Gold

Thankfully, this is unlikely to become a rerun of the 2008 subprime mortgage collapse.

Compared to the $8.4 trillion mortgage market, the US auto loan sector is small with only $1.1 trillion in loans. It’s also not nearly as leveraged through securitized products—and a car is much easier to repossess than a home.

However, that doesn’t mean a potential implosion of this shaky sector isn’t a threat to the US economy.

It’s quite likely that the exuberant 2016 auto sales figures were inflated by easy-to-get subprime loans with low, long-term payments, enticing buyers to purchase more car than they could afford.

Now that the loans are beginning to deteriorate and subprime buyers are no longer in the market or tapped out, we’re beginning to see the real picture—which is much less rosy than it seemed just a year ago.

Given that the auto sector is a massive part of the economy, this could be an early warning sign of a slowing economy. That, in turn, would be good for the gold price. If the Federal Reserve feels compelled to slow down or even reverse its ramping up of interest rates, gold is poised to rise.

The writing is on the wall: the Atlanta Fed just revised its GDP estimate for the second quarter to 2.7%, from previously 3%.

Get a Free Ebook on Precious Metals Investing

Right now is a great time to add some physical gold to your portfolio. But before you buy, make sure to do your homework first. The informative ebook, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and more. Click here to get your free copy now.

 

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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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A North Korean EMP Attack: The Dark Possibility

BY SHANNARA JOHNSON

As the tension between North Korea and the US continues to grow, the possibility of war is rapidly evolving into a probability. Now some military experts worry that an attack via EMP (electromagnetic pulse) on the US mainland might be a feasible option for Pyongyang.

The signs are certainly there: Having recently completed the ninth missile test of 2017, Kim Jong-un promised to send the US an even bigger “gift package.”

Adding to Kim Jong-un’s antics and inflammatory rhetoric, the recent death of American college student Otto Warmbier after his 17-month imprisonment in North Korea has certainly fanned the flames of antagonism between the US and the rogue regime.

Han Tae Song, North Korea’s ambassador to the UN in Geneva, firmly rejected the accusation of misconduct and declared North Korea operates “according to our national laws and according to international standards.”

To add insult to injury, Pyongyang’s official Korean Central News Agency (KCNA) also denies any wrongdoing or torture of Otto Warmbier—even going as far as to say North Korea is the “biggest victim” in this situation.

EMP: Is This The Real Threat?

Most analysts believe North Korea is not yet capable of a direct missile strike on the US mainland, but Kim Jong-un’s dogged determination to make this a reality is quite disconcerting.

Some experts believe that the more realistic threat at this point in time is an EMP attack. To make that happen, all North Korea has to do is launch a low-yield nuclear missile from a submarine, ship, or even by balloon and explode it at high altitude, above the atmosphere.

The potential result: a blackout of the Eastern grid that supplies 75% of power to the United States.

If an EMP attack did take place, it would be beyond anything we have seen before. The Commission to Assess the Threat to the United States from Electromagnetic Pulse Attack, which was established by Congress in 2001, estimates that within 12 months following a nationwide blackout, “up to 90% of the US population could perish from starvation, disease, and societal breakdown.”

Electronic Armageddon

In practical terms, a catastrophic blackout would be worst in cities, because it would instantly deprive the population of access to drinking water, refrigeration, heat, air conditioning, and telecommunication. Food stores would be looted within a matter of days, and gas stations would cease to function without electricity.

Without Internet access and power, all commerce and advanced methods of communication would stop. There would be no TV, radio, phones. Credit card transactions and cash withdrawals at banks would be impossible. Paper money would become worthless, and Bitcoin would cease to exist, along with the stock market.

Newt Gingrich, speaking at the Senate Committee on Energy and Natural Resources earlier this month, said an EMP attack “would send us back to the 18th century.”

But that’s not the only problem. If no outside help arrives, within days, chaos begins to reign. Civilization is a rather thin veneer that humans have acquired over centuries, a mask covering our hard-wired survival instincts. Once the mask slips, it could mean the end of the world as we know it.

We Are Ill-Prepared For An EMP Attack

US politicians and major utilities have kicked the can down the road when it comes to EMP preparation. Edison Electric estimates that shielding transformers for the US grid system could cost $20 billion.

Granted, American power companies have been studying ways to protect our electronic grids against attack, but tangible results are slow in coming.

The only current option after an EMP attack would be to replace damaged or destroyed transformers. However, says Scott Aaronson, managing director for Cyber and Infrastructure Security at Edison Electric, replacements for those transformers must be procured from foreign suppliers, which could take up to 18 months.

Peter Vincent Pry, leader of the Task Force on National and Homeland Security, believes North Korea is closer to launching an EMP attack than many analysts believe. He wants Congress to work harder and cut the red tape to allow the innovation necessary to mitigate the threat.

In Pry’s opinion, an EMP attack would ultimately kill more Americans than a direct nuclear blast could. His book, The Long Sunday, describes several plausible EMP attack scenarios.

Pry thinks that “the first nation to use nuclear weapons today—even a rogue state like North Korea or Iran—will immediately become the most feared and credible nuclear power in the world, a formidable force to be reckoned with, and perhaps the dominant actor in a new world order.”

Is there a sensible way to prepare for an EMP attack?

Maybe not, but stocking some food, water, fuel, and batteries for emergencies is always a good idea—as well as owning a stash of gold coins as hard assets.

While “you can’t eat gold,” as some preppers say, it is the only kind of money that has prevailed over the millennia.

Get A Free Ebook On How To Buy Gold And Silver

Gold has proven to be a lifesaver in times of crisis and economic turmoil. But before you consider buying physical gold, make sure to do your homework. Read Investing in Precious Metals 101, a quick-read e-book that tells you all about: “good” vs. “bad” gold… when and where to buy physical gold and silver… common scams and errors inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and much more. Click here to get your free copy now.


Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

A North Korean EMP Attack: The Dark Possibility

As the tension between North Korea and the US continues to grow, the possibility of war is rapidly evolving into a probability. Now some military experts worry that an attack via EMP (electromagnetic pulse) on the US mainland might be a feasible option for Pyongyang.

The signs are certainly there: Having recently completed the ninth missile test of 2017, Kim Jong-un promised to send the US an even bigger “gift package.”

Adding to Kim Jong-un’s antics and inflammatory rhetoric, the recent death of American college student Otto Warmbier after his 17-month imprisonment in North Korea has certainly fanned the flames of antagonism between the US and the rogue regime.

Han Tae Song, North Korea’s ambassador to the UN in Geneva, firmly rejected the accusation of misconduct and declared North Korea operates “according to our national laws and according to international standards.”

To add insult to injury, Pyongyang’s official Korean Central News Agency (KCNA) also denies any wrongdoing or torture of Otto Warmbier—even going as far as to say North Korea is the “biggest victim” in this situation.

EMP: Is This The Real Threat?

Most analysts believe North Korea is not yet capable of a direct missile strike on the US mainland, but Kim Jong-un’s dogged determination to make this a reality is quite disconcerting.

Some experts believe that the more realistic threat at this point in time is an EMP attack. To make that happen, all North Korea has to do is launch a low-yield nuclear missile from a submarine, ship, or even by balloon and explode it at high altitude, above the atmosphere.

The potential result: a blackout of the Eastern grid that supplies 75% of power to the United States.

If an EMP attack did take place, it would be beyond anything we have seen before. The Commission to Assess the Threat to the United States from Electromagnetic Pulse Attack, which was established by Congress in 2001, estimates that within 12 months following a nationwide blackout, “up to 90% of the US population could perish from starvation, disease, and societal breakdown.”

Electronic Armageddon

In practical terms, a catastrophic blackout would be worst in cities, because it would instantly deprive the population of access to drinking water, refrigeration, heat, air conditioning, and telecommunication. Food stores would be looted within a matter of days, and gas stations would cease to function without electricity.

Without Internet access and power, all commerce and advanced methods of communication would stop. There would be no TV, radio, phones. Credit card transactions and cash withdrawals at banks would be impossible. Paper money would become worthless, and Bitcoin would cease to exist, along with the stock market.

Newt Gingrich, speaking at the Senate Committee on Energy and Natural Resources earlier this month, said an EMP attack “would send us back to the 18th century.”

But that’s not the only problem. If no outside help arrives, within days, chaos begins to reign. Civilization is a rather thin veneer that humans have acquired over centuries, a mask covering our hard-wired survival instincts. Once the mask slips, it could mean the end of the world as we know it.

We Are Ill-Prepared For An EMP Attack

US politicians and major utilities have kicked the can down the road when it comes to EMP preparation. Edison Electric estimates that shielding transformers for the US grid system could cost $20 billion.

Granted, American power companies have been studying ways to protect our electronic grids against attack, but tangible results are slow in coming.

The only current option after an EMP attack would be to replace damaged or destroyed transformers. However, says Scott Aaronson, managing director for Cyber and Infrastructure Security at Edison Electric, replacements for those transformers must be procured from foreign suppliers, which could take up to 18 months.

Peter Vincent Pry, leader of the Task Force on National and Homeland Security, believes North Korea is closer to launching an EMP attack than many analysts believe. He wants Congress to work harder and cut the red tape to allow the innovation necessary to mitigate the threat.

In Pry’s opinion, an EMP attack would ultimately kill more Americans than a direct nuclear blast could. His book, The Long Sunday, describes several plausible EMP attack scenarios.

Pry thinks that “the first nation to use nuclear weapons today—even a rogue state like North Korea or Iran—will immediately become the most feared and credible nuclear power in the world, a formidable force to be reckoned with, and perhaps the dominant actor in a new world order.”

Is there a sensible way to prepare for an EMP attack?

Maybe not, but stocking some food, water, fuel, and batteries for emergencies is always a good idea—as well as owning a stash of gold coins as hard assets.

While “you can’t eat gold,” as some preppers say, it is the only kind of money that has prevailed over the millennia.

Get A Free Ebook On How To Buy Gold And Silver

Gold has proven to be a lifesaver in times of crisis and economic turmoil. But before you consider buying physical gold, make sure to do your homework. Read Investing in Precious Metals 101, a quick-read e-book that tells you all about: “good” vs. “bad” gold… when and where to buy physical gold and silver… common scams and errors inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and much more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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The Real Indian Currency Crisis (Things You Don’t Hear In The News)

BY JAYANT BHANDARI

On November 8, 2016, Indian Prime Minister Narendra Modi dropped a bombshell. In a televised address at 8:00 pm, he declared that after midnight—four hours later—banknotes with face values of INR500 (US$7.50) and INR1,000 (US$15) would no longer be legal tender.

These bills comprised 86% of the monetary value of currency in circulation, so to say that panic ensued would be an understatement. The market stayed open all night as people rushed to buy gold, Rolex watches, and anything else they could get their hands on to use up their cash.

During the next two weeks, gold traded for as much as US$3,000 per ounce, a premium of almost 100% to the international price. Foreign currencies traded at similar premiums.

Soon, Indian tax authorities descended on the gold market, confiscating security camera recordings to identify any transaction that might have bypassed taxation. They were raiding people’s houses with abandon.

Chaos, Death, And Tragedy

India is already well known as a society where it is virtually impossible to find a public servant who won’t ask for a bribe, but now the number of bribes skyrocketed. Fear gripped the population—but most still didn’t realize that they were witnessing the emergence of a police state.

The government provided a one-time option to convert $30 worth of cash into the still legal banknotes, which were in extremely short supply. People’s fingers were to be marked with indelible ink to ensure they couldn’t repeat conversion. Any excess cash would have to be deposited into a bank account, which for all intents and purposes had the same effect as freezing people’s assets.

You’d see massive lines outside all the bank branches. The date by which the cash had to be deposited kept changing. Regulations that materially affected the handling of currency often changed more than once per day, until the last day of the demonetization exercise. The chaos was unprecedented.

To fully comprehend the level of turmoil, you need to know that 95% of Indian consumer transactions happen in cash.

The net effect of all these events was to rapidly stall the economy and to send it into a state of shock. Scores of disabled, sick, and old people—who had no choice but to personally take care of the currency exchange—died while standing in line at a bank all day. Many soon found themselves cash-strapped and with no means to buy staple items, including food.

Street markets started looking like ghost towns as even those with cash avoided non-urgent purchases. Next, the sudden drop in demand caused small businesses to fail. Even export houses, like diamond polishers, had to lay off their employees because they had no cash to pay salaries. The economy spiraled downhill.

Even today, vegetables sell for half as much as they normally do. This would be considered a good thing had it happened as a result of excess supply, but the reason for the price drop is the destruction of demand—resulting from lack of funds among the poor people who lost their jobs. And don’t expect any reports on this in the Indian media, which must toe Modi’s party line.

The Pampered, Salaried Middle Class

India’s salaried middle-class employees, on the other hand, were very happy with the situation: taxes are automatically deducted from their paychecks, and they want businesses and employees from the informal sector to pay their “fair share.”

The informal sector, or informal economy, is the part of a country’s economy that is neither regulated nor monitored by government entities. In developed countries, it makes up about 10% of the overall economy. Not in India, though. Here, it accounts for 90% of the economy and at least half of total GDP. 75% of all Indian businesses belong to this shadow sector, which makes this country one of the largest informal economies on the globe.

In other words, the informal sector is India’s backbone—without it, the ivory towers the salaried middle class reside in would come crashing down. Their persistent demand to tax it into submission is partly envy and partly an utter lack of empathy. Also, consider that virtually all taxes collected by the government end up in the pockets of politicians and bureaucrats, with no benefit to the people.

A Cashless Society In Its Death Throes

In recent weeks, cash has been fully replaced, but the economy continues to stagnate, and businesses continue to fail. Money—even in fiat currency form—is the lifeblood of the system. Even if you got the blood to flow again, once it stopped, clots would have appeared and organs would have failed. That’s what’s happening in India today.

Job growth was already stagnant before, but the situation is much worse now, making India’s so-called “demographic asset” a massive liability. (Hint: The rosy picture Modi’s government has painted of India’s growth rate does not match the on-the-ground reality.)

As I write, the domino effect continues to work its way up the food chain. Formal and big businesses are showing signs of stagnation. The salaried middle class are losing their jobs but fail to connect the dots. The government enjoys massive and increasing support, with the ruling party continuing to win provincial and by-elections.

It would be dishonest to blame everything on the middle class, although they should reasonably be expected to be the moral spine of any society. Ironically, most small-business owners and poor people support Modi’s drastic measures, despite the incredible suffering and the lack of a positive outcome. Again, they fail to connect the dots, which is why India will continue to mess up—politically and economically.

No Critical Thinkers

For a Westerner, it might be hard to comprehend how entrenched poverty, lack of economic growth, and backwardness are in India.

This is a deeply superstitious society where critical thinking and rationality is actively discouraged. I can consider myself lucky because I went to one of the better schools. Still, I was beaten up for questioning (not challenging) my teachers.

Without the glue of reason, intellectual and capital accumulation can’t happen. The people suffer from tyranny and the encroaching police state, but at the same time, they enable those things through their beliefs, ideas, and actions. There are no moral instincts, hence the lack of empathy and the dominance of envy in public affairs.

In a society like this, capital has a tendency to get destroyed or frittered away. Despite the fact that India has seen no wars in the recent past, most of the country looks like a war zone with dilapidated buildings and crumbling infrastructure.

So What Does This Mean For India’s Future?

There’s a reason why 95% of consumer transactions happen in cash. Two months ago, I used my debit card to buy a plane ticket from Delhi to London. The money left my account, but I never got the ticket. I still have no idea where my money went, and in the existing, convoluted system, I also have no idea whom to blame.

Lacking logic and reason, without the British (who left 70 years back), Indian institutions are in an advanced stage of decay. Most people simply don’t trust the banking system, if they even understand how to use it in the first place. I know many wealthy people who have never used their bankcards.

Gold, The Money Of Last Resort

As the institutions left behind by the British disintegrate, India—which used to be a geographic area filled with hundreds of kingdoms and principalities—is reverting back to its natural form.

With the only other option being a serious economic crisis, cash is coming back with a vengeance… and so is gold.

Indians have historically invested their surplus wealth in gold—for the simple reason that a zero-yielding asset class like gold is much better than investing in the economy, which offers negative yields and capital depreciation.

While some economic growth did happen in India over the last three decades—as it did in many emerging countries—this was not because people became better educated or more liberal. It happened because of the Internet and the easy import of Western technology that followed. But now that the low-hanging fruit has been plucked, India is reverting back to its Hindu rate of growth and its focus on gold.

Wealthy Indians are rapidly internationalizing their assets and storing gold in vaults in Hong Kong and Singapore. They instinctively know that there will be more occasions when gold trades at $3,000 or more per ounce.

Get A Free E-book On Precious Metals Investing

It’s only prudent to add some physical gold to your portfolio as a “crisis hedge.” But before you buy, make sure to do your homework first. The informative e-book, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pools aren’t safe places… and more. Click here to get your free copy now.

The views expressed in this article are the author’s and not necessarily those of the Hard Assets Alliance.


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The Real Indian Currency Crisis (Things You Don’t Hear In The News)

On November 8, 2016, Indian Prime Minister Narendra Modi dropped a bombshell. In a televised address at 8:00 pm, he declared that after midnight—four hours later—banknotes with face values of INR500 (US$7.50) and INR1,000 (US$15) would no longer be legal tender.

These bills comprised 86% of the monetary value of currency in circulation, so to say that panic ensued would be an understatement. The market stayed open all night as people rushed to buy gold, Rolex watches, and anything else they could get their hands on to use up their cash.

During the next two weeks, gold traded for as much as US$3,000 per ounce, a premium of almost 100% to the international price. Foreign currencies traded at similar premiums.

Soon, Indian tax authorities descended on the gold market, confiscating security camera recordings to identify any transaction that might have bypassed taxation. They were raiding people’s houses with abandon.

Chaos, Death, And Tragedy

India is already well known as a society where it is virtually impossible to find a public servant who won’t ask for a bribe, but now the number of bribes skyrocketed. Fear gripped the population—but most still didn’t realize that they were witnessing the emergence of a police state.

The government provided a one-time option to convert $30 worth of cash into the still legal banknotes, which were in extremely short supply. People’s fingers were to be marked with indelible ink to ensure they couldn’t repeat conversion. Any excess cash would have to be deposited into a bank account, which for all intents and purposes had the same effect as freezing people’s assets.

You’d see massive lines outside all the bank branches. The date by which the cash had to be deposited kept changing. Regulations that materially affected the handling of currency often changed more than once per day, until the last day of the demonetization exercise. The chaos was unprecedented.

To fully comprehend the level of turmoil, you need to know that 95% of Indian consumer transactions happen in cash.

The net effect of all these events was to rapidly stall the economy and to send it into a state of shock. Scores of disabled, sick, and old people—who had no choice but to personally take care of the currency exchange—died while standing in line at a bank all day. Many soon found themselves cash-strapped and with no means to buy staple items, including food.

Street markets started looking like ghost towns as even those with cash avoided non-urgent purchases. Next, the sudden drop in demand caused small businesses to fail. Even export houses, like diamond polishers, had to lay off their employees because they had no cash to pay salaries. The economy spiraled downhill.

Even today, vegetables sell for half as much as they normally do. This would be considered a good thing had it happened as a result of excess supply, but the reason for the price drop is the destruction of demand—resulting from lack of funds among the poor people who lost their jobs. And don’t expect any reports on this in the Indian media, which must toe Modi’s party line.

The Pampered, Salaried Middle Class

India’s salaried middle-class employees, on the other hand, were very happy with the situation: taxes are automatically deducted from their paychecks, and they want businesses and employees from the informal sector to pay their “fair share.”

The informal sector, or informal economy, is the part of a country’s economy that is neither regulated nor monitored by government entities. In developed countries, it makes up about 10% of the overall economy. Not in India, though. Here, it accounts for 90% of the economy and at least half of total GDP. 75% of all Indian businesses belong to this shadow sector, which makes this country one of the largest informal economies on the globe.

In other words, the informal sector is India’s backbone—without it, the ivory towers the salaried middle class reside in would come crashing down. Their persistent demand to tax it into submission is partly envy and partly an utter lack of empathy. Also, consider that virtually all taxes collected by the government end up in the pockets of politicians and bureaucrats, with no benefit to the people.

A Cashless Society In Its Death Throes

In recent weeks, cash has been fully replaced, but the economy continues to stagnate, and businesses continue to fail. Money—even in fiat currency form—is the lifeblood of the system. Even if you got the blood to flow again, once it stopped, clots would have appeared and organs would have failed. That’s what’s happening in India today.

Job growth was already stagnant before, but the situation is much worse now, making India’s so-called “demographic asset” a massive liability. (Hint: The rosy picture Modi’s government has painted of India’s growth rate does not match the on-the-ground reality.)

As I write, the domino effect continues to work its way up the food chain. Formal and big businesses are showing signs of stagnation. The salaried middle class are losing their jobs but fail to connect the dots. The government enjoys massive and increasing support, with the ruling party continuing to win provincial and by-elections.

It would be dishonest to blame everything on the middle class, although they should reasonably be expected to be the moral spine of any society. Ironically, most small-business owners and poor people support Modi’s drastic measures, despite the incredible suffering and the lack of a positive outcome. Again, they fail to connect the dots, which is why India will continue to mess up—politically and economically.

No Critical Thinkers

For a Westerner, it might be hard to comprehend how entrenched poverty, lack of economic growth, and backwardness are in India.

This is a deeply superstitious society where critical thinking and rationality is actively discouraged. I can consider myself lucky because I went to one of the better schools. Still, I was beaten up for questioning (not challenging) my teachers.

Without the glue of reason, intellectual and capital accumulation can’t happen. The people suffer from tyranny and the encroaching police state, but at the same time, they enable those things through their beliefs, ideas, and actions. There are no moral instincts, hence the lack of empathy and the dominance of envy in public affairs.

In a society like this, capital has a tendency to get destroyed or frittered away. Despite the fact that India has seen no wars in the recent past, most of the country looks like a war zone with dilapidated buildings and crumbling infrastructure.

So What Does This Mean For India’s Future?

There’s a reason why 95% of consumer transactions happen in cash. Two months ago, I used my debit card to buy a plane ticket from Delhi to London. The money left my account, but I never got the ticket. I still have no idea where my money went, and in the existing, convoluted system, I also have no idea whom to blame.

Lacking logic and reason, without the British (who left 70 years back), Indian institutions are in an advanced stage of decay. Most people simply don’t trust the banking system, if they even understand how to use it in the first place. I know many wealthy people who have never used their bankcards.

Gold, The Money Of Last Resort

As the institutions left behind by the British disintegrate, India—which used to be a geographic area filled with hundreds of kingdoms and principalities—is reverting back to its natural form.

With the only other option being a serious economic crisis, cash is coming back with a vengeance… and so is gold.

Indians have historically invested their surplus wealth in gold—for the simple reason that a zero-yielding asset class like gold is much better than investing in the economy, which offers negative yields and capital depreciation.

While some economic growth did happen in India over the last three decades—as it did in many emerging countries—this was not because people became better educated or more liberal. It happened because of the Internet and the easy import of Western technology that followed. But now that the low-hanging fruit has been plucked, India is reverting back to its Hindu rate of growth and its focus on gold.

Wealthy Indians are rapidly internationalizing their assets and storing gold in vaults in Hong Kong and Singapore. They instinctively know that there will be more occasions when gold trades at $3,000 or more per ounce.

Get A Free E-book On Precious Metals Investing

It’s only prudent to add some physical gold to your portfolio as a “crisis hedge.” But before you buy, make sure to do your homework first. The informative e-book, Investing in Precious Metals 101, tells you which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pools aren’t safe places… and more. Click here to get your free copy now.

The views expressed in this article are the author’s and not necessarily those of the Hard Assets Alliance.

 

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Gold’s Seasonality: Time to Get Positioned Ahead of Strongest Months

BY HARD ASSETS ALLIANCE TEAM

Despite the recent weakness, the price of gold is still up 9% year to date and may be poised for a strong second half of 2017. This is not unusual: the yellow metal also had a strong start in 2016, only to give back some gains but ended the year in an uptrend, setting up a rally as the calendar moved to 2017.

So is there a seasonal pattern to the gold price? To answer that question, we dissected gold’s performance dating back to 1975 and identified some trends investors can use to their advantage.

March/April Are Gold’s Worst Months…Often Followed by Weakness in the Spring and Summer

Source: LBMA

Since 1975, March has been the worst month for gold, followed by April as the second-worst. The months of June and July tend to be a quieter period as investors shift their focus prior to strong later summer and fall months.

September has been the best month for gold over the past 41 years. Coincidentally (or not), September is also the worst month for the S&P 500.

As the chart shows, three-quarters of gold’s top-performing months are in the latter half of the year—a good reason to consider buying in June or July if you want to add physical precious metals to your portfolio.

Bearing in mind the volatile nature of commodities, gold included, an experienced investor will build a position after periods of market weakness. As June comes to a close, we’re near the end of the seasonal weakness for gold—soon to enter its historical prime time from August to October.

Attempting to time the market is an exercise in futility. While it will work for a fortunate few, most investors will end up wasting time staring at charts and reading countless opinion pieces by so-called “experts” and talking heads.

To make gold’s volatility your friend, focus on buying when the market has been down for several days, or even a couple of weeks in a row. Then, perhaps more importantly, focus on enjoying your summer vacation.

The Third Quarter Is the Strongest—So Act Now

Source: LBMA

Since 1975, the second quarter of the year has been by far gold’s worst—with returns dead flat over the 41-year period—and this year has been no exception, with gold down about 1%. On the flip side, the third quarter has been the best, outperforming its closest rival, Q4, by a whopping 40%.

Given the clear seasonal patterns gold has exhibited over the past four decades, investors can use these trends to make strategic purchases when the market is the weakest.

Add Gold to Your Portfolio Now

Based on gold’s seasonal patterns, adding bullion to your portfolio sometime in the next month or two could prove a very smart move.

As stated above, gold is up 9% since the beginning of the year, rivaling the performance of the S&P 500, which makes it one of the top-performing assets.

In comparison, since making multi-year highs in March, the 10-year Treasury yield (which moves inversely to its price) is down 15%, and the S&P 500 has traded mostly sideways despite stronger-than-expected first-quarter earnings. Based on declining Treasury yields and gold’s overall strong performance, investors clearly have taken a more cautious approach the past few months.

With gold rallying close to $1,300/oz. earlier this month, many people have waited patiently for a pullback to invest. But based on the following chart, the current pullback might be temporary:

After gold started this year at $1,150 per ounce, it has moved in a “two steps forward and one back” fashion. Each new, higher support level that is tested and holds gives the market more resilience—and investors more confidence to take a position. It also serves to shake out those who panic and sell at the first sign of weakness, only to buy back in at higher prices down the road.

If this pattern continues through the remainder of 2017, we’ll likely see gold prices well north of $1,300, potentially approaching $1,400 by mid-2018.

Armed with the knowledge that the lows of the year—along with the lowest bullion premiums—usually occur during the late spring to early summer months, an investor can take the contrarian approach and “buy low” right now.

Get A Free Ebook On Precious Metals Investing

Before you buy physical gold, make sure to do your homework first. You’ll find everything you need to know in the definitive ebook, Investing in Precious Metals 101: which type of gold you should buy and which type you should stay away from, where to securely store your gold, why pools aren’t safe places, and much more. Click here to get your free copy now.


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

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Gold’s Seasonality: Time to Get Positioned Ahead of Strongest Months

Despite the recent weakness, the price of gold is still up 9% year to date and may be poised for a strong second half of 2017. This is not unusual: the yellow metal also had a strong start in 2016, only to give back some gains but ended the year in an uptrend, setting up a rally as the calendar moved to 2017.

So is there a seasonal pattern to the gold price? To answer that question, we dissected gold’s performance dating back to 1975 and identified some trends investors can use to their advantage.

March/April Are Gold’s Worst Months…Often Followed by Weakness in the Spring and Summer


Source: LBMA

Since 1975, March has been the worst month for gold, followed by April as the second-worst. The months of June and July tend to be a quieter period as investors shift their focus prior to strong later summer and fall months.

September has been the best month for gold over the past 41 years. Coincidentally (or not), September is also the worst month for the S&P 500.

As the chart shows, three-quarters of gold’s top-performing months are in the latter half of the year—a good reason to consider buying in June or July if you want to add physical precious metals to your portfolio.

Bearing in mind the volatile nature of commodities, gold included, an experienced investor will build a position after periods of market weakness. As June comes to a close, we’re near the end of the seasonal weakness for gold—soon to enter its historical prime time from August to October.

Attempting to time the market is an exercise in futility. While it will work for a fortunate few, most investors will end up wasting time staring at charts and reading countless opinion pieces by so-called “experts” and talking heads.

To make gold’s volatility your friend, focus on buying when the market has been down for several days, or even a couple of weeks in a row. Then, perhaps more importantly, focus on enjoying your summer vacation.

The Third Quarter Is the Strongest—So Act Now


Source: LBMA

Since 1975, the second quarter of the year has been by far gold’s worst—with returns dead flat over the 41-year period—and this year has been no exception, with gold down about 1%. On the flip side, the third quarter has been the best, outperforming its closest rival, Q4, by a whopping 40%.

Given the clear seasonal patterns gold has exhibited over the past four decades, investors can use these trends to make strategic purchases when the market is the weakest.

Add Gold to Your Portfolio Now

Based on gold’s seasonal patterns, adding bullion to your portfolio sometime in the next month or two could prove a very smart move.

As stated above, gold is up 9% since the beginning of the year, rivaling the performance of the S&P 500, which makes it one of the top-performing assets.

In comparison, since making multi-year highs in March, the 10-year Treasury yield (which moves inversely to its price) is down 15%, and the S&P 500 has traded mostly sideways despite stronger-than-expected first-quarter earnings. Based on declining Treasury yields and gold’s overall strong performance, investors clearly have taken a more cautious approach the past few months.

With gold rallying close to $1,300/oz. earlier this month, many people have waited patiently for a pullback to invest. But based on the following chart, the current pullback might be temporary:

After gold started this year at $1,150 per ounce, it has moved in a “two steps forward and one back” fashion. Each new, higher support level that is tested and holds gives the market more resilience—and investors more confidence to take a position. It also serves to shake out those who panic and sell at the first sign of weakness, only to buy back in at higher prices down the road.

If this pattern continues through the remainder of 2017, we’ll likely see gold prices well north of $1,300, potentially approaching $1,400 by mid-2018.

Armed with the knowledge that the lows of the year—along with the lowest bullion premiums—usually occur during the late spring to early summer months, an investor can take the contrarian approach and “buy low” right now.

Get A Free Ebook On Precious Metals Investing

Before you buy physical gold, make sure to do your homework first. You’ll find everything you need to know in the definitive ebook, Investing in Precious Metals 101: which type of gold you should buy and which type you should stay away from, where to securely store your gold, why pools aren’t safe places, and much more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

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North Korea: Is War the Inevitable Outcome?

BY SHANNARA JOHNSON

There’s little doubt that from the moment Kim Jong-un took power in 2011, he has been on a mission to accelerate North Korea’s nuclear program.

There’s also little doubt this is of extreme concern to the US and the Trump administration.

Daily reports of US warships and submarines moving in along the Korean Peninsula and unrelenting missile tests in North Korea have sparked worries that a strike may be imminent. Will we end up in a war with North Korea, and what would be the consequences?

The Trump administration says “all options are on the table” regarding North Korea—from  military force, to pressuring China to intercede, to negotiation with Kim Jong-un.

In a recent interview with John Dickerson of CBS, President Trump said that North Korea is determined to develop “a better delivery system” for its nuclear stockpile, and “we can’t allow it to happen.”

The next day, US National Security Advisor H.R. McMaster warned that North Korea might soon be able to develop the technology to strike the United States with a nuclear weapon—likely within Trump’s first term in office.

As Kim Jong-un’s actions and his inflammatory rhetoric continue week after week, many analysts fear the worst.

Bruce Bennett, a senior defense analyst for the RAND Corporation, says the situation is dangerous: “The real question now is somebody going to make a stupid mistake because some kind of minor escalation could get out of hand.”

Bennett believes Kim Jong-un wants to prove his strength as a leader, and the only way to do that is through nuclear power.

Could This Become World War III, and Was It Predicted Years Ago?

Generational researchers Neil Howe and (the late) William Strauss predicted this conflict might happen in their eerily prescient 1997 book, The Fourth Turning.

Basing their forecasts on the cyclical nature of “turnings” and generations, they accurately predicted many events over the last two decades—from 9/11, to the financial crisis in 2008, to the anti-establishment slant of the last presidential election.

In Howe and Strauss’s theory of historical cycles, there are four turnings in a saeculum, which averages 80–90 years. The First Turning is a High, an era of rebuilding and renewed optimism. The Second Turning is an Awakening, a time of spiritual unrest where established norms and values are questioned. The Third Turning is an Unraveling, an era of strong individualism and faltering institutions.

The Fourth Turning is a Crisis. This period, which is marked by social unrest, political turmoil, and the destruction of traditional institutions, typically includes a major war. Previous Crisis turnings involved World War II, the Civil War, and the American War of Independence.

According to Howe, we are in the middle of the Fourth Turning right now.

In a recent speech at the 2017 Strategic Investment Conference hosted by investment research firm Mauldin Economics, Howe said he believes the last 10 years have been a parallel to the 1930s—with slow economic growth, underemployment, growing inequality, and a new appeal of authoritarian political models. Just like in the 1930s, we are seeing a rise of isolationism, nationalism, falling fertility rates, and a decrease in homeownership.

The current Fourth Turning began in 2008 with the Lehman Brothers collapse and the ensuing Global Financial Crisis. The silver lining: If we can solve the conflict without war, Howe said, this period could have a positive outcome.

As the book states, “America could enter a new golden age, triumphantly applying shared values to improve the human condition. The rhythms of history do not reveal the outcome of the coming Crisis: all they suggest is the timing and dimension.”

If there’s any hope of avoiding conflict, though, it’s hard to envision at this point. According to The Fourth Turning, “The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort—in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction and in mankind’s willingness to use it.”

Potential Fourth Turning Battle: The War with North Korea

George Friedman, global-intelligence expert and chairman of Geopolitical Futures, believes that war with North Korea is imminent.

In his keynote speech at the Strategic Investment Conference, Friedman shocked the crowd when he said, “I’m usually the guy to tell you about the next decade, but today I’m going to tell you about next week. It has become apparent that the US is preparing to attack North Korea.”

Friedman said his prediction is based on the measures being taken by the US government in response to North Korea. He suggests the increase in US military presence is telling.

The USS Carl Vinson supercarrier along with the USS Ronald Reagan are stationed off the Korean Peninsula. In addition, over 100 F-16 airplanes have been conducting daily exercises, and F-35 aircraft are being deployed to the area.

One proof point that a conflict may be imminent is the fact that the US has been briefing Guam’s citizens on civil defense and the possibility of war. Friedman doesn’t believe North Korea has the capability at this point to target the US directly, but “Guam is part of the United States, and they have to be protected.”

Seoul is in serious danger as well, he said. Over 25 million people in Seoul’s metropolitan area are vulnerable to North Korea’s “stunning mass of artillery.”

Friedman doesn’t believe that President Trump is escalating the problems with North Korea. He stated firmly that Trump is just following US policy: “A red line has been crossed and we must do something about it.”

So, are we really going to war with North Korea? Friedman’s reply: “If we’re not going to war, we’re doing a really good imitation.”

Gold: The Ultimate Fourth Turning Asset

Gold has proven to be a lifesaver in times of crisis and economic turmoil. But before you consider buying physical gold, make sure to do your homework. Read Investing in Precious Metals 101, a quick-read e-book that tells you all about: “good” vs. “bad” gold… when and where to buy physical gold and silver… common scams and errors inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and much more. Click here to get your free copy now.


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7 Signs You Should Add Gold To Your Portfolio Now

Gold got crushed in the post-election rally, but a little over five months into 2017, the yellow metal is up 10.5%—making it one of the best-performing assets of the year so far.

While the outlook for the US economy is more positive than it was 12 months ago, if we zoom out for a moment, the big picture “ain’t so rosy.”

Gold has historically done well in times of uncertainty and panic… and with these seven worrisome signs, there could be plenty ahead.

#1: Interest Rates Are Still Near Record Lows

Source: St. Louis Fed

In the wake of the financial crisis, the Fed lowered the federal funds rate—the main determinate of interest rates—to 0%. That zero-interest-rate-policy (ZIRP) has had wide-ranging implications for conservative investors.

And even though the Fed has been hiking rates recently, rates are still nowhere near a range that would provide savers and income investors the healthy 4–6% yields they saw before the 2008 Financial Crisis.

Gone are the days when people could keep their savings in a bank account and watch their money compound. This is also a major problem for pension funds (and retirees) that rely on high-grade investments like US Treasuries to earn returns.

Which brings us to…

#2: Bonds Offer Measly Returns

Source: St. Louis Fed

A direct consequence of the Fed’s ZIRP is that bond yields have collapsed.

Although the benchmark US 10-year Treasury yield is up around 60% from its July 2016 lows, it’s still way below its 40-year average.

Meager returns on offer have pushed investors into riskier assets in search of decent yield. That includes dividend stocks, which have seen a huge influx of capital.

#3: Dividend Stocks Aren’t What They Used To Be

Source: multpl

As ZIRP sent bond yields south, investors piled into dividend-paying stocks as a way to generate returns. A direct consequence of this is that dividend yields on S&P 500 stocks have fallen to 1.91% and are now 32% below their long-term average.

Along with falling yields, investors who want to buy income-producing stocks these days are facing rich valuations. The average price-to-earnings ratio of the S&P 500 Dividend Aristocrats ETF (NOBL) is 21.1—higher than that of the broader S&P 500 index. An ETF tracking that index, SPDR S&P 500 ETF (SPY), has an average P/E ratio of 18.7. This number is itself high, which only reinforces the point that dividend-paying stocks have reached unsustainable levels of valuation.

As such, dividend stocks are richly valued and a poor alternative to bonds today, especially as they are reliant on economic growth. And, well…

#4: Economic Growth Is Anemic

Source: St. Louis Fed

Between 1967 and 2007, the US economy grew at an average nominal rate of 7.3% per annum. However, in the last nine years, GDP growth has averaged just 2.8%.

President Trump said he can get the economy growing “bigly” again. But that’s unlikely, given major barriers to growth, such as a massive debt burden…

And it looks like he will have to face the fact that US economic growth is losing its momentum. Second-quarter GDP growth projections were lowered by Wall Street analysts and the Fed forecasting arms alike. Morgan Stanley revised its 2Q17 GDP forecast to 2.5% while the Atlanta Fed has dropped its second-quarter number from 3.4% to 3%.

Whether Mr. Trump can reverse this trend is yet to be seen. But it appears that he is looking at an uphill battle.

#5: The Federal Debt Has Exploded

Source: St. Louis Fed

From George Washington, to George W., the federal debt went from $0 to $9.2 trillion. Since 2008, US government debt has skyrocketed to $19.85 trillion—a 116% increase in just eight years.

The non-partisan Congressional Budget Office (CBO) projects $10 trillion will be added to the federal debt over the next decade and estimates the cost of servicing the debt will triple over the next 10 years. That would bring interest payments alone to over $600 billion per annum.

For some context, that’s more than the total 2016 outlays for the Department of Defense and Education… combined.

#6: The Dollar Has Lost 87% Of Its Value

Source: St. Louis Fed

The US dollar may be rising against other fiat currencies like the euro and the yen, but its purchasing power has fallen 86.5% in 50 years.

The dollar’s decline has slowed somewhat in the last decade. However, with the Federal Reserve doing its level best to create inflation, you can be sure it will continue.

But there’s something that may not continue for much longer…

#7: We Are Overdue For A Bear Market

Source: S&P Global

In March, the bull market in common stocks celebrates its eighth birthday—making it the second longest of its kind in US history. With the current bull run having exceeded the average length by over three years, it may be time to take some money off the table.

So, how can savers and investors protect their wealth from any negative consequences that could arise from these unhealthy trends?

Now Is The Time Add Gold To Your Portfolio

With the measly returns offered up by bonds, an overextended bull market, and a bleak economic outlook, adding gold to your portfolio is a wise move.

Gold bullion has proven to be a store of value and a reliable wealth preservation tool over many centuries… unlike the dollar. In the event of a stock selloff, it can serve as “portfolio insurance.”

Even if markets continue to rise in the interim, gold will do well. Since late 2015, the yellow metal has outperformed the S&P 500 by 30%.

Placing 5%–10% of your assets in bullion adds a crisis-nullifier to your portfolio… and the current setup certainly lends itself to it.

Get A Free Ebook On Precious Metals Investing

It’s prudent to add some physical gold to your portfolio now. But before you buy, make sure to do your homework first. Get the comprehensive ebook, Investing in Precious Metals 101, and learn more about which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pools aren’t safe places… and more. Click here to get your free copy now.


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Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

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CLIENT TESTIMONIAL

Our Blog

7 Signs You Should Add Gold To Your Portfolio Now

Gold got crushed in the post-election rally, but a little over five months into 2017, the yellow metal is up 10.5%—making it one of the best-performing assets of the year so far.

While the outlook for the US economy is more positive than it was 12 months ago, if we zoom out for a moment, the big picture “ain’t so rosy.”

Gold has historically done well in times of uncertainty and panic… and with these seven worrisome signs, there could be plenty ahead.

#1: Interest Rates Are Still Near Record Lows


Source: St. Louis Fed

In the wake of the financial crisis, the Fed lowered the federal funds rate—the main determinate of interest rates—to 0%. That zero-interest-rate-policy (ZIRP) has had wide-ranging implications for conservative investors.

And even though the Fed has been hiking rates recently, rates are still nowhere near a range that would provide savers and income investors the healthy 4–6% yields they saw before the 2008 Financial Crisis.

Gone are the days when people could keep their savings in a bank account and watch their money compound. This is also a major problem for pension funds (and retirees) that rely on high-grade investments like US Treasuries to earn returns.

Which brings us to…

#2: Bonds Offer Measly Returns


Source: St. Louis Fed

A direct consequence of the Fed’s ZIRP is that bond yields have collapsed.

Although the benchmark US 10-year Treasury yield is up around 60% from its July 2016 lows, it’s still way below its 40-year average.

Meager returns on offer have pushed investors into riskier assets in search of decent yield. That includes dividend stocks, which have seen a huge influx of capital.

#3: Dividend Stocks Aren’t What They Used To Be

Source: multpl

As ZIRP sent bond yields south, investors piled into dividend-paying stocks as a way to generate returns. A direct consequence of this is that dividend yields on S&P 500 stocks have fallen to 1.91% and are now 32% below their long-term average.

Along with falling yields, investors who want to buy income-producing stocks these days are facing rich valuations. The average price-to-earnings ratio of the S&P 500 Dividend Aristocrats ETF (NOBL) is 21.1—higher than that of the broader S&P 500 index. An ETF tracking that index, SPDR S&P 500 ETF (SPY), has an average P/E ratio of 18.7. This number is itself high, which only reinforces the point that dividend-paying stocks have reached unsustainable levels of valuation.

As such, dividend stocks are richly valued and a poor alternative to bonds today, especially as they are reliant on economic growth. And, well…

#4: Economic Growth Is Anemic


Source: St. Louis Fed

Between 1967 and 2007, the US economy grew at an average nominal rate of 7.3% per annum. However, in the last nine years, GDP growth has averaged just 2.8%.

President Trump said he can get the economy growing “bigly” again. But that’s unlikely, given major barriers to growth, such as a massive debt burden…

And it looks like he will have to face the fact that US economic growth is losing its momentum. Second-quarter GDP growth projections were lowered by Wall Street analysts and the Fed forecasting arms alike. Morgan Stanley revised its 2Q17 GDP forecast to 2.5% while the Atlanta Fed has dropped its second-quarter number from 3.4% to 3%.

Whether Mr. Trump can reverse this trend is yet to be seen. But it appears that he is looking at an uphill battle.

#5: The Federal Debt Has Exploded


Source: St. Louis Fed

From George Washington, to George W., the federal debt went from $0 to $9.2 trillion. Since 2008, US government debt has skyrocketed to $19.85 trillion—a 116% increase in just eight years.

The non-partisan Congressional Budget Office (CBO) projects $10 trillion will be added to the federal debt over the next decade and estimates the cost of servicing the debt will triple over the next 10 years. That would bring interest payments alone to over $600 billion per annum.

For some context, that’s more than the total 2016 outlays for the Department of Defense and Education… combined.

#6: The Dollar Has Lost 87% Of Its Value


Source: St. Louis Fed

The US dollar may be rising against other fiat currencies like the euro and the yen, but its purchasing power has fallen 86.5% in 50 years.

The dollar’s decline has slowed somewhat in the last decade. However, with the Federal Reserve doing its level best to create inflation, you can be sure it will continue.

But there’s something that may not continue for much longer…

#7: We Are Overdue For A Bear Market


Source: S&P Global

In March, the bull market in common stocks celebrates its eighth birthday—making it the second longest of its kind in US history. With the current bull run having exceeded the average length by over three years, it may be time to take some money off the table.

So, how can savers and investors protect their wealth from any negative consequences that could arise from these unhealthy trends?

Now Is The Time Add Gold To Your Portfolio

With the measly returns offered up by bonds, an overextended bull market, and a bleak economic outlook, adding gold to your portfolio is a wise move.

Gold bullion has proven to be a store of value and a reliable wealth preservation tool over many centuries… unlike the dollar. In the event of a stock selloff, it can serve as “portfolio insurance.”

Even if markets continue to rise in the interim, gold will do well. Since late 2015, the yellow metal has outperformed the S&P 500 by 30%.

Placing 5%–10% of your assets in bullion adds a crisis-nullifier to your portfolio… and the current setup certainly lends itself to it.

Get A Free Ebook On Precious Metals Investing

It’s prudent to add some physical gold to your portfolio now. But before you buy, make sure to do your homework first. Get the comprehensive ebook, Investing in Precious Metals 101, and learn more about which type of gold to buy and which to stay away from… how to spot common scams and mistakes inexperienced investors fall prey to… the best storage options… why pools aren’t safe places… and more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

The Disturbing Trend That Will End in a Full-Fledged Pension Crisis

Some experts think it will be the trigger for the next financial collapse. Others call it a “national crisis” of unprecedented proportions.

But what all of them agree on is that there’s no way US pension funds can keep their promises to the next wave of retirees.

Right now, millions of Americans are hard at work believing their pensions will be their saving grace for retirement. But the predicament pension funds across the United States find themselves in does not just spell trouble for the distant future.

The crisis is happening as we speak.

Though the challenges are well known by now, many believe that public-sector pension funds will be maintained and the gaps filled by strong investment returns, increasing employee contributions, raising taxes, or some combination of the three. They hope with these measures and ongoing strong asset returns, liabilities can be reduced and pensions salvaged. Unfortunately, this is wishful thinking at best.

Even though the facts are on the table, state and local governments continue to underestimate the crisis at hand. According to Hidden Debt, Hidden Deficits, a 2017 data-rich study of US pension systems by Hoover Institution Senior Fellow Joshua Rauh, almost every state or local government has an unbalanced budget—due to runaway pension fund costs that are continually chipping away at already inadequate budgets.

In 2016, Rauh stated, “while state and local governments across the US largely claimed they ran balanced budgets, in fact they ran deficits through their pension systems of $167 billion.” That amounts to 18.2% of state and local governments’ total tax revenue.

According to the 2017 report, total unfunded pension liabilities have reached $3.85 trillion. That’s $434 billion more than last year. Amazingly, of that $3.85 trillion, only $1.38 trillion was recognized by state and local governments.

The difference between funded levels under Governmental Accounting Standards Board (GASB) metrics and more realistic expectations reveals a massive amount of “hidden debt,” commonly referred to as unfunded liabilities. Under GASB metrics, public pension systems assume they will see annual returns of 7.5%. This assumption ignores the increased risks associated with stocks, hedge funds, real estate, and private equity to realize these returns.

Using that 7.5% annual return, unfunded liabilities for city and state plans are $1.38 trillion. However, when we use a more conservative return of 2.8% based on the Treasury yield curve, unfunded liabilities balloon to $3.85 trillion. Realistically, the truth probably lies somewhere between these two numbers, which still results in a huge increase in unfunded liabilities.

An Alternative Approach

Massive financial market losses in 2000–2001 and 2008–2009 led many pension funds to invest in high-fee and higher-risk alternatives such as hedge funds and private equity. But this strategy only exacerbated the funding gap over the past decade, failing to deliver expected returns.  

The California Public Employees’ Retirement System (CalPERS) is one of the largest public pension funds with over $300 billion in assets and nearly 2 million members. After years of poor performance—including a meager 0.6% net return in the most recent fiscal year—the fund is now embracing a lower-cost, diversified investment approach, including exposure to gold.

Failing to meet its 7.5% return objective for several years, CalPERS recently has adopted a “Funding Risk Mitigation” strategy to meet the challenges of a maturing workforce, negative cash flow, longer life expectancies, and underperforming investments.

The facts clearly show that the states’ pension systems are on a losing track and retiree benefits are at risk of being slashed.

South Carolina: Canary in the Coal Mine

The looming pension fund crisis could leave already cash-strapped Americans without a safety net for retirement.

Take South Carolina, whose government pension plan covers around 550,000 individuals. One out of nine residents are invested in the plan… which is $24.1 billion in debt.

According to the Post and Courier of Charleston, government workers and their employers have seen five hikes in their pension plan contributions since 2012, and there’s no end in sight. And this isn’t an anomaly but the norm for many states throughout the country.

The worst-funded US state is currently New Jersey, closely followed by Kentucky and Illinois. By the end of 2016, New Jersey had a $135.7 billion deficit in its pension funds—$22.6 billion more than the year before—while Illinois’ gap grew by $7.6 billion.

This disturbing trend is all too real, with nearly one million US workers and retirees covered by pension plans on the verge of collapse. As GDP growth remains minimal, the situation is less than ideal for those who are depending on these pensions for their golden years. And with the uncertain future of Social Security and Medicare hanging in the balance, it’s a scary thought that for many Americans, even this promised safety net isn’t guaranteed.

Corporate pensions, too, are “in the worst position to meet obligations in more than a decade,” states a recent Bloomberg article. Suffering from deficits due to an overallocation to long-term bonds with diminishing yields, corporate pensions are struggling to meet their ever-increasing obligations.

Demographics Don’t Help

Shifting demographics in the US and around the world only further complicate the pension crisis. We are living longer and experiencing lower birth rates than in past decades. This dilemma increases the number of retirees while decreasing the pool of workers. The population of Americans 65 years of age and older has grown by 35% over the last 50 years.

Americans born in 2010 can anticipate to live nine years longer than those born in 1960. Today, retirees are collecting pensions for up to 20 years. If the well runs dry, Social Security, at this point, is not the answer. This leaves Millennials and Gen-Xers in a financial bind. Even those who aren’t in line to receive a pension will be affected indirectly by the falling value of retirement assets worldwide.

Crisis Insurance for the “Golden Years”

As governments and corporate employers may no longer be able to step up to their promises, it is important to take your retirement savings into your own hands. A strong portfolio should include a mix of stocks, solid funds, and physical precious metals.

For many centuries, hard assets like gold have preserved wealth and will undoubtedly continue to do so. Unlike the dollar, stocks, bonds, or pension funds, gold is an asset without counterparty risk, that means its value doesn’t depend on someone else’s ability or willingness to keep their promises.

Financial professionals often advise investors to hold 5% to 15% of their investable assets in gold bullion—depending on age, risk tolerance, and available cash flow.

With the current state of pension plans in steady decline, now is a good time to consider hard and secure assets like precious metals.

Get Your Free Precious Metals IRA Guide

In the past, purchasing physical gold for your retirement account was complicated and involved a self-directed IRA custodian, an approved storage facility, and a precious metals dealer. The Hard Assets Alliance has simplified the process by combining all of these entities on one platform. No more redundant paperwork, multiple accounts, or locating a buyer when you are ready to sell your precious metals. Get your free guide here.


Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

North Korea: Is War the Inevitable Outcome?

There’s little doubt that from the moment Kim Jong-un took power in 2011, he has been on a mission to accelerate North Korea’s nuclear program.

There’s also little doubt this is of extreme concern to the US and the Trump administration.

Daily reports of US warships and submarines moving in along the Korean Peninsula and unrelenting missile tests in North Korea have sparked worries that a strike may be imminent. Will we end up in a war with North Korea, and what would be the consequences?

The Trump administration says “all options are on the table” regarding North Korea—from  military force, to pressuring China to intercede, to negotiation with Kim Jong-un.

In a recent interview with John Dickerson of CBS, President Trump said that North Korea is determined to develop “a better delivery system” for its nuclear stockpile, and “we can’t allow it to happen.”

The next day, US National Security Advisor H.R. McMaster warned that North Korea might soon be able to develop the technology to strike the United States with a nuclear weapon—likely within Trump’s first term in office.

As Kim Jong-un’s actions and his inflammatory rhetoric continue week after week, many analysts fear the worst.

Bruce Bennett, a senior defense analyst for the RAND Corporation, says the situation is dangerous: “The real question now is somebody going to make a stupid mistake because some kind of minor escalation could get out of hand.”

Bennett believes Kim Jong-un wants to prove his strength as a leader, and the only way to do that is through nuclear power.

Could This Become World War III, and Was It Predicted Years Ago?

Generational researchers Neil Howe and (the late) William Strauss predicted this conflict might happen in their eerily prescient 1997 book, The Fourth Turning.

Basing their forecasts on the cyclical nature of “turnings” and generations, they accurately predicted many events over the last two decades—from 9/11, to the financial crisis in 2008, to the anti-establishment slant of the last presidential election.

In Howe and Strauss’s theory of historical cycles, there are four turnings in a saeculum, which averages 80–90 years. The First Turning is a High, an era of rebuilding and renewed optimism. The Second Turning is an Awakening, a time of spiritual unrest where established norms and values are questioned. The Third Turning is an Unraveling, an era of strong individualism and faltering institutions.

The Fourth Turning is a Crisis. This period, which is marked by social unrest, political turmoil, and the destruction of traditional institutions, typically includes a major war. Previous Crisis turnings involved World War II, the Civil War, and the American War of Independence.

According to Howe, we are in the middle of the Fourth Turning right now.

In a recent speech at the 2017 Strategic Investment Conference hosted by investment research firm Mauldin Economics, Howe said he believes the last 10 years have been a parallel to the 1930s—with slow economic growth, underemployment, growing inequality, and a new appeal of authoritarian political models. Just like in the 1930s, we are seeing a rise of isolationism, nationalism, falling fertility rates, and a decrease in homeownership.

The current Fourth Turning began in 2008 with the Lehman Brothers collapse and the ensuing Global Financial Crisis. The silver lining: If we can solve the conflict without war, Howe said, this period could have a positive outcome.

As the book states, “America could enter a new golden age, triumphantly applying shared values to improve the human condition. The rhythms of history do not reveal the outcome of the coming Crisis: all they suggest is the timing and dimension.”

If there’s any hope of avoiding conflict, though, it’s hard to envision at this point. According to The Fourth Turning, “The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort—in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction and in mankind’s willingness to use it.”

Potential Fourth Turning Battle: The War with North Korea

George Friedman, global-intelligence expert and chairman of Geopolitical Futures, believes that war with North Korea is imminent.

In his keynote speech at the Strategic Investment Conference, Friedman shocked the crowd when he said, “I’m usually the guy to tell you about the next decade, but today I’m going to tell you about next week. It has become apparent that the US is preparing to attack North Korea.”

Friedman said his prediction is based on the measures being taken by the US government in response to North Korea. He suggests the increase in US military presence is telling.

The USS Carl Vinson supercarrier along with the USS Ronald Reagan are stationed off the Korean Peninsula. In addition, over 100 F-16 airplanes have been conducting daily exercises, and F-35 aircraft are being deployed to the area.

One proof point that a conflict may be imminent is the fact that the US has been briefing Guam’s citizens on civil defense and the possibility of war. Friedman doesn’t believe North Korea has the capability at this point to target the US directly, but “Guam is part of the United States, and they have to be protected.”

Seoul is in serious danger as well, he said. Over 25 million people in Seoul’s metropolitan area are vulnerable to North Korea’s “stunning mass of artillery.”

Friedman doesn’t believe that President Trump is escalating the problems with North Korea. He stated firmly that Trump is just following US policy: “A red line has been crossed and we must do something about it.”

So, are we really going to war with North Korea? Friedman’s reply: “If we’re not going to war, we’re doing a really good imitation.”

Gold: The Ultimate Fourth Turning Asset

Gold has proven to be a lifesaver in times of crisis and economic turmoil. But before you consider buying physical gold, make sure to do your homework. Read Investing in Precious Metals 101, a quick-read e-book that tells you all about: “good” vs. “bad” gold… when and where to buy physical gold and silver… common scams and errors inexperienced investors fall prey to… the best storage options… why pooled accounts aren’t safe places… and much more. Click here to get your free copy now.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.


Your email address is safe with us. We will never rent or sell it to anyone. Period. Read our Terms of Use.

CLIENT TESTIMONIAL

Our Blog

The Disturbing Trend That Will End in a Full-Fledged Pension Crisis

Some experts think it will be the trigger for the next financial collapse. Others call it a “national crisis” of unprecedented proportions.

But what all of them agree on is that there’s no way US pension funds can keep their promises to the next wave of retirees.

Right now, millions of Americans are hard at work believing their pensions will be their saving grace for retirement. But the predicament pension funds across the United States find themselves in does not just spell trouble for the distant future.

The crisis is happening as we speak.

Though the challenges are well known by now, many believe that public-sector pension funds will be maintained and the gaps filled by strong investment returns, increasing employee contributions, raising taxes, or some combination of the three. They hope with these measures and ongoing strong asset returns, liabilities can be reduced and pensions salvaged. Unfortunately, this is wishful thinking at best.

Even though the facts are on the table, state and local governments continue to underestimate the crisis at hand. According to Hidden Debt, Hidden Deficits, a 2017 data-rich study of US pension systems by Hoover Institution Senior Fellow Joshua Rauh, almost every state or local government has an unbalanced budget—due to runaway pension fund costs that are continually chipping away at already inadequate budgets.

In 2016, Rauh stated, “while state and local governments across the US largely claimed they ran balanced budgets, in fact they ran deficits through their pension systems of $167 billion.” That amounts to 18.2% of state and local governments’ total tax revenue.

According to the 2017 report, total unfunded pension liabilities have reached $3.85 trillion. That’s $434 billion more than last year. Amazingly, of that $3.85 trillion, only $1.38 trillion was recognized by state and local governments.

The difference between funded levels under Governmental Accounting Standards Board (GASB) metrics and more realistic expectations reveals a massive amount of “hidden debt,” commonly referred to as unfunded liabilities. Under GASB metrics, public pension systems assume they will see annual returns of 7.5%. This assumption ignores the increased risks associated with stocks, hedge funds, real estate, and private equity to realize these returns.

Using that 7.5% annual return, unfunded liabilities for city and state plans are $1.38 trillion. However, when we use a more conservative return of 2.8% based on the Treasury yield curve, unfunded liabilities balloon to $3.85 trillion. Realistically, the truth probably lies somewhere between these two numbers, which still results in a huge increase in unfunded liabilities.

An Alternative Approach

Massive financial market losses in 2000–2001 and 2008–2009 led many pension funds to invest in high-fee and higher-risk alternatives such as hedge funds and private equity. But this strategy only exacerbated the funding gap over the past decade, failing to deliver expected returns.  

The California Public Employees’ Retirement System (CalPERS) is one of the largest public pension funds with over $300 billion in assets and nearly 2 million members. After years of poor performance—including a meager 0.6% net return in the most recent fiscal year—the fund is now embracing a lower-cost, diversified investment approach, including exposure to gold.

Failing to meet its 7.5% return objective for several years, CalPERS recently has adopted a “Funding Risk Mitigation” strategy to meet the challenges of a maturing workforce, negative cash flow, longer life expectancies, and underperforming investments.

The facts clearly show that the states’ pension systems are on a losing track and retiree benefits are at risk of being slashed.

South Carolina: Canary in the Coal Mine

The looming pension fund crisis could leave already cash-strapped Americans without a safety net for retirement.

Take South Carolina, whose government pension plan covers around 550,000 individuals. One out of nine residents are invested in the plan… which is $24.1 billion in debt.

According to the Post and Courier of Charleston, government workers and their employers have seen five hikes in their pension plan contributions since 2012, and there’s no end in sight. And this isn’t an anomaly but the norm for many states throughout the country.

The worst-funded US state is currently New Jersey, closely followed by Kentucky and Illinois. By the end of 2016, New Jersey had a $135.7 billion deficit in its pension funds—$22.6 billion more than the year before—while Illinois’ gap grew by $7.6 billion.

This disturbing trend is all too real, with nearly one million US workers and retirees covered by pension plans on the verge of collapse. As GDP growth remains minimal, the situation is less than ideal for those who are depending on these pensions for their golden years. And with the uncertain future of Social Security and Medicare hanging in the balance, it’s a scary thought that for many Americans, even this promised safety net isn’t guaranteed.

Corporate pensions, too, are “in the worst position to meet obligations in more than a decade,” states a recent Bloomberg article. Suffering from deficits due to an overallocation to long-term bonds with diminishing yields, corporate pensions are struggling to meet their ever-increasing obligations.

Demographics Don’t Help

Shifting demographics in the US and around the world only further complicate the pension crisis. We are living longer and experiencing lower birth rates than in past decades. This dilemma increases the number of retirees while decreasing the pool of workers. The population of Americans 65 years of age and older has grown by 35% over the last 50 years.

Americans born in 2010 can anticipate to live nine years longer than those born in 1960. Today, retirees are collecting pensions for up to 20 years. If the well runs dry, Social Security, at this point, is not the answer. This leaves Millennials and Gen-Xers in a financial bind. Even those who aren’t in line to receive a pension will be affected indirectly by the falling value of retirement assets worldwide.

Crisis Insurance for the “Golden Years”

As governments and corporate employers may no longer be able to step up to their promises, it is important to take your retirement savings into your own hands. A strong portfolio should include a mix of stocks, solid funds, and physical precious metals.

For many centuries, hard assets like gold have preserved wealth and will undoubtedly continue to do so. Unlike the dollar, stocks, bonds, or pension funds, gold is an asset without counterparty risk, that means its value doesn’t depend on someone else’s ability or willingness to keep their promises.

Financial professionals often advise investors to hold 5% to 15% of their investable assets in gold bullion—depending on age, risk tolerance, and available cash flow.

With the current state of pension plans in steady decline, now is a good time to consider hard and secure assets like precious metals.

Get Your Free Precious Metals IRA Guide

In the past, purchasing physical gold for your retirement account was complicated and involved a self-directed IRA custodian, an approved storage facility, and a precious metals dealer. The Hard Assets Alliance has simplified the process by combining all of these entities on one platform. No more redundant paperwork, multiple accounts, or locating a buyer when you are ready to sell your precious metals. Get your free guide here.

 

Read our Terms of Use

Subscribe to our Blog...

...and be the first to read what we post the moment we post it!

Receive email notification whenever precious metals news, analysis and commentary is posted to our blog.