As a follow up to my last blog about Bonds and questioning if in fact that is where the “smart money” is going, I am writing this somewhat reiteration on precious metals.
Precious Metals consist of Gold, Silver, Platinum and maybe Palladium. These metals are considered precious due to their scarcity, high value, and unique properties. Gold and Silver have long history, measured in 1000s of years as money. Money is one of those things we use every day yet many do not really know or understand what money is. First let me say that money as we know it in USD is currency. Currency, which many confuse as ``money'', isn't real in the sense that it has no real or intrinsic value. Its value is assigned by governments or entities that issue it. When said currency isn't backed by things with intrinsic value (commodities such as gold and silver), it is not real money. It is since removal of the Gold Standard in 1971, a Fiat Currency. Fiat means by edict like “use this as money or we'll shoot you” or similar declarations. You might have noticed that there is a statement on US Currency. The legal tender statement for US dollars means that all United States coins and currency, including Federal Reserve notes and circulating notes of Federal Reserve Banks and national banks, are legally valid for the payment of debts, public charges, taxes, and dues. This is outlined in 31 USC 5103. In essence, it means that these forms of money are legally acceptable for settling financial obligations.
This Fiat Currency is backed by the Full Faith and Credit of the United States, which by the way has been downgraded by all 3 rating agencies to less than AAA. It appears that the most trusted Bond in the world is a little less trusted. I am not in the camp that believes the US Bond will ever be defaulted on in the real sense but I am in the camp that believes it is not a good or safe harbor protecting the value of your dollars. That is so, because the money your receive back after whatever period Bond you purchased ie 2 year, Ten Year or Thirty Year etc., will be paid in debased purchasing power. Yes that is Inflation. In a way the only guarantee that the US Treasury gives is that you will lose purchasing power buying the US Bond.
To see how Gold performs over time we can look at this chart comparing Gold's performance to the Stock Market.
It should be obvious that Gold has outperformed the stock market in the period shown and if researched from 1913 when the Federal reserve was created it also has outperformed. Whereas the stock market more or less reflects the economy or speculation on future returns, Gold IS money and anchored to purchasing power has maintained more of it than stocks. It is thereby, a very good hedge against inflation whereas the US Bond is not.
Silver has also been money over 1000s of years and was heavily in use in the US until real silver was removed from circulation and replaced by those copper edged imposter coins. Today, Trump announced that Copper Pennies will no longer be produced, so even if not considered a precious metal, it was a valuable metal and actually cost more to make than it represented as fractional currency. In other words, melting the pennies is worth more than a penny. I think it's value is about 13 cents per penny in copper.
Gold and Silver are money and could serve as currency. The US Constitution defines "money" broadly, referring to the currency issued by the government (Congress) and specifically mentioning gold and silver as legal tender. While the Constitution doesn't explicitly define "money," it grants Congress the power to "coin Money, regulate the Value thereof, and of foreign Coin," and it limits states from making anything but gold and silver coin a tender in payment of debts.
Some States including Florida have passed legislation again making Gold and Silver Legal Tender. This does not mean any particular person or merchant MUST take it but rather he can take it. Plus with such a law, the State would permit tax bills to be paid using Gold and/or Silver. This would be regulated by the market price of these precious metals so paying a $3000 tax bill with a 1 oz. Gold coin purchased 5 years ago at $1600 would be beneficial to the tax payer. Why, because his purchasing power was maintained or possibly even increased relative to the Fiat Currency which denominates the tax bill.
Over the past several years, I have gently prodded clients to own some Gold and Silver. Those that did are pretty happy about it. Those that didn't may feel glum thinking they missed the opportunity. Think again. Gold and Silver are just getting started in this current Bull run. Sure, they can go up and down as all investments and commodities can and do, but overall, Gold and Silver will protect your purchasing power as the value of the USD keeps going lower. How low? It can go to zero but have many stops along the way of diminished value and even diminished acceptance. Look into the Zimbabwe or Argentinian currency collapses where they had to print Billion Peso notes etc. to keep pace with their massive inflation or currency debasement. And don't say it can't happen here. IT CAN.
Buy a little Gold and/or Silver every month using a dollar cost averaging approach and some months you'll pay more while others you'll pay less. The average price over time will be decent and you have begun hedging against the USD debased purchasing power. Another simple way to accumulate some Gold or Silver is to open an account with Glint. This clever Mastercard is attached to a wallet of Gold and Silver and your currency which for my clients is the USD. They do offer a few other currencies and in that way are an International service. The card is issued under contract with Sutton Bank a small but reliable institution that helps facilitate the movement of USDs or other currencies into the Glint Gold or Silver wallets and provides the connection to the MC system worldwide. The Gold bought via Glint is allocated by name and held in Switzerland's Brinks vault. It is YOUR Gold and you can walk into Brinks and retrieve it if so inclined. They do not as yet offer shipment back to the USA. I think that's coming. Kinesis is another similar provider and has a broader approach but also offers a Gold Debit card. These systems effectively allow you to spend Gold anywhere Mastercard is accepted. The fees attached are likely to come down over time as the efficiencies get improved. Even as they are today, it is not too costly and for the ability and convenience of using Gold as Money, it is priceless. Such systems are in the works by some States most notably Texas which now has a Gold Depository that will likely lead to a card tied to your deposited Gold for use within the state. That would not even require a Legal Tender law on the books because the Gold would be liquidated when using the card in whatever fraction is needed to satisfy the Fiat Currency amount at the point of purchase.
Today Is Memorial Day so let's remember all of those valiant men and women who gave their lives so we can remain a free people. Knowingly or not, they also died to help keep sound money available as planned for in the US Constitution. Thank you!
Best,
Donn Marier
DM-Your Own CFO
