Reverse of the American Buffalo gold coins (Photo credit: Wikipedia)
The Financial Trend Forecaster recently published an article entitled “The Five Key Investment Criteria”. The article was intended to help people decide which kinds of investments (stocks, bonds, commodities)—or even specific investments (GM, IBM or ABG)—should or should not be included in their portfolios.
The article explained,
“Safety is a major concern for two reasons:”
Safety is a “major concern” because we live in “interesting times” when our economy is fragile and prone to greater recession and/or depression. Most investments—especially paper stocks and paper bonds—are vulnerable to losing value (purchasing power) until our economy truly begins to make a genuine “recovery”.
“First, retirees and people approaching retirement cannot afford to take a major portion of their life savings and gamble on a Facebook IPO going through the roof. The risk is simply too high.”
Some stocks may profit handsomely over the next several years, but the risk of further recession or depression should eliminate most stocks from our list of potential long-term investments. Given that all paper debt instruments (like stocks and bonds) are mere “promises to pay” and given that there are already so many such “promises” issued into the world that most those paper promises will never be paid—it’s unreasonably risky to invest in any paper debt instrument.
“Second, . . . “inflation.” The Treasury Department reports that in February, 2006, our government debt ceiling was $8.2 trillion. In January, 2012, Congress approved a debt ceiling of $16.4 trillion, essentially doubling our debt in six years. . . .
“A major portion of the increased debt was sold to the Federal Reserve. In essence, the money [used by the Fed to buy US debt] was merely printed or created by an accounting entry. That’s inflationary and that’s why combating inflation is vital.
“In today’s climate, if you have a high-quality bond or CD, collect the interest, and then pay the tax on that interest, your net yield could be 1% or less. With the Fed printing plenty of money, a 5% inflation rate is not completely unforeseeable in the near future. In round numbers, over a five-year period, your principal around such an inflation rate would buy 82% of what it did five years earlier when you purchased it.”
In other words, so long as the Federal Reserve is dedicated to inflating the US dollar, US bonds and CDs are–long-term–almost certain to be losing investments. That high probability eliminates US bonds and CDs from our list of potential investments.
• We are left to consider commodities.
I will specifically consider gold in light of the “five criteria” that Financial Trend Forecaster advised should be “looked at for every investment:”
“1. Is it a solid company or investment vehicle?”
Can you think of a single investment vehicle that’s more “solid” than physical gold?
I cannot.
“2. Does it provide income?”
Some people complain that physical gold isn’t a good investment because it doesn’t pay interest or dividends (like stocks or bonds).
If physical gold were trading in a true “free (unmanipulated) market,” I would agree.
In a true, free market, physical gold is merely a means of preserving wealth—but not, in itself, a means of generating income.
But we’re not living in a true “free market”. Virtually all evidence indicates that price of gold is routinely manipulated and artificially suppressed by the federal government, Federal Reserve, and major, Wall Street financial institutions. (collectively, the Powers that Be (PTB)).
This manipulation is achieved by means of deceiving people into believing that the price of “paper gold” (gold certificates, electronically-traded gold funds, etc., that are traded on the current commodities markets) is a true reflection of the price of physical gold.
But that’s not so.
Some people guestimate that there’s as little as one ounce of physical gold actually changing hands for every 100 ounces of paper gold traded on the commodities markets. That means that the gold commodity markets aren’t really discovering the price of physical gold—they’re discovering the price of paper gold.
More, while physical gold can’t ever be “spun out of thin air,” paper gold is every bit as “spinable” as paper fiat dollars.
The PTB are every bit as able and inclined to depreciate the price of paper gold as they are to depreciate the price of paper dollars.
How’s it done? The PTB simply prints more “paper gold” certificates, just as the Federal Reserve prints more paper dollars. As the supply of paper gold increases, the value of each “ounce” of paper gold certificates is proportionally diminished.
Just as the Fed can inflate paper dollars, the PTB can inflate paper gold.
• This power-of-inflation works just fine so long as the public is sufficiently gullible to believe that:
1) fiat dollars are money; and
2) the price of, inflated paper gold traded on the commodity exchanges is equal to the true price of physical gold.
However, as investors begin realize that the price of “paper gold” is not equivalent to the price of “physical gold,” investors will increasingly pay paper gold prices and then demand to take delivery of the more valuable physical gold.
• As investors sense that the price of physical gold must be much higher than the price of paper gold, they’ll realize that there’s a “price-suppression dividend” built into every ounce of physical gold.
This “price-suppression dividend” could be as much or more than the 70% “dividend” seen when physical gold (priced at $20/ounce when seized by the Federal government in A.D. 1933) jumped to $35/ounce in A.D. 1934. Although the common people had no idea that there was a 70% “dividend” built into their gold coins in A.D. 1933, the government recognized and expected that “dividend” when they seized the gold. Thus, the concept of a gold “dividend” is not unprecedented.
• In A.D. 1933, the government knew that physical gold was under-priced and therefore a “dividend” was available to be captured. Today, gold investors are beginning to sense the presence of another “dividend” hidden in the current, suppressed price of gold.
Today’s gold investors increasingly bet that the day must come when commodity markets will again be free to reflect the true price of physical gold (rather than the manipulated price of paper gold). When that day comes, the price of physical gold will be discovered to be somewhere between two and fifteen times the price of paper gold.
Thus, a man who purchased 100 ounces of physical gold for the paper-gold price of $170,000 could suddenly see the price of his 100 ounces of physical gold jump to somewhere between $340,000 to $2.5 million.
The difference between the price of paper gold in the manipulated markets and the price of physical gold on a true, free market is the “price-suppression dividend” that’s currently intrinsic to every ounce of physical gold. When that “dividend” will be paid is anyone’s guess. It might be paid in six months. It might be paid in six years.
But that “price-suppression dividend” has been built into every ounce of physical gold by the PTB’s efforts to artificially suppress the price of paper gold.
So long as the price-suppression schemes continue, there’ll be a hidden “price-suppression dividend” in every ounce of physical gold—and that “dividend” will continue to grow.
So long as the “price-suppression dividend” remains largely hidden in each ounce of physical gold, each ounce of physical gold will not only preserve your wealth—it will hold the potential of generating real income whenever the “price-suppression dividend” is finally paid.
Thus, physical gold is virtually certain to be capable of generating some imperfectly known, but considerable, “income”.
In fact, over the next five years, there’s a high probability that and investment in physical gold will generate more “income” than any other generic investment vehicle.
“3. Is there a good opportunity for appreciation?”
Despite price-suppression schemes, the price of gold has appreciated by nearly 20% per year for the past decade. Other than silver, no other generic investment has kept pace with gold. This price appreciation is likely to continue and even accelerate (due to hyper-inflation of the fiat dollar and/or gold going into the “mania phase” of the bull market cycle) for the next five years.
How many investment vehicles can you think of that are as likely to appreciate in price over the next five years as much as physical gold?
“4. Does it protect against inflation?”
Ha! If you didn’t already know the answer to that question, you wouldn’t have read this far into this article.
But just in case you don’t know, there are three answers to that question and they are: 1) Yes; 2) YES; and YES!!!
That’s what gold does. Free market or manipulated market, the price of even paper gold can be relied on to increase at least as much and probably more than the Consumer Price Index.
So long as that’s true, gold will protect against inflation.
“5. Is it easily reversible?”
In other words, if you invest in gold today, can you expect to easily sell that gold tomorrow or even ten years from now?
A: There’s been a global market for gold for most of 3,000 years. So long as there are living men and women, that market won’t ever disappear. There may always be squabbles between buyers and sellers over the exact price of physical gold. But if you have gold, you can sell gold—quickly and even to complete strangers.
• Thus, in regard to physical gold, the answers to all five of “The Five Key Investment Criteria” are Yes, Yes, Yes, Yes, and . . . umm . . . Yes.
As measured by those “Five Criteria,” gold should be the top investment vehicle for the balance of this decade.
