Why Physical Gold? The Fed prints money nonstop – But they can’t print Gold
MONEY SUPPLY HAS MORE THAN TRIPLED SINCE 2008
The monetary changes that began in 2008 shortly after the fall of Lehman Bros., have caused governments, and investors to rethink their strategies for protecting and increasing wealth. In the United States the “Great Recession” and ballooning national debt are pointing toward a long-term weakening of the U.S.Dollar, while investors flee from equities in ever increasing numbers.
Investors are replacing equities, bonds, and other dollar-based assets with tangible assets like physical gold and silver. Due to its negative correlation to the dollar, physical gold is the ideal asset allocation to hedge against today’s uncertain economic and geopolitical climate.
Since the financial crisis began, the monetary base has continued to expand at an incredible rate, and shows few signs of slowing. The current massive base suggests higher rates of inflation to come.
GOLD APPRECIATES IN BAD TIMES: During the last two major financial crisis, (and stock market crashes), following 9-11, 2001 and the bank related collapse, (2007), the stock market and S & P 500 lost 44% and 52.5% respectively. In August 2000 the S & P peaked at 1517 by February 2003 the S & P stood at 841 a loss of 676 points or 44% of its value GONE. Meanwhile gold moved from $277 to $348 a gain of $71 or 25%! In October 2007 the S & P stood at 1548 by the time the full force of the malaise set in February 2009 the S & P was at 735 a loss of 813 points and 52.5% of its value GONE. Again in these times of financial uncertainty gold moved from $790 in October 2007 to $950 by February 2009 an increase of $160 or 20% GAIN! This is not an isolated situation; gold tends to do very well when markets collapse or any uncertainty like threat of war or terrorism. See our complete analysis of stock market crashes versus gold! Gold, (and other precious metals and tangibles), are the ultimate insurance policy for your financial diversification.
COMPLETE PRIVACY MANDATED BY LAW: United States minted Gold coins are one of the last vestiges of private wealth accumulation left in America. What that means to investors is that Tangible Investments will not BY LAW disclose private client information to government agencies. As provided in the Gold Recall Act of 1933–The purchase or sale of pre-1933 gold coins does not require any governmental reporting, whatsoever.
PORTFOLIO DIVERSIFIER: Financial experts recommend that portfolios made up of dollar denominated assets like equities and money markets should be balanced with gold and silver or even rare coins. Most Financial Planners recommend hard assets in the 10 – 25% range of total investment / retirement portfolios.
GLOBAL MARKET: Gold has been accepted as currency worldwide since the beginning of recorded history, from China to Russia to the U.S. the ownership of gold is a universal indication of wealth, and it remains true in the 21st century. It has held or appreciated against paper money currency since the inception of money in any form. The U.S. Dollar, (as well as most other currencies have shrunk in purchasing power vs. gold over the last 40 years.
SAFE HAVEN: Physical gold is a well-known safe haven and it provides protection against the global volatility inherent in dollar based equity markets. Central Banks of developed and emerging nations have become net buyers of gold bullion over the past three years. Individual investors have taken the cue from central banks and have begun converting their “paper” investments into physical gold as “portfolio insurance.” China which holds the most U.S. debt has been feverishly buying gold and gold mines as a diversification to its U.S. Dollar holdings.
GOLD REPATRIATIONS 2013: Germany created quite a firestorm in January 2013 when the country’s central bank, the Bundesbank, announced that it would be repatriating a portion of its Gold hoard currently residing in foreign vaults. The Bundesbank will repatriate all 374 tons of Gold being stored in Paris in the vaults of the Bank of France, and 300 tons of the more than 1,500 tons of bullion now being stored in the vaults at the New York Federal Reserve.
Jim Rickards, noted investor and author of Currency Wars: The Making of the Next Global Crisis says that Germany’s repatriation efforts are significant. “Germany is saying that Gold is money,” says Rickards, “otherwise,” he says, “they would just leave the Gold where it currently is stored.”
SMART MONEY INTO GOLD: Investors around the world – called “Smart Money” – are diversifying out of the U.S. Dollar and stock piling physical Gold. Warren Buffett has purchased 13 gold companies with massive physical gold holdings. Central Banks, Hedge Funds, and Petro-Dollar nations such as Saudi Arabia are converting a portion of paper assets into physical gold assets.
CENTRAL BANKS: Central banks are adding gold to their reserve allocations as a strategy to get out of U.S. Dollars and it’s having a significant effect on the gold markets and setting the stage for further gains in the price of gold. The growing list of countries that have purchased gold since 2007 includes China, Russia, India, and Mexico. Russia’s Central Bank has grown its gold reserves by 280 tons over the last 2 years. India bolstered its holdings in November 2009 with a $6.9 billion purchase of 200 tons of gold from the IMF. In 2012 China added 500 tons of gold to their reserves. Forbes cited at year-end 2013 that China purchased 1,150 tons of gold for the year – a world record. Additionally, the U.S. Ecological Survey identifies China as the world’s largest gold producer by far. In some cases, according to Forbes, China could easily spend more than $2,000 per ounce to mine gold. Why would they mine gold at more than market? They are primarily mining it as a strategic monetary metal. China’s perspective makes sense.
According to Forbes, “If so many other commodities and minerals are growing scarce, one must plan ahead to buy them. Later, no resource-rich country will sell scarce commodities for paper. They’ll want payment via some other scarce commodity. Clearly China foresees some form of future Gold Standard”. From 2005-2013, China has been steadily buying mining operations.
COLLEGES: The University of Texas in 2011 announced a $1 Billion Dollar acquisition of physical gold. In April, 2011, The University of Texas Endowment Fund officially converted nearly $1 Billion of paper derivatives into physical gold. The University of Texas Endowment Fund is the second largest in the country after Harvard University.
INSURANCE COMPANIES: Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time in the company’s 152-year history to hedge against further asset declines. Northwestern has accumulated about $400 million in physical gold, and the firm expects the price to double or even rise fivefold if the economy continues to weaken.
The “trend is your friend” and during the past decade that trend has been the soaring increase in bullion acquisition by Central Banks in both developed and emerging nations. China, Russia, and many other countries have become “NET BUYERS” of gold in the 21st Century. Institutions are also following the trend and the University of Texas has acquired a substantial cache of the yellow metal for their endowment portfolio, while Saudi Arabia and other oil rich nations are converting billions of Petro-Dollars INTO GOLD.