Joe Weisenthal, one of the editors at popular financial news website Business Insider, has been posting about the drop in the gold price of late. He's been saying the recent decline is a good thing…
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On one hand you have established economists, who believe the government has tools at its disposal to address a crisis. These tools include deficit spending and a violent expansion of the Fed's balance sheet.
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Conversely, you have critics who slam the arrogance of economists and central planners and who have predicted that all of this economic acrobatics would result in an economic collapse, hyperinflation, and an explosion in the price of gold. Gold is important to their worldview, because it represents a quasi-money that's not tied to any government or central bank.
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Investing in gold is the rejection of government money and finance. Money flowing into gold-related assets represents the belief that rocks (however shiny they are) are a better place to invest than in human endeavors (like stocks).
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If Mr. Weisenthal believes government-managed currencies are a better, more stable form of money over the long term… I (Porter) would like him to show us a single paper currency that has held its value for, let's say, a decade. Or we could be a little more stringent: Show me the government scrip that buys you more today than it did 100 years ago.
The answer, of course, is there is no such thing. Paper currencies have always failed and will always fail for the same reason – the weakness of human beings. Everyone would much rather see credit expanded than have to actually repay the money he borrowed. That is a universal human condition.
Gold managed that process by limiting the expansion of money and credit to gold suppliers. Gold gains at about 1% a year. That means neither money nor credit can expand rapidly. If productivity rises in excess of the growth of money, you have an appreciating currency. You'd have money in your pocket that could buy more things.
I would argue that scenario is far more beneficial to most people than allowing inflation to prop up bad debts and businesses. Doing so allows the very rich to control more of the economy's asset base, while the middle class' wages and standard of living declines.
So I think Mr. Weisenthal is completely wrong. And I also think he confuses the point completely by bringing in the argument about stocks.
The idea that you would have to buy stocks to have a safe currency is exactly the problem we're talking about with paper money. We have turned the U.S. into a country of gamblers and speculators because its citizens cannot safely remain in our currency. They can't go out and buy a 10-year government bond and earn a reasonable rate of return anymore.
People know that if they buy a 10-year government bond, they're going to lose purchasing power because inflation's running at 3% or 4% a year... at least according to the government. The yield on the 10-year Treasury note is about 1.7%.
As a result, you've seen an explosion of gambling across the country, and you've also seen an explosion of speculation.
Mr. Weisenthal is conflating the issue in a way that proves my point. People wouldn't have to buy stocks to safeguard their savings if their money was sound. That they must – and he is arguing they should – shows the weakness of the currency system he endorses.
– Porter Stansberry with Sean Goldsmith
The recent drop in gold prices sparked cheers from paper-money faithful and defenders of the Federal Reserve's wisdom.
In today's Digest Premium, Porter shows how the writings of one central-bank cheerleader only prove what we've always said about gold and money.
To continue reading, scroll down or click here.
The recent drop in gold prices sparked cheers from paper-money faithful and defenders of the Federal Reserve's wisdom.
In today's Digest Premium, Porter shows how the writings of one central-bank cheerleader only prove what we've always said about gold and money.
To subscribe to Digest Premium and access today's analysis, click here.
Gold's volatility over the past couple weeks has been a popular topic...
Last Monday, gold dropped nearly 9% to close the day at $1,348.21 an ounce. That's following the previous Friday, when gold fell 5%. In total, it was the biggest two-trading-day drop for gold in 30 years. It pushed the precious metal down 28% from its all-time highs in September.
Then, from Tuesday to Friday… gold closed higher on each of the next four consecutive sessions. And it's up today to more than $1,425 an ounce (see chart below).
A few "spooks" could have pushed gold lower: Goldman Sachs advised its clients to short gold… China is slowing down… and (most important) the Federal Reserve hinted it could end its inflationary quantitative-easing policies earlier than expected. You can read last Monday's Digest for the full story.
Ultimately, the correction in gold had to happen (and any number of events could have sparked the selloff). The precious metal had simply become too popular – and risen in price for 12 consecutive years. As Porter wrote in the April 16 Digest Premium…
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Gold's been in a 12-year bull market. Nothing goes up forever. The correction had to come sooner or later.
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Plus, so many people got leveraged into gold... And so many people who had never owned gold before were buying. High leverage and low-conviction owners equal a big crash when prices finally reverse. It was just a matter of time until we saw something like this.
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This is a classic liquidation. People are hitting their margin calls and trailing stop points. And they're bailing. And these are folks who have no idea what it is they actually bought. They don't know the real reason to own gold or what the asset is worth – particularly in regard to gold stocks.
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The rout in gold was due to panicked sellers, leveraged investors, and other folks who didn't own gold with conviction. But for people who understand that gold is essentially the only form of money that is nobody else's liability and it protects against rampant money printing by governments... the price decline was a healthy correction… and perhaps a gift if you were looking to acquire more.
As I (Sean Goldsmith) said in last Monday's Digest, Van Simmons, our favorite expert on rare and collectible coins and president of the dealer David Hall Rare Coins, was flooded with calls while gold was falling... But everyone was looking to buy more bullion and collectible coins. The trend was much bigger than just Van...
According to data from the U.S. Mint, a record 63,500 ounces (two tons) of gold were sold on April 17. To date in April, the Mint has sold 167,500 ounces of gold coins, besting January's 150,000 ounces (the highest since mid-2010) – and more than the previous two months combined.
If the current sales pace continues, April will be the biggest month since the Mint launched its bullion program in 1986. Sales in October 1986 totaled 692,000 ounces.
And the craze continues in Asia...
According to the Financial Times, Asia is seeing one of the strongest trends of physical gold purchases in 30 years... Hong Kong banks and jewelers don't have enough gold to meet demand. The gold exchange in Shanghai saw volumes hit a record on Monday.
Haywood Cheung, president of the Hong Kong Gold & Silver Exchange Society, said the exchange is running low. It only had 20 one-kilogram bars and 100 five-tael (six-ounce) bars... "In terms of volume, I haven't seen this gold rush for over 20 years," he told the FT. "Older members who have been in the business for 50 years haven't seen such a thing."
Gold traders in Asia said premiums have more than doubled in recent days, signaling demand far outpacing supply.
Kyle Bass, the billionaire founder of hedge fund Hayman Capital Management, spoke to Bloomberg about gold last week...
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We have always had a position in gold. When you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other than you should maintain a position.
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Porter doesn't sell, I am not selling, Kyle Bass isn't selling... Nobody I talk to is selling – or has sold – his physical gold. For further proof, don't miss today's mailbag, where many of you say your local shop is out of product...
While the government and market can move the price of gold, the value doesn't change. And folks who understand what they're buying welcome the opportunity. Porter summed up his thoughts on gold's recent moves in Friday's Digest…
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The price of gold may well fall this year – even significantly. But the value of gold won't change at all. For gold investors who understand gold's most unusual feature – its timeless and unchanging utility – a bear market in the nominal price is a wonderful gift. But for most, it will bring heartache.
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Shares of Retirement Millionaire recommendation Pepsico hit an all-time high today...
Editor Dr. David "Doc" Eifrig originally recommended shares of the food and beverage giant in his September 2010 issue. In the issue, he focused on solid companies with a long history of paying and increasing dividends. He said it was "the best time in 35 years to buy dividend stocks."
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Right now, we have a rare moment in modern history when the yield on dividend-paying stocks matches the yield on U.S. 10-Treasury notes. At this moment, you can get all the capital gain potential of a stock and still capture all the income of the ultra-safe U.S. 10-year note. We haven't seen this setup in more than 35 years. As investors reach for income and safety, they've bid down the yield for the U.S. 10-year Treasurys to its historic lows – now paying 2.95%.
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Reread that last line above… and remember, 10-year Treasurys are now yielding 1.7%. Ah, the power of the printing press...
Regardless… Pepsico was one of several dividend-paying stocks Doc recommended in that issue. At the time, Pepsico was paying a 3% dividend. It had raised its dividend for 37 years and had a 10-year dividend growth rate of 12.7% a year.
Today, the stock yields 2.6%... And Retirement Millionaire readers have made more than 32% on their position.
Two recent bullish developments have boosted Pepsico's shares. Last week, the company announced first-quarter earnings that beat expectations. Then on Friday, billionaire activist investor Nelson Peltz disclosed a position of nearly 4 million shares in the company.
As an "activist investor," Peltz typically takes a large position in a company with the intent of influencing its management. Following Peltz' disclosure, Pepsico said it had met with Peltz to discuss how it could create more shareholder value.
At the same time he revealed his Pepsico stake, Peltz also disclosed a position in food manufacturer Mondelez (the company that resulted when Kraft Foods split itself in two). Some have speculated Peltz plans to merge Mondelez and Pepsico.
Peltz is familiar with the food business. He's owned stakes in H.J. Heinz, Cadbury, Wendy's, and Domino's Pizza, among others. Whatever his plans, Peltz has a long track record of success...
New 52-week highs (as of 4/19/13): ProShares Nasdaq Ultra Biotechnology Fund (BIB), Wisdom Tree Japan Smallcap Fund (DJF), iShares Nasdaq Biotechnology Index Fund (IBB), SPDR Utilities Sector Fund (XLU), Coca-Cola (KO), Pepsico (PEP), Johnson & Johnson (JNJ), Dominion Resources (D), Hershey (HSY), ONEOK (OKE), Procter & Gamble (PG), Union Pacific (UNP), CVS Caremark (CVS), Walgreens (WAG), and GenMark Diagnostics (GNMK).
It seems your experiences match what we've been reading... Physical gold is flying off the shelves. Continue sending your stories to feedback@stansberryresearch.com.
"I thought Porter's Friday comments on gold were perfectly well stated. It seems to me that people talk two ways about gold. One from the point of 'gold as money, insurance, value' and the other as just another short- to mid-term trade (technicals, trends, etc).
"I think you showed a good balance of both recognizing each and their importance at this stage taking some of the confusion out for many folks I would imagine. I look forward to looking for a new entry point in the miners." – Paid-up subscriber Cor Bader
"There's not a 1 ounce Maple Leaf to be found in Central Florida as of this whole past week! Really weird." – Paid-up subscriber David Bennett
"You asked about local coin dealers. I live in Northern California, and I have steadily accumulated silver coins for a period of years, buying at times of weak prices. I view silver as a long-term store of wealth free from counterparty and confiscatory risk. But short-term market fluctuations can be quite interesting.
"I prefer to focus my buying on silver coins that were minted by governments for use as currency because their value is widely recognized by common people. U.S. and Canadian coins present quantity buying opportunities. Larger Australian and British coins – florins, half crowns, and crowns – can also be attractive.
"Our local dealers have only a limited supply, and they complain of difficulty getting more. This has continued to be the case despite the recent general price decline. Half dollar coins have been particularly scarce.
"The premium over melt value has jumped as well. A year ago, I could buy Canadian for slightly less than melt. Now it trades at a 10% or greater premium. The same is true for 40% U.S. silver. 90% silver U.S. coins can trade today with a premium of more than 30% versus perhaps 10% a year ago.
"This suggests two things. First, those holding so-called 'junk silver' have enjoyed a cushion to the general decline in silver prices not experienced by owners of investment grade bullion. Second, the decline in silver has nothing to do with physical supply and demand: it has been caused by action in the paper silver market, and is thus to be viewed with suspicion." – Paid-up subscriber William Chickering
Goldsmith comment: Folks interested in an unusual way to add to your silver position will want to read this presentation from Doc Eifrig. He's found a way to walk into almost any FDIC-insured bank and walk out with "hold in your hand" silver. And you'll pay ZERO premium when you purchase this silver. It's a little-known strategy Doc discovered for his readers. To learn more, click here...
Regards,
How the government has turned us into a nation of gamblers…