G&G Associates Tax & Financial Consulting
It’s Still Not Too Late to Buy Gold & Silver
Hotep G&G Readers,
I doubt your broker, CNN, FOX or the Wall Street Journal will reference Civil War finance as a way of explaining our current situation. That's too bad. Dead men tell no lies. And the last time the U.S. Treasury printed money on this scale was during the Civil War.
On February 25, 1862, Congress passed the Legal Tender Act, which allowed the government to pay its bills in paper, rather than in gold or silver. The law required merchants to accept these bills at face value. A similar bill was passed in 1863. By the end of the war, close to half a billion dollars had been printed. The result was a 25% increase in the money supply.
Not surprisingly, since the bills couldn't be discounted, merchants were forced to discount the bills' purchasing power by raising prices. An epic financial boom began as speculators used the sudden availability of money and credit to buy up hard assets, especially railroads.
Oliver Mitchell Wentworth Sprague, a professor of banking and finance at Harvard University in the early 1900s, wrote the seminal history of what happened next in his 1910 opus History of Crises. With each new wave of money, a mini-boom would follow, with gold serving as the single most important barometer of the money supply.
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When Union forces won battles, the price of gold crashed because speculators knew fewer "greenbacks" would be forthcoming from the presses. When the Confederates won, the price of gold soared. President Lincoln was so angered by the role gold played in allowing speculators to profit at the expense of his greenback financing, he outlawed trading in gold futures. That resulted in an immediate 30% increase in the price of gold. The law was quickly repealed.
Much the same thing is happening today. The two largest monetary authorities in the world, the Federal Reserve and the European Central Bank, have begun to finance their operations by printing money, now called "quantitative easing” (QE). For more info on QE, see Wikipedia link: http://en.wikipedia.org/wiki/Quantitative_easing .
It began in March 2009. What followed was a massive boom in asset prices, led by gold. When the Fed ceased its activities in March of this year, the markets immediately began to fall. And this latest rally? When did it begin? In late July, when the European Central Bank began buying hundreds of millions of dollars worth of bonds with newly created money.
What is propelling the market lately? That would be the Fed's comments about restarting its own quantitative easing. The Fed's recent announcement about the low rate of inflation was Fed-speak for "we're about to turn on the presses."
Print money, gold will rise. Threaten to print money, gold will go up more. So far this year, it's up 18%, which will likely be its 10th consecutive annual gain. That's the longest winning streak for gold since 1920. (Paper financing of World War I led to a decade of gains then, too.)
Keep this in mind: Bullion has outperformed global equities, Treasury bonds, and most industrial metals, even though it serves no economic interest. When people buy gold, they are simply abandoning paper money. Perhaps even more significantly, silver broke out last week to more than $22, its highest close since October 1980. Silver is the poor man's gold, and its price gains reflect widespread unease about the future of paper money.
Yes, I know the upward pressure on asset prices isn't limited to gold and silver. Uranium, for example, has reversed its long decline and Platinum is on the rise as well. But, gold continues to be the best way to protect yourself from the ongoing monetary debauchery – just like during the Civil War and World War I. (Private ownership of gold was outlawed by FDR in 1933 and continued until 1974.)
I first warned G&G subscribers in November of 2007 that the way the Government was choosing to handle the financial crisis – and particularly, the handling of the massive bad debts at Fannie and Freddie – would lead to the end of the dollar standard. At that time, most people thought I was nuts.
The world's leading economy, the United States, has become fantastically indebted at every level of society. With a currency and a budget process totally untethered to any reality, nothing limits the amount of foolish spending Congress can (and will) authorize. But, it is only a matter of time now before our creditors realize America's government is just as bankrupt as Iceland's. We are witnessing the end of the paper-dollar standard. Like every experiment with paper money in history, our paper dollar will be destroyed in an all-out attempt to paper over deficit spending, bad investments, and war debts.
Nothing about my outlook of the economy has changed. My top recommendation to my G&G Investment Society Subscribers (GGIS) then was to buy gold and silver bullion and coins, which was trading around $700 per ounce for gold and $12 an ounce for silver at the time. Bullion is now just over $1,300 an ounce and silver over $22 and ounce. My second-best suggestion was to buy gold and silver mining stocks through Kingross Gold (KGC) and Silver Wheaton (SLW). The KGC was trading for less than $14 a share then which is up now (31%) and SLW was trading at $3.50 then up now (596%)…yes 596%.
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With the falling dollar and the explosion in gold, silver, oil and other natural resource prices, you need to stay on top of your game and manage your “OWN Finances.”
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Until the next time!
Asante Sana (Thanks)
Tax & Financial Consultant, RFC
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"Your mind is like a parachute, it only works when it is open."
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.