Sunday, June 30, 2013

Money Out of Thin Air

"Mr Bernanke’s objective is not to save the dollar. He thinks artificially low interest rates from repeated market interventions by central planners will enable him to save an over leveraged financial system that perpetuates government power by giving central planners the authority to create money out of thin air. Mr Bernanke is trying to prove that central planning and fiat currency are good things."

- James Turk via Gold Money:

Friday, June 28, 2013

Saving Precious Metals is Still a Good Strategy

Saving the precious metals has been a good strategy for the past 12 years, but is it still a good strategy for the foreseeable future? Yes, for four reasons.
  • Accumulating savings is itself a worthwhile and valuable objective for everyone to prepare for an uncertain future, but saving a national currency results in the loss of purchasing power. In a continuation of the trend now well established over the past 12 years, gold and silver are likely to appreciate faster than the rate of inflation because central bank and government actions are debasing national currency, so demand for the precious metals will continue to grow
  • The precious metals remain undervalued, as explained by my Fear Index and Gold Money Index. Silver remains undervalued relative to gold as evidenced by their historically high ratio.
  • Owning gold and silver are useful diversifiers for everyone’s portfolio. Diversification is always a good way to mitigate unpredictable outcomes and the risks from an uncertain future.
  • Gold and silver are money outside the banking system, which is still teetering on the edge of insolvency, meaning that more events like Northern Rock, Lehman Brothers and Cyprus are likely.

Consequently, saving a weight of precious metals suited to your personal needs by accumulating them through a disciplined cost-averaging programme remains a sound strategy to provide for an uncertain future. So for now, I continue to recommend it.

- James Turk via a recent Gold Money interview:

Wednesday, June 26, 2013

How Can You Save Money Today?

"Over time, the concept of saving money has lost general acceptance. No longer do people put away money in a savings account for a rainy day, retirement, or even just to save money to purchase a consumer good. Nevertheless, the worth whileness of these objectives has not been diminished by modern disruptions to money nor has the resulting monetary disorder changed the obvious necessity that everyone needs to plan and prepare for an uncertain future. So savings remain as important today as at any time in the past, which poses an obvious problem.

How can you save money today when central bank and government policy result in the erosion of your purchasing power when saving any national currency?

The answer lies in the money being saved. Save gold and/or silver instead of any national currency."

- James Turk via a recent Gold Money article:

Saturday, June 22, 2013

How High Could Precious Metals Go?

"At these levels, as long as you are taking a long-term view and recognizing the monetary problems that we face, and that these problems are likely going to lead to a blow up in terms of the currency, who is to say how high these precious metals could go? But clearly I remain in the bullish camp.”

- James Turk via a King World News interview, read the full interview here:

Thursday, June 20, 2013

Money Outside of the Banking System

"Physical metal, whether gold or silver, does not have counterparty risk and is therefore a safe-haven. It is money outside of the banking system."

- James Turk, founder of Goldmoney.com


Tuesday, June 18, 2013

No One Can Predict the Future

"No one can predict what will happen in the future, but gold’s 5,000-year history as money provides a lot of comfort to everyone seeking prudent ways to get through the monetary upheaval that is rocking the world today."

- James Turk via a GoldMoney article:



Wednesday, June 12, 2013

5000 Year History as Sound Money

"Physical gold and silver are tangible assets, they do not have counterparty risk. Their value is not based on any bank or central bank’s promise, but rather, on those individuals who appreciate their 5,000-year history as sound money and usefulness in economic calculation."

- James Turk via a GoldMoney article, read the full article here:

Thursday, June 6, 2013

The Next Big Banking Crisis

"As economies head into the tank, more loans in the banking system will become impaired, and many banks around the world remain over-leveraged with weak balance sheets. As interest rates rise, the long-term interest rates banks have locked into in on their loan books will mean the value of those assets will be declining, further adding to bank woes.

Even the Fed's and other central bank balance sheets are not immune to the loss in value of the fixed-rate paper they own when yields climb. In other words, the next big banking crisis may be just around the corner, and the best way to prepare for it is to own physical gold and silver.”

- James Turk via a recent King World News interview, read the full interview here:



Tuesday, June 4, 2013

A Selling Climax in Gold and Silver

“Gold has now risen two weeks in a row, Eric, and with the strong showing today, maybe it will end this week by scoring three in a row. That would be a very positive development. The really important point is that gold and silver are steadily moving further away from the low made on Monday, May 20th, as evidenced by their short-term moving averages.

You will recall that both precious metals opened lower that day and sold off badly before putting in a remarkable upside reversal as the day wore on. That day had all the earmarks of a selling climax in both gold and silver, so it could prove to be an important turning point and if so, the end of this long correction in the precious metals which would be a welcomed relief...."


- James Turk via a recent King World News interview, read the full interview here:

Monday, June 3, 2013

James Turk Refutes Warren Buffets View on Gold


Wall Street legend Warren Buffett has famously declared that gold is not an investment. He is correct, but he stopped halfway. He did not go on to say what gold really is, perhaps purposefully intending for people to draw their own conclusions.

In my view, there is only one conclusion possible, because there are only two alternatives when it comes to allocating assets in any portfolio, whether that of an individual or an institution. Your assets are either an investment, which gold is not; or money, which gold indeed is.

Mr Buffet defines investing as “…the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power…in the future”. In other words, you put your money at risk hoping that you have made a good decision, so that more money is returned to you from your investment in the future.

Note though that Mr Buffett purposefully uses the term ‘purchasing power’, and not money. He clearly understands that money today is no longer a constant measure of wealth. The purchasing power of £100 today will be less than £100 a year from now because of inflation. Thus, the success of an investment should be measured by purchasing power to determine whether your investment actually increases your wealth.

If money were sound, to use a term rarely heard today, it would preserve purchasing power. When Sir Isaac Newton invented the classical Gold Standard circa 1700, he set into motion a monetary policy that would preserve the pound’s purchasing power, which it did. For more than two centuries the purchasing power of the pound was essentially unchanged – until 1914 when Newton’s invention was abandoned, notwithstanding its remarkable track record. Money has never been the same. But what about gold?

Mr Buffett explains that gold is “incapable of producing anything”. If you take the gold you own, melt it down into a cube, and check back years later, he observes that the cube “…will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond”. But the same can be said of all money.

If you take a stack of pound notes and store them in a vault, and then check back years later, they too will not “respond”. They also will be unchanged, at least as far as their appearance goes. But what about the purchasing power of that stack of pound notes, which is the important question that needs to be asked?

Did that stack of pound notes preserve purchasing power as effectively as gold? The answer can be found in the following table which presents gold’s annual appreciation against nine of the world’s major currencies for the past 12 years.

Gold % Annual Change
USDAUDCADCNYEURINRJPYCHFGBP
20012.5%11.3%8.8%2.5%8.1%5.8%17.4%5.0%5.4%
200224.7%13.5%23.7%24.8%5.9%24.0%13.0%3.9%12.7%
200319.6%-10.5%-2.2%19.5%-0.5%13.5%7.9%7.0%7.9%
20045.2%1.4%-2.0%5.2%-2.1%0.0%0.9%-3.0%-2.0%
200518.2%25.6%14.5%15.2%35.1%22.8%35.7%36.2%31.8%
200622.8%14.4%22.8%18.8%10.2%20.5%24.0%13.9%7.8%
200731.4%18.1%11.5%22.9%18.8%17.4%23.4%22.1%29.7%
20085.8%33.0%31.1%-1.0%11.0%30.5%-14.0%-0.3%43.7%
200923.9%-3.6%5.9%24.0%20.4%18.4%27.1%20.3%12.1%
201029.8%15.1%24.2%25.5%40.2%25.3%13.9%17.4%36.3%
201110.2%8.8%11.9%5.1%12.7%30.4%3.9%10.2%9.2%
20127.0%5.5%4.4%5.9%5.2%11.0%20.5%4.4%2.3%
Average16.8%11.0%12.9%14.0%13.7%18.3%14.5%11.4%16.4%

Against the British pound, gold has appreciated by 16.4% per annum on average. This result far exceeds the interest one could earn from bank deposits during this period.

The difference between what one earned from a bank deposit, and the rising gold price, is particularly striking at the moment because of the near-zero interest rate conditions which central banks are imposing on the market economy. The cumulative detrimental effect on savers from years of suppressed interest rates has been catastrophic. Their wealth has shrunk because they are not able to earn enough interest on their savings to compensate them for the loss of purchasing power from inflation and other insidious debasements of national currencies.

The low deposit rate which has lasted now for several years is one factor explaining why so many people are finding it increasingly difficult to maintain the standard of living which they previously enjoyed. It also explains, along with the above table, why gold may be a prudent alternative to traditional bank savings accounts; or at least be a meaningful diversifier in which to hold part of one’s savings, until bank deposit rates return to normal levels.

Admittedly, gold’s appreciation has not been a smooth ride. Though gold has risen against the British pound in 11 of the past 12 years, the annual rates of change have ranged from a loss of -2.0% in 2004 to an astounding annual gain of 43.7% in 2008, the year of the financial crisis, which highlights another important point.

Gold is a safe-haven. This attribute results from the fact that gold is a tangible asset. It is money that is not based on any bank’s promise or central bank policy.

The collapse of Northern Rock and Lehman Brothers are events that will not be forgotten. But even more lessons have been learned recently from the banking collapse in Cyprus. Depositor money was grabbed by the monetary authorities to bail-out insolvent banks. Even savers with small deposits were hurt by the capital controls that were imposed because these restrictions prevented deposits from being withdrawn, except nominal amounts that could be disbursed through ATMs.

Thus, gold offers two clear advantages over the British pound and other national currencies. It can preserve purchasing power, which is an attribute that is particularly important when the interest rate on bank deposits is not high enough to offset the erosion of purchasing power from inflation. Second, a tangible asset like gold eliminates the uncertainty of not knowing whether keeping money in a bank is safe.

From reading Mr Buffett’s various statements about money and investments, it is clear that he has a nuanced view. He sidesteps gold and its 5,000-year history as money, but you should not. Gold still has an important place in everyone’s portfolio.

Given Warren Buffett's well-known views about gold, it's ironic that one of the few politicians in 20th century America with a clear appreciation of gold's use as money was one Howard Buffett – a four-term Republican congressman from Omaha, Nebraska and Warren's father. For a more detailed examination of the contrasting views of the Buffetts on this subject, readers might be interested in the following essay, published by the GoldMoney Foundation: 'A Perspective on Money from Howard and Warren Buffett'.

In my view, there is only one conclusion possible, because there are only two alternatives when it comes to allocating assets in any portfolio, whether that of an individual or an institution. Your assets are either an investment, which gold is not; or money, which gold indeed is.

Mr Buffet defines investing as “…the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power…in the future”. In other words, you put your money at risk hoping that you have made a good decision, so that more money is returned to you from your investment in the future.

Note though that Mr Buffett purposefully uses the term ‘purchasing power’, and not money. He clearly understands that money today is no longer a constant measure of wealth. The purchasing power of £100 today will be less than £100 a year from now because of inflation. Thus, the success of an investment should be measured by purchasing power to determine whether your investment actually increases your wealth.

If money were sound, to use a term rarely heard today, it would preserve purchasing power. When Sir Isaac Newton invented the classical Gold Standard circa 1700, he set into motion a monetary policy that would preserve the pound’s purchasing power, which it did. For more than two centuries the purchasing power of the pound was essentially unchanged – until 1914 when Newton’s invention was abandoned, notwithstanding its remarkable track record. Money has never been the same. But what about gold?

Mr Buffett explains that gold is “incapable of producing anything”. If you take the gold you own, melt it down into a cube, and check back years later, he observes that the cube “…will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond”. But the same can be said of all money.

If you take a stack of pound notes and store them in a vault, and then check back years later, they too will not “respond”. They also will be unchanged, at least as far as their appearance goes. But what about the purchasing power of that stack of pound notes, which is the important question that needs to be asked?

Did that stack of pound notes preserve purchasing power as effectively as gold? The answer can be found in the following table which presents gold’s annual appreciation against nine of the world’s major currencies for the past 12 years.

Gold % Annual Change
USDAUDCADCNYEURINRJPYCHFGBP
20012.5%11.3%8.8%2.5%8.1%5.8%17.4%5.0%5.4%
200224.7%13.5%23.7%24.8%5.9%24.0%13.0%3.9%12.7%
200319.6%-10.5%-2.2%19.5%-0.5%13.5%7.9%7.0%7.9%
20045.2%1.4%-2.0%5.2%-2.1%0.0%0.9%-3.0%-2.0%
200518.2%25.6%14.5%15.2%35.1%22.8%35.7%36.2%31.8%
200622.8%14.4%22.8%18.8%10.2%20.5%24.0%13.9%7.8%
200731.4%18.1%11.5%22.9%18.8%17.4%23.4%22.1%29.7%
20085.8%33.0%31.1%-1.0%11.0%30.5%-14.0%-0.3%43.7%
200923.9%-3.6%5.9%24.0%20.4%18.4%27.1%20.3%12.1%
201029.8%15.1%24.2%25.5%40.2%25.3%13.9%17.4%36.3%
201110.2%8.8%11.9%5.1%12.7%30.4%3.9%10.2%9.2%
20127.0%5.5%4.4%5.9%5.2%11.0%20.5%4.4%2.3%
Average16.8%11.0%12.9%14.0%13.7%18.3%14.5%11.4%16.4%

Against the British pound, gold has appreciated by 16.4% per annum on average. This result far exceeds the interest one could earn from bank deposits during this period.

The difference between what one earned from a bank deposit, and the rising gold price, is particularly striking at the moment because of the near-zero interest rate conditions which central banks are imposing on the market economy. The cumulative detrimental effect on savers from years of suppressed interest rates has been catastrophic. Their wealth has shrunk because they are not able to earn enough interest on their savings to compensate them for the loss of purchasing power from inflation and other insidious debasements of national currencies.

The low deposit rate which has lasted now for several years is one factor explaining why so many people are finding it increasingly difficult to maintain the standard of living which they previously enjoyed. It also explains, along with the above table, why gold may be a prudent alternative to traditional bank savings accounts; or at least be a meaningful diversifier in which to hold part of one’s savings, until bank deposit rates return to normal levels.

Admittedly, gold’s appreciation has not been a smooth ride. Though gold has risen against the British pound in 11 of the past 12 years, the annual rates of change have ranged from a loss of -2.0% in 2004 to an astounding annual gain of 43.7% in 2008, the year of the financial crisis, which highlights another important point.

Gold is a safe-haven. This attribute results from the fact that gold is a tangible asset. It is money that is not based on any bank’s promise or central bank policy.

The collapse of Northern Rock and Lehman Brothers are events that will not be forgotten. But even more lessons have been learned recently from the banking collapse in Cyprus. Depositor money was grabbed by the monetary authorities to bail-out insolvent banks. Even savers with small deposits were hurt by the capital controls that were imposed because these restrictions prevented deposits from being withdrawn, except nominal amounts that could be disbursed through ATMs.

Thus, gold offers two clear advantages over the British pound and other national currencies. It can preserve purchasing power, which is an attribute that is particularly important when the interest rate on bank deposits is not high enough to offset the erosion of purchasing power from inflation. Second, a tangible asset like gold eliminates the uncertainty of not knowing whether keeping money in a bank is safe.

From reading Mr Buffett’s various statements about money and investments, it is clear that he has a nuanced view. He sidesteps gold and its 5,000-year history as money, but you should not. Gold still has an important place in everyone’s portfolio.

Given Warren Buffett's well-known views about gold, it's ironic that one of the few politicians in 20th century America with a clear appreciation of gold's use as money was one Howard Buffett – a four-term Republican congressman from Omaha, Nebraska and Warren's father. For a more detailed examination of the contrasting views of the Buffetts on this subject, readers might be interested in the following essay, published by the GoldMoney Foundation: 'A Perspective on Money from Howard and Warren Buffett'.

- Source, GoldMoney: