-- Posted Tuesday, 26 July 2011 | | Disqus
By Drew Mason
"… what are they doing? They are behaving like hooligans, switching on the printing press
and tossing them around the whole world, forgetting their main obligations."
– Russian Prime Minister Putin, speaking of The Fed
And consider this quote from last week to put your investment focus in perspective:
…The flight to gold is accelerating at a faster and faster speed. One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."
Britain’s Peter Hambro
While the week ahead will undoubtedly contain more chair-slamming by senior politicians, brinksmanship by both parties, and hyperbole from the media remember one thing when you catch yourself listening to the empty babble. If you find yourself slipping into the “need to know mentality”, remind yourself that nothing will happen this week that will change the die, already cast and solidified for America’s near term financial future.
Doubt that? Think back about the important details behind QE1, QE2, the critical covenants behind the first Greek bailout, and prior debt ceiling agreements – they were largely irrelevant. The details to this sidebar are nothing more than a distraction either.
Do you really think Asia’s policies towards gold, silver and the dollar are going to change because of any promise that any American official will make? Please! Not a chance – so you should not either. Ultimately it comes back to recognizing the financial paradigm has changed for the rest of our lives – Is your head buried in the sand or are you positioning your family to profit from it?
Still think I exaggerate? Look at the European experience through the words of Germany’s Der Spiegel now that relief has returned following the latest Greek solution:
In spite of massive cash transfusions and bailout packages, the euro-zone has started trembling again over its weakest members. The future of the common currency is, again, at stake. Ireland and Portugal will receive billions of Euros in support, and a second bailout for Greece is in the works. And just as European politicians were starting to think about their summer vacations, Italy's public debt has slipped into focus.
No back room deal can fix our debt yet the vast majority of Americans haven’t started positioning themselves for the pending tsunami – if you are like them, there is great news embedded in gold.
Specifically if you have not yet begun to position your family, your lack of action to date is almost as immaterial as the debt ceiling fiasco. Why? Because if you begin to diversify in gold and silver now, as a hedge vs. the incompetence of the American government, you will shortly have more gold than 95% of the world. And when you have gold and silver, you are positioned for your relative wealth to increase.
With all of the financial reading you do and all of the courses you have taken, did anyone ever relate to you what being a millionaire really meant in the US when America was the world’s engine of growth? Up until Roosevelt made it politically fashionable to trash the Constitution of the United States, becoming the first in a long line of Presidents to think themselves superior thinkers to our founders, being a millionaire in the US meant one thing to the world –
Being a US millionaire until 1933 meant you owned 50,000 ounces of gold.
Think about that – 50,000 ounces of gold! That position would qualify someone with a wealth of 1,000,000 in 1933 as holding more gold than all but 94 of the world’s nations even today.
And what did being a millionaire mean in the United States in terms of silver? While silver was not fixed with a specific dollar handle leading up to Roosevelt, it entered 1933 at $0.25/ounce, meaning a millionaire in 1933 could have converted his metal-backed currency into 4 million ounces of silver.
Since Roosevelt, Johnson, Nixon and others mismanaged the American currency for their social agendas, what is left of the US dollar? Today a millionaire in the US can buy just 625 ounces of gold and just 25,000 ounces of silver. Does that give credence to how horribly Nixon lied to the American people when he said:
"Your dollar will be worth just as much tomorrow as today"
Or when Lyndon Johnson said:
“If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content”.
IF you think there is a chance America’s fiscal crisis could go on for some time before a clean and peaceful resolution is in place and progress is being made through the voluntary sacrifices of the elderly, the military, the inner cities … then there is still a case to be made for diversifying some of your wealth into precious metals regardless of today’s closing price.
If you have converted your dollars into gold in 1933 you could redeem those 50,000 ounces for $8 million today. Converting your silver cash from 1933 into today’s dollars would be worth $160 million today. Obvious past performance is not indicative of future results as all investors know (if you don’t already know this then please destroy this immediately, keep your money in the bank and forget our paths crossed because there certainly ARE risks in gold) … but isn’t that attractive for an asset that has millennia of history? Or at least attractive enough to warrant a 1% position?
To the few Americans who do see value in gold and silver already but believe the paper versions of gold will be just as good as the physical, I encourage you to take a quick look into history to see how that theory has played out. I also encourage you to consider the words of Chris Duane who recently made the point about the emerging new paradigm:
When the game changes you will see that the counter party risk becomes the most important aspect of investing.
How many of you know investors who were short many stocks when Lehman Brothers imploded? Many of them never saw their profits because of counter party risk once dismissed as a non-event. If that would ever happen to your paper gold and silver positions I suspect you would be more than heartsick at having seen the debasement coming but not having protected yourself in any meaningful way.
With gold at record highs last week, and silver making a strong advance back to $40, the theme that will emerge in the weeks ahead that is beyond the comprehension of Wall Street will be:
Risk Off – and gold to close higher
The notion of gold as a “risky asset” has some merit in its volatility, but less so given its history. Foreigners are saying the dollar is a “risk on” trade and while knee-jerk reactions die hard making anything possible in the short-term, this will be an emerging trend. This is a signpost to the new paradigm, likely rewarding physical metals owners in the pending wealth-transfer as the world comes to see gold as the currency of last resort.
If you have a beachhead in gold and silver, we suggest that you don’t worry about trading around your position – this could be your lifeline if history repeats itself. With history’s track record supporting gold, perhaps it is occasion to recall the words of Jesse Livermore, and “Be right. Sit tight.”
Drew Mason is a principal with St. Joseph Partners (StJosephUSA.com), a precious metals boutique that assists clients in sourcing physical gold and silver globally. St Joseph’s uses precious metals as the cornerstone of wealth protection planning to diversify against currency debasement and stock market risk to investors. Previously he worked on Wall Street for fifteen years after graduating from Wharton.
-- Posted Tuesday, 26 July 2011 | Digg This Article
| Source: GoldSeek.com
