Why I own gold...

The return of the moneychangers...

Central banks are increasing their number of gold sales. The Federal Reserve sold a one-day record of 63,500 ounces to the public Wednesday. The Bank of Cyprus said this week it might sell as much as 85% of its holdings.

I (Porter) would ask you to pay close attention to this because it's one of the most interesting things about the way the world works.

There is a story in the Bible about Jesus throwing the moneychangers out of the temple. The moneychangers, of course, were exchanging bullion for specie. They were taking in real money – gold – and doling out its debased Roman equivalent.

It's very interesting that central banks who created the fiat money systems we use today are desperately trying to convince us paper money can actually outperform gold. They're basically acting as moneychangers.

"It's better than gold because it pays a yield," they say. "It's better because it's the foundation of our financial system. It's better because more can be printed in an emergency to prevent a panic or a run on the banks. It's better because it can be managed and manipulated and this, supposedly, will benefit us."

That's the argument. Now answer me this, guys: What really happens with these paper currencies at the end of the day? What really goes on? I would postulate that they're managed in a manner designed to benefit a very, very powerful elite.

When the right group of well-connected people – say, at a certain private-equity firm or hedge fund – wants to buy an oil asset, a trophy property, or a great business, the paper money can be found. It can be ginned up, printed, allocated, and sourced to allow that group unlimited credit. They can therefore buy what they want.

The upshot of all this is that the world's greatest assets end up coming under tighter and tighter control by a smaller and smaller number of people. If you look at what's happened since 1971, when the U.S. went off the gold standard completely, you'll see that's exactly the case. A dramatic concentration of wealth has occurred.

A steadily shrinking number of people now control an increased share of assets, not only in this country, but around the globe. They've done so by convincing people to trade physical resources for paper.

The system inevitably breaks down for lots of reasons, but mostly because people eventually lose faith in that paper. They lose faith because their wages continue to fall as prices continue to rise. They lose faith because it fosters in a kind of cronyism. Absolute power rots things from the inside. The whole system eventually disintegrates. The power of paper money to deliver credit and resources to a small minority eventually causes the currency's own destruction. Through its expansion, paper money creates wealth and power for the few, but in the process, it is debauched and debased.

But before the system falls apart, a fascinating thing happens. People come to believe so much in the power of this phony money that they literally give away what they hold in savings – gold – for more intrinsically valueless receipts. They give it to the very people who manipulated the currency to bankrupt them.

Let's look at Cyprus as an example. In order to stay in the European money club, the people of Cyprus, through their central bank, are going to give away their gold in exchange for euros. The euro is a convergence currency that's not even maintained by a coherent political union. It's what we like to call a "who owes you nothing." In that way, it's not that different from bitcoin. So Cyprus is getting rid of its gold to remain in the euro/bitcoin club.

Meanwhile, the managers of that euro/bitcoin have inflated the money supply and the credit of that currency region to the point where it collapsed. In other words, it was so mismanaged that one of its members failed. As a tragicomic result, that member is now sacrificing its gold to remain in that currency system. Go figure.

In this, you have the exact picture of what goes on in all paper currency regimes going back to biblical times. What we need to do is the same thing Jesus did 2,000 years ago. We need to stop believing the lies of the bankers and the paper money charlatans. We need to remember what money is and its value. That, I believe, fundamentally starts with an understanding of gold.

– Porter Stansberry with Sean Goldsmith

The return of the moneychangers...

Central banks around the world – like ancient moneychangers – are handing out paper in exchange for physical assets. These days, Porter writes, the central banks are acting in support of a paper-currency regime that benefits the elite...

To continue reading, scroll down or click here.

Like everyone in the country, I (Porter) am gripped by the unbelievable drama unfolding in Boston.

Our thoughts go out to everyone who has suffered through this tragedy. Here at the Digest, we'll continue with our usual coverage of financial issues. We believe that's what you look to us to provide... while other traditional news outlets are better-positioned to keep you updated on the news from Boston.

Let me start today's Friday Digest with an admission...

I have no idea what the price of gold will be by the end of the year. Of course, neither does anyone else.

I've recommended owning gold and silver bullion for many years. My company began recommending it repeatedly in the early 2000s because we saw the government's efforts to weaken the dollar as a bullish sign for gold prices.

Then, in 2006, I began to see that we were inevitably heading for a currency crisis. These weak-dollar policies had continued for far too long and were joined by huge increases to both public and private debts. That's when I began warning about the ultimate loss of our dollar's world reserve currency status, something I've called the "End of America."

So for nearly seven years, I've been telling people that, whether gold looked expensive or not, it was prudent... or even necessary... to own some as insurance. I still believe that's true. I personally own gold. I've never sold a single ounce.

I hold gold because I believe the entire global system of paper money and central banking is in the process of self-destructing. And I believe in a relatively short time – perhaps five or 10 years – the existing monetary system will collapse. During this period of turmoil, I expect gold and silver will maintain their purchasing power, while all forms of paper money will be rendered worthless.

I see gold as a form of savings... a universally recognized form of money that is no one else's liability. In that way, it is far superior to any other form of money currently available today.

At the same time... I am fully aware that as the public's awareness of the risks associated with our paper-money system grow, volatility in gold prices will spike. Worse, I knew that as the public began to invest in gold, the likelihood increased for a wicked bear market designed to separate the foolish, the leveraged, and the ignorant from their savings.

Just remember... nothing goes up for 12 years in a row. Nothing. When my driver in Baltimore asked me if he should buy some gold in 2011, I figured we had to be near the top. But... gold continued to rise.

I've never seen any other company or commodity go up for 12 straight years like gold has done. (That happened, by the way, not because anything about the gold market changed, but because of incredibly stupid government policies.)

The Bank of Japan was the last major central bank to resist the inflationary policies embraced by the Federal Reserve and the European Central Bank. That changed with the election of new Prime Minister Shinzo Abe.

You would have thought that just as the last major central bank in the world (the Bank of Japan) had announced a policy of essentially unlimited money printing, the price of gold would soar. Japan's decision to inflate away its debts – along with the U.S. and Europe – means there's no major form of paper money left with any credibility at all.

The world has begun a "race to the bottom" – a race designed to rob creditors and wage earners. And so... why is gold collapsing? And why would the share prices of the highest-quality gold and silver companies – Newmont Mining (NEM), Freeport-McMoRan (FCX), Silver Wheaton (SLW), and Royal Gold (RGLD) – be essentially in freefall?

When I look at the precious-metals complex – the commodity prices, the production companies, the collectibles, and the royalty companies – I see a huge boom over the past dozen years.

When a sector booms, a lot of interesting things happen. People who are suddenly making a lot of money come to believe they're smart. They inevitably start doing foolish things. And so I've watched as people began to sell regular bullion coins as collectibles from China... and took huge commissions to do so. I've seen investors mortgage their homes to buy gold. (Yes, really.)

I've watched well-run, conservative miners lose their footing, too. Many large mining companies have made horrendously expensive (and foolhardy) acquisitions over the past decade.

Stillwater Mining, for example, bought a $263 million mine in Argentina... a country not well-known for respecting the rule of law. Yes, as you probably know, we recommended shares of Stillwater recently in my Investment Advisory. We did so because the stock was so cheap. Even after writing off Argentina completely, it still seemed attractive. But we were early. We stopped out of that position this week. (Likewise, we may still be proven wrong about our valuation of Newmont Mining, which seems incredibly cheap to us.)

And worst of all, in my view, were the many companies in the sector that replaced their conservative leadership and strategies to become far more aggressive. Silver Standard (SSRI) is perhaps the best example. In 2006, it decided to abandon its carefully constructed strategy of buying and holding silver in the ground – a strategy it had followed successfully for decades. As I explained in my November 2006 issue (where I recommended closing out of the position)...

My subscribers pocketed 15% gains in five months. And I was right when I said we might be leaving money on the table, too... A year later, shares had nearly doubled. But ultimately, my thesis was proven correct. Over the next five years, shares tumbled from more than $45 per share to less than $7, where they sit today.

My point is... a lot of precious-metals companies have gotten carried away. They've made bad decisions. As with any other sector of the market, a bear market will surely follow a bull market, just as sure as the sun rises and the sun sets.

I've tried to warn people along the way that precious metals are not immune to the iron laws of the market. And sadly, the sector seems to have more "true believers" than any other area of the market. That might be because, fundamentally, they are correct. There is no doubt that gold is the best and only reliable form of money. There is no doubt that the price of silver is a fantastic barometer of the overall health of the banking sector. But... the facts don't exempt the sector from bear markets.

Like I said at the beginning of today's Digest... I don't know what the price of gold will be at the end of this year. Nor do I know what will happen to the share prices of the many high-quality stocks in the sector.

I've personally been "nibbling" at the highest-quality producers this year – unsuccessfully, so far. And so, I've told my analysts we won't recommend any more precious-metals companies until we see some significant signs of progress in the metals' prices.

I'm cautious here – not bullish. I'm cautious because with the world's central bankers printing faster than ever before, the price of gold should be rising. But it's not. That's troubling. It's a sign that the excesses in the sector are significant... and need to be corrected.

Remember what I said earlier... bear markets follow bull markets. We've seen a 12-year, raging bull market in gold. All the signs of excess and poor judgment have developed, just as they do in other sectors during wild bull markets. This is a time for caution. And that's why I'm not urging folks to buy gold stocks today, despite their low valuations.

One last point to remember. 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.

New 52-week highs (as of 4/18/13): Pepsico (PEP), Hershey (HSY), and Union Pacific (UNP).

More stories of local coin shops running out of inventory... How is the store in your area? Are you having trouble buying bullion? Let us know... feedback@stansberryresearch.com.

"2&1/2 months ago I wrote in & told you: 'I decided it was time to convert some more greenbacks into bullion. So I went to my local gold & silver dealer (Dallas/Ft Worth area) today & they were out of 1oz gold maples; they had a handful (literally a handful) of eagles & Krugerrands. They were out of 1oz silver eagles & probably won't be getting more real soon. They did have some other odds & ends in silver. This is the first time I've ever had any difficulty buying bullion...

"Two days ago, I went back to buy some more since the prices went down so much. Again, they had a very limited supply of gold bullion – a few 1oz coins & some half & tenth-ouncers. They had about 100 silver eagles & 100 silver maples & not much else; they wouldn't have had any silver at all, but they'd had one seller that morning. I got lucky & showed up at the right time. And this is not some small operation; this is a well-established, multi-location operation in a major metro area. Almost no supply, and plummeting prices... hmmm, interesting." – Anonymous

"I checked today at my favorite gold/ silver dealer (Canadian). Premiums over spot for silver (what I have been shopping for) have more than doubled. The best is about 16%. They are also out of quite a few items. Very unusual for these guys. They also have stopped price matching because most of their competitors have no stock. I was hoping for better prices, but I will have to settle for what I can get. Demand seems to be through the roof." – Paid-up subscriber Steve

Regards,