Gold is power.
We know that gold historically holds its value over time and serves to preserve wealth, especially in times of economic chaos. But gold also offers its holder political power.
Countries that stockpile gold create a foundation of stability for their monetary systems. This is precisely why China is increasing its gold holdings. As we reported last week, China now boasts the fifth largest story of physical gold in the world. The country continues to buy up the precious metal as it eyes a more dominant role in the world’s monetary system.
But it’s not just countries looking to gold to provide political clout and economic power. Texas recently laid the groundwork for its own gold depository. The reason? To wrest some economic power from the Federal Reserve by bringing some monetary autonomy to the Lone Star State.
Under the original Coinage Act of 1792, drafted by Alexander Hamilton, the penalty for debasing a coin was death.
Under that law, President Lyndon B. Johnson was guilty of a capital offense.
Fifty years ago today, Johnson signed the Coinage Act of 1965, setting into motion five decades of currency debasement that continues today. Under the law, silver dimes and quarters would no longer contain silver. Instead, the Treasury would mint coins made of “composites, with faces of the same alloy used in our 5-cent piece that is bonded to a core of pure copper.”
Today, we call pre-1965 dimes and quarters “junk silver,” but we really should be calling the modern coins junk, because that’s what they’re worth.
Jim Rickards appeared on Bloomberg to explain why gold hasn’t actually lost any real value. It’s just the strength of the dollar that has pushed down nearly all commodities and currencies. Rickards argues that now is a very good time to buy the yellow metal, especially if you’re looking for the safest way to preserve your wealth from fluctuations in fiat currencies.
The following article was written by Keith Weiner of Monetary Metals and recommended by our Precious Metals Specialists. Any views expressed do not necessarily reflect the views of Peter Schiff or SchiffGold.
Lions, Tigers, and Gold Bears, Oh My!
We can’t count how many articles we saw today, bemoaning gold going down. The price action is bad for gold (whatever that means). China underreported their gold holdings. No, China doesn’t care about gold. No they want the price to go down so they can buy it cheap. No, they want to convince the IMF to include the yuan (which has capital controls, by the way) into the SDR basket. No, China really intends to revalue gold (whatever that means).
This is your brain on dollars. Any questions?
Fox Business asked Peter Schiff to explain why investors should continue to hold on to their gold, rather than sell it at a loss. Peter clarified that he has never recommended investing only in gold and not in stocks. Instead, owning gold is a way to protect yourself from fiat money and central bank policy.
A lot of people were as bullish on stocks…in 1999, and they were that bearish on gold. But again, I’ve never told people to sell all their stocks and hold only gold. I tell people to have 10-15% of your portfolio in gold. I stand by that allocation. But I think stocks are very expensive in the US. I think they are more expensive in general than they were in 2000, because the Fed has given more help to the market.”
In his podcast released yesterday evening, Peter Schiff explains why the price of gold plunged on Sunday night. More importantly, he reminds investors why gold is not a faith-based asset, like fiat money. He also reviews China’s relationship to gold, and compares the current market to the last time a bear market in gold ended.
I am convinced, when his market turns, it’s going to be vicious. When the people who have been selling their gold try to buy it back, it isn’t going to be there. Because the people who have been buying into the selling… they’re not going to turn around and sell it. When the speculative sellers are gone, there are no sellers left… I think the market is going to go up even faster than it has come down…
Gold fell to about $1,090 an ounce last night after the biggest single-day decline in its price in two years. It is now hovering around $1,110 an ounce.
Market consensus is that the sharp drop in price was triggered by major selling in the Shanghai gold market by gold speculators. The drop in price is not a product of fundamentals.
In fact, analyst Todd Horowitz told Bloomberg that he believes many investors see this as a major buying opportunity. He points out that from a technical perspective, gold is in very unusual territory when compared to the S&P 500:
It is a hard asset, a commodity, that I think everybody should own in part of their portfolio… I think gold is a hard asset that typically appreciates in value like everything else. If you compare it to the S&P, the S&P is twice as much as gold is now, which is one of the largest discrepancies in history, which means we should see a divergence back into that. Fundamentally, we have seen probably a low point here.”
This article is written by Peter Schiff and originally published by Euro Pacific Capital. Find it here.
While Greece is now dominating the debt default stage, the real tragedy is playing out much closer to home, with the downward spiral of Puerto Rico. As in Greece, the Puerto Rican economy has been destroyed by its participation in an unrealistic monetary system that it does not control and the failure of domestic politicians to confront their own insolvency. But the damage done to the Puerto Rican economy by the United States has been far more debilitating than whatever damage the European Union has inflicted on Greece. In fact, the lessons we should be learning in Puerto Rico, most notably how socialistic labor and tax policies can devastate an economy, should serve as a wake up call to those advocating prescribing the same for the mainland.
The US has bombed the territory of Puerto Rico with five supposedly well-meaning, but economically devastating policies. It has:
1. Exempted the Island’s government debt from all U.S. taxes in the Jones-Shaforth Act.
2. Eliminated U.S. tax breaks for private sector investment with the expiration of section 936 of the U.S. Internal Revenue Code.
3. Required the nation to abide by a restrictive trade arrangement.
4. Made the Island subject to the U.S. minimum wage.
5. Enabled Puerto Rico to offer generous welfare benefits relative to income.
Demand for physical gold and silver has surged over the past two months, with mints around the world reporting robust sales in the midst of the Greek crisis and warning signs in other economies.
According to US Mint figures, the sale of 1-ounce American Gold Eagles more than quadrupled, jumping from just 13,500 coins sold in May to 62,500 in June. The pace has only accelerated in July, with the US Mint reporting 69,000 Gold Eagles sold to date. This is the highest level of sales all year.
Last week, US Sliver Eagles completely sold out.
The People’s Bank of China (PBOC) announced today that it’s gold holdings have grown by 57% to about 1,658 metric tons. This is the first official update to China’s gold reserves since 2009.
China’s gold reserves are now the fifth largest of any country in the world and sixth when you include the holdings of the International Monetary Fund (IMF). Only the United States, Germany, Italy, and France hold more gold than China.
However, many believed China would announce even larger holdings than this. Ross Norman, CEO of bullion broker Sharps Pixley, told the Wall Street Journal, “The figure published by the PBOC is roughly half the market consensus on what we had thought they had accumulated…”