- Does a geopolitical prism represent pending economic doom for the US dollar?
- Is ownership of physical precious metals the ultimate safe haven?
- Are the US dollar's days numbered?
Sentiment surrounding precious metals is split into three camps. Those who despise silver and gold, those who are skittish because of price volatility, and those who embrace the metals as the only way to preserve purchasing power and wealth.
The nature of certainty suggested by our title is the impetus of this article. Though silver and gold do not pay a dividend and the stock market appears an attractive place to profit in a climate of easy money and zero interest rates, to play the market now if not certain of what you're doing is similar in nature to the financial risk of running with scissors.
Sixty-year market veteran and newsletter maven Richard Russell sees the stock and bond markets as functioning at extremely high risk and money managers frantically searching for income and profits. Russell questions:
"..is the risk worth the potential reward? As far as I'm concerned, the potential profits in these markets are not worth the risks."
"I'm increasingly worried about holding dollars. I'm buying all the physical precious metals I can, while they are still available."
Could there be a shortage developing?
Savers and investors around the world in growing numbers (this writer included) are protecting themselves with physical silver and gold fearing everything paper will sooner or later go into freefall. Do you think folks in Japan are lining up to put their money in the NIKKEI or in banks? Japan is headed for financial collapse, cracking under a debt to GDP of 250% while its yen is on the brink of extinction. People there are waiting sometimes three hours in line to purchase gold bars.
In the October 2013 article "Silver And Gold In Hand, Cash In Pocket, Portfolio On Hold," a picture is painted of an investor/saver disillusioned by the machine and changing course to survivalist rather than bullish investor. Indeed, self-serving politicians and bankers recklessly behaving within an already fragile economic system put a serious chink in this investor's armor. The writing is on the wall.
Cause for pause
The article exclaimed a belief in the salvation of silver and gold noting nothing had changed fundamentally in the reasons for a physical precious metals strategy. As is the case today, those strategic reasons are more prominent than ever while the clock ticks.
The stock market appears strong, but in this opinion is an obvious, teetering mess in dire need of the Fed's QE and zero interest rates.
This rising market does not resemble the rallying of just over a decade ago prior to the dot.com pop. Today with the potential for geopolitical calamity and various other potential black swan events, this market's rise suggests a much harder fall ahead in this very different and ever changing world. Not to say money can't be made in the market right now by experienced traders who have the know-how to sail through any market condition and come away smelling like a rose. Indeed, there is money to be made if you know what you're doing. But the clock is ticking and those lacking skills and resolve are better to steer clear and load up on what can be held in hand.
As was the case made in "The Conundrum With A Silver Lining" the current stock market is flexing make believe muscles pumped up by make believe money. It is a market driven by sales of shares as everyone piles in looking for profits rather than true growth of companies. And continued expansion of the money supply should create larger increases in the dollar price of paper assets rather than real value. This will continue until the Federal Reserve Note loses everyone's trust and faith and real value can only be measured in hard assets with intrinsic value.
How many ounces of gold does that apartment building cost?
That said gold and silver mining company's stocks stand to make considerable gains as trust in all national fiat currencies continue to erode. You might be among those investors willing to load up on shares of some of the touted favorites - Silver Wheaton (NYSE:SLW), the streaming company with an envious book and business model, or Goldcorp Inc. (NYSE:GG) owners of high-quality, high-grade assets that generate cash flow with a strong balance sheet that affords the potential for growth through mergers and acquisitions, among other companies. But be aware that government regulations, capital controls and tax demands will dictate investor success more so than the individual mining companies or your broker.
So how should we invest today?
Look at the people of Japan. Or take a look at a nation like China, as well other nations which hold US debt… they're bypassing USD in trade among themselves in favor of oil for gold or their own currencies to settle scores. What does this say about trust and good faith in the Federal Reserve Note?
A sobering example of in your face, real world economics - along with China's recent, largest monthly dump of US treasuries - is how that nation is ridding itself of USD reserves. China is now trading US dollars with Iraq for oil while Iraq turns those unwanted dollars into gold. Reported just a month ago, Iraq's central bank bought 36 tons of the yellow metal to "help stabilize the dinar against foreign currencies." To this writer that explanation sounds like a half-truth. It is obvious that faith in the mighty US dollar is already waning.
These two bed partners are not alone in the ditching of petro-dollars. It has become a trend.
And some analysts in the know feel this spring may bring more than showers and flowers when China, which hasn't reported the amount of gold it owns for quite some time, will announce the size of its secret stockpile and that such an announcement will trigger major problems for the US dollar's world reserve status.
Also worth considering is the outcome in America if Russia decides to wage economic war by dumping its US Treasury holdings (if it isn't already) possibly creating a dreaded domino scenario where other countries follow suit.
These, as well as other calamitous indicators, have this writer making the best value play possible - increasing personal swaps of Federal Reserve Notes for physical silver and gold. Ownership of metals is critical for maintaining wealth over the coming few years.
Richard Russell adds:
I'm increasingly worried about holding dollars. We can still trade in tangible unbacked dollars for real wealth, silver and gold. In a matter of months, I see the dollar crashing.
It is possible Richard Russell's time frame is wrong. But in this writer's opinion that may be the only thing wrong with his statement. It is not a matter of "if," it is a matter of "when." In the grand scheme of things anyone who knows anything about finance and budgeting knows it is only a matter of time before mass money, credit and debt creation causes a serious problem for the US government, its citizens, its investors, financial institutions and countless other governments around the world holding large amounts of US dollars and US treasuries as their reserves.
It is a fact that all central banks the world over are printing currency as economic stimulus and to stem the rising tide of debt. But while the currency sits in banks and not bolstering economies as it is intended to do, its velocity is compromised - sluggish at the very best. And when we consider the more than one quadrillion dollars in derivatives within the system - that very few even consider or of which are completely unaware - the very real potential exists for an ugly and chaotic end game.
Conclusion: Silver and gold have been money for more than 4,000 years. This won't change despite the current price suppression. Good advice is to buy as much physical silver and gold as you can now and hold it outside the banking system while there is still silver and gold available to buy. It is after all, the only real money.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.