Investing
This Week on the Bullion Market
Looking for authentic gold bullion sellers
“I am looking for realistic sellers or there mandates of gold bullion. I am very serious when i say i have a buyers mandate who has 5 clients looking for authentic bullion sellers. They are looking to puchase large quantities not individual bars. They are also looking for gold dust too. Please contact john at jfitzgerald.icon@gmail.com.Please leave your name,address,telephone number, where the gold is, if it’s in a bank, and what price the seller is asking. Only serious inquiries! Thank you,” wrote John Fitzgerald.
This was posted on a new gold and silver bullion classified marketplace called BullionBarters.com; it’s free for basic listings of 90 days.
Gold Mining: How Do We Get Gold Out of the Ground
The precious metal of gold has fascinated humans for thousands of years. But how do we actually get it out of the ground? Let’s take a look at the most common ways to mine gold.
There are two main gold mining methods, one is called “placer” and the other is “vein” mining. And another type of mining is when gold is collected as a by-product in the mining of other metals.
Placer Mining
Placer mining is practiced when the metal is found in unconsolidated deposits of sand and gravel from which the gold can be easily separated because of its high density. The sand and gravel suspended in moving water. Much heavier metal sinks to bottom and is separated by hand.
The simplest method of placer mining is panning. Here the miner swirls the mixture in a pan rapidly enough to carry the water and most of the gravel and sand over the edge while the gold remains on bottom. This was the classic method used by the Forty-Niners during the California gold rush of 1849 and has been immortalized in story, art, and song.
A more efficient form of placer mining uses a sluice box, a U-shaped trough with a gentle slope and transverse bars firmly attached to the trough bottom. The bars — extending from side to side — catch the heaviest particles and prevent them from washing down the slope.
Sand and gravel are placed in the high end, the gate to a water supply is opened, and the lighter material is washed through the sluice box and out the lower end. The materials are caught behind the bars and are gleaned to recover gold.
Another variation of placer mining is called hydraulic mining. A very strong stream of water is directed at natural sand and gravel banks washing away the lighter materials. The suspended materials treated as if they were in giant sluice box.
Currently the most important placer technique is dredging. A huge shovel of several cubic meters capacity lifts the unconsolidated sand and gravel from soil and mud and the placer process starts.
Vein Mining
Vein, or lode mining is the most important of gold recovery methods. Each ounce of gold recovered requires the processing of about 100,000 ounces of ore. Much gold is deposited in rock veins and this method accounts for more than half world’s total gold production. Gold in veins may be of microscopic particle size, in nuggets or sheets, or in gold compounds. The ore requires extensive extraction and refining.
One-third of all gold is produced as a by-product of copper, lead, and zinc production. Copper must be electrolytically refined to raise its purity from 99% to the more than 99.99% that is required for many industrial purposes.
In the refining process an anode of impure copper is electrolyzed in a bath in which the cathode is a very thin sheet of highly refined copper. This process creates anode sludge which contains gold in quantities sufficient to make its recovery profitable. One-third of all gold is obtained from such by-products. Silver and platinum are also recovered from the copper anode sludge in quantities large enough to more than pay for the total refining process.
Extraction, Refining and Uses of Gold
Ore from the gold mine is first crushed in rod or ball mills. This process reduces the ore to a powdery substance. The gold is then extracted by amalgamation with mercury or by placer procedures. Approx. 70% is recovered at this point.
The remainder is then dissolved in dilute solutions of sodium cyanide or calcium cyanide. The addition of metallic zinc to these solutions causes metallic gold to precipitate. This precipitate is refined by smelting and the purification is completed by electrolysis. The sludge produced in this process will also contain commercial quantities of silver, platinum, osmium, and other rare-earth metals.
Gold is one of the first two or three metals, along with copper and silver that was used by humans in these metals’ elemental states. Because of its poor chemical reactivity it was found uncombined and required no knowledge of refining. Gold was used in decorative arts before 9000 BC. And civilizations prized gold for its beauty.
A principal use of gold today is as a currency reserve. For centuries gold was used directly as currency along with silver. During the 19th century, gold assumed the role as the sole basis of the currencies of most nations. Paper money was directly convertible into gold.
World War I, however, disrupted the “gold-standard” system. The original gold standard was gradually abandoned. The United States stopped minting gold coinage in 1934 and the dollar eventually emerged as the principal unit of international monetary transactions.
Since the 1970s, gold has been bought and sold on the world market, with widely fluctuating prices. Today gold reserves maintain only a very indirect relationship with currency values. However, as gold has declined as a currency reserve, its use in industrial processes has risen. On top of this, its beauty and workability continue to give gold an important role in the world’s jewelry industry.
The Case for Gold Book Review
The Case for Gold by Ron Paul
The Case for Gold
By Ron Paul and Lewis Lehrman
The Ludwig von Mises Institute 2007
221 pages. $25.00
Originally published in 1982, The Case for Gold might well have been written in 2010. For the historical and economic realities facing the U.S. at the present time are almost identical to those of the 1980s. Economic prosperity and political freedom are at stake.
In his foreword to the book, Ron Paul says, “This report was written to demonstrate as clearly as possible the choices available to us: political (paper) money or commodity (real) money.”
He begins by discussing the present monetary crisis, which – remember – was the recession of the early 1980s. Paul examines Nixon’s decision to close “the gold window” in 1971. During the ten year period following that decision, retail prices “more than doubled.” Interest rates doubled, while business and personal bankruptcies more than doubled. Real wages went down and unemployment went from 5.5% to 8.9%. Paul’s conclusion is simple: “the Federal Reserve’s discretionary policy of the last several decades has been the cause of our inflation.” In other words, paper money has not only failed. It has failed splendidly.
In chapter two, Paul presents the history of money and banking in the U.S. prior to the 20th Century. He points out that “apart from medieval China, which invented both paper money and printing centuries before the West, the world had never seen government paper money until the colonial government of Massachusetts emitted a fiat paper issue in 1690.” Within a year, the new paper pound depreciated by more than 40%. By 1740, all the colonies – except for Virginia – did the same thing. They started printing paper money. In each instance, the result was identical. “Dramatic inflation, shortage of specie, massive depreciation.” Later, after learning the hard way, the colonies returned to specie, which “occasioned remarkably little dislocation, recession, or price inflation.”
This is precisely the point Paul is trying to make. Going back to hard money is relatively painless. All the previous imbalances are done away with and things return to a healthy normal. As Paul proceeds through his masterful history of money and banking, it becomes obvious that paper money doesn’t work. Fiat currency is inflationary and produces boom bust cycles with devastating regularity.
Chapter three picks up the natural chronology, providing a look at money and banking in the U.S. in the 20th Century. According to Paul, the bankers “had long chafed to cartellize the banking industry still further.” The National Banking System was good, but not good enough. The bankers wanted an even more centralized system. They got their druthers with the Panic of 1907. The Federal Reserve System came into being in 1913. And even though the U.S. was still formally under a gold standard, “the banking systems would now be pyramiding on the U.S. issue of paper money.” Reserve requirements for the banks were chopped in half under the Fed. This meant, as Paul says, “the Federal Reserve was designed from the very beginning to be an instrument for a uniform and coordinated inflation of bank money.”
And that’s exactly what happened. Between 1922 and 1928, bank credit doubled, which caused “speculative excess.” By 1928, the government became alarmed and tightened the money supply, which caused the Depression. Then in 1931, England went off the gold standard. A move that shook the international community. Shortly thereafter, FDR took America off the gold standard.
Paul points out that Bretton Woods, which was supposed to “restore the currency stability of the gold standard,” didn’t, because “it was designed to do so without gold.” In 1971, everything came to a head. Most of Europe let their currencies float, which caused an “unnatural economic imbalance.” Speculators “began betting against the dollar.” The dollar declined rapidly. And on August 15, 1971, Nixon declared “international bankruptcy.” According to Paul, “there were now absolutely no checks on the ability of the United States to inflate.”
In his conclusion to chapter three, Paul bluntly states, “our historical experience illustrates the overwhelmingly superior case for the gold standard as against any form of paper standard.”
‘The case for the gold standard’ is the topic of chapter five. Paul cites many economic reasons why the gold standard makes sense. They include low interest rates, which would accelerate “real economic growth;” increased savings; the revival of long-term financing; reduced federal deficits; full employment; price stability; and “enhanced international trade.”
Paul cites the common objections against a gold standard: there is not enough gold; the principal producers of gold (the Soviet Union and South Africa) would benefit inordinately; the gold standard causes panics and crashes; the gold standard causes inflation; and a gold standard encourages irresponsible speculation. He shoots each objection down in flames, quoting experts and providing hard numbers to do so. His case is persuasive.
In chapter six, Paul outlines the transition to monetary freedom. He gets right to the point in his first sentence. “Our present monetary system is failing.” Then he lists the specific reforms required to implement the transition. Monetary legislation, which includes legal tender laws, a definition of the dollar, new coinage, the removal of central banking, along with guidelines for auditing, inventory control, assaying, and the abrogation of confiscation.
Budget reforms, taxation reforms, and a restructured regulatory system would also be necessary. Paul touches on each one, hitting the high points. He also suggests a constitutional amendment “to reaffirm what the Constitution says.” After that, he outlines the effects of the transition process on six sectors of the economy. He admits “those companies that have been subsidized by the government will suffer most from a movement toward freedom.” After these initial birth pangs, “the transition to a gold system will bring increasing prosperity, real growth, lower unemployment, higher real wages, and greater capital investment.”
You can’t ask for more than that.
The Case for Gold is a tremendous book. Ron Paul’s case is so cohesive and so powerful that it is impossible to refute. Unfortunately, because the book is a combination of history and economics, most people will eschew it. Which is a shame. It should be mandatory reading for all members of Congress and all college students.
On the Read-O-Meter, which ranges from 1 star (deplorable) to 5 stars (triumphant), The Case for Gold receives 5 gold stars.
Gold Bullion Coins Are a Worthy Investment
There’s never been a better time to buy American Eagle Gold Coins. An economic recession is almost assured. Along with the varied fluctuations in the stock market and the downward trend in the real estate sector, more investors are compelled to put their money in items that will hold value, such as gold bullion coins. A recent trend analysis puts the gold market as one of the most flourishing areas of investment, offering the maximum returns.
Most investors select American Eagle Gold Coins as their option for gold coin investments, as these are of assured quality. Likewise, the gold coin collectors, as a hobby or antique collection, prefer American Eagle Gold Coins, which are 91.67% purity or 22 karat. Generally pure gold is actually a mixture of the soft yellow metal and other metals like silver and copper, to make it more wear-resistant.
American Eagle Gold Coins are made out of gold mined in United States. These bullion coins were first released from the US Mint in 1986 and are of assured 22 karats.
There are two varieties of American Eagle Gold Coins – the bullion and the proof.
The American Eagle Gold bullion coins can be considered the best raw gold and is highly suitable for solid investment. These are readily available in the bullion markets. They are a very worthy and safe investment. These coins have been recognized, appreciated and sold the world over. Many American Eagle Gold Coin buyers consider the bullion coins as the best option for a long-term investment.
The American Eagle Gold Proof Coins are actually gold coins that have been specifically struck for collectors and to highlight or mark special occasions. Proof gold coins are not designed for general public circulation. Most of the coin collectors hunt for these types of gold coins. They are very impressive, attractive, glossy and worth the amount that is spent. Different processing techniques are used to make these American Eagle Gold Proof Coins, which gives it an imposing look and beauty.
American Eagle Gold Coins are available in different weights. There are four options of 1 ounce, 1/2 ounce, 1/4 ounce and 1/10 ounce. Generally smaller weights might appear to cost less, but in reality it can be more cost-effective to buy the 1 ounce gold coins.
You should be always be very selective from whom you choose to purchase the gold coins. It is advisable to buy from reputable authorized merchants and clearly check for the purity and weight. There are many establishments approved by the US Mint. The online auction site, eBay, is very convenient and can be very cost effective method of obtaining American Eagle Gold Coins. A proper online search on eBay will turn up many varieties of American Eagle Gold Coins to add to your collection.
At the moment, the gold market is very customer friendly. The handsome collections available gives ample opportunities for the customer to get the best price and selection, making American Eagle Gold Coins a very worthy investment!
How to Buy Physical Gold and Why Not to Invest in Gold ETFs!
by: Peter Macfarlane
Gold: the ultimate store of wealth that has been used since time immemorial. A hedge or in troubled times, a ’safe haven’ in the current crisis. If your wealth is stored in gold, then who really cares if the financial system implodes? Empires, currencies and rulers have come and gone… but gold has always retained value and purchasing power. Of the various precious metals, gold is probably the easiest, most liquid (easily traded) asset you can invest in.
Gold is a traditional hedge against inflation or deflation. Against currency devaluations. Against avaricious or incompetent governments or Central Bankers. Or shall I just say, in a less politically correct manner, that America is bankrupt and Gold is the only real money? If you invest in Gold, you no longer have to rely on the “full faith and credit” of the US government – which is declining sharply.
If you’re reading this article, you probably don’t need me to tell you why you should buy gold. It’s actually an obvious decision in the current economic climate. The question is not so much should you buy gold, as can you afford to hang on to assets denominated in a declining currency like the dollar or the pound sterling or the euro…?
The US dollar typically rises or falls inversely with the value of gold. Recently, although there’s been a slight increase recently, the trend of the US dollar is downwards. My view is that the dollar will continue to decline until the US economic fundamentals look better – till America comes out of bankruptcy, that is – and that could take some years.
In terms of your savings or retirement portfolio, this means that if you invest in things like bank deposits (CDs) the net return is most likely negative. Since the beginning of 2003, US dollars held in 3-month US Treasury Bills have yielded less than 3% per year (Source: Global Financial Data). Considering that the inflation rate over this same period of time has averaged more than 3% annually (Source: US CPI), the cash accumulated had less buying power in October 2008 than it did half a decade before.
The carnage on Wall Street, and the fallout around the world, looks far from over – despite what the Feds or the mainstream media might have you believe. Every time there is a new panic like another bank or insurer collapsing, a flurry of investors with dollars, euro and pounds start a new mini gold rush.
At the same time, demand for the yellow metal continues to significantly outweigh supply. The Chinese, for example, love gold and have plenty of dollars. China is keen to diversify its huge foreign currency reserves (by far the largest in the world) away from the dollar. A small increase in China’s percentage of gold reserves would cause a huge increase in demand and consequently in the gold price. Asia, particularly the Indian subcontinent, and the Middle East (think Dubai) are also seeing large increases in domestic gold demand as disposable income increases. When people think that paper currencies will be worth less in the future, they have historically looked to place their net worth into a more stable vehicle. And gold is typically viewed as a safe form of currency, as its value isn’t as affected by inflation.
Why Buy Gold Offshore?
So far, so good. There’s nothing particularly new or controversial about the information above. But I have always believed in a more offshore, skeptical, pragmatic approach. Like it or not, we tell things as they are.
Can we trust government to manage our finances? I think the overwhelming evidence suggests no. History shows that gold is politically sensitive, and governments (read Central Banks, particularly the Federal Reserve) don’t like to see individuals buying gold. Why? Because they can’t control it. They can certainly try. For example, in an earlier article you will find here, we asked seriously Will the US Government Confiscate Gold?
Then suddenly, as of late September 2008, we saw the US Federal Government beginning to limit the access of ordinary citizens to gold bullion – by withdrawing new bullion coins from circulation. (Suddenly and unexpectedly in mid-crisis the IRS also introduced a new form FBAR for reporting of foreign bank accounts)
What we can see from all this is that the smartest strategy is to keep your gold holdings outside your home jurisdiction — where they will be well protected against all sorts of threats from governments to predatory ex-spouses. So you need to know:
How to Buy Gold Bullion Offshore
Gold bullion is the most liquid form of gold. If you want to buy gold with the idea that you’ll ultimately sell it, then you will want to buy gold bullion. Bullion means either bars or coins. Fortunately, you can easily buy gold this way and just as easily sell it again anywhere in the world. If you need to break it into smaller denominations, you can for example exchange gold easily for silver coins like Panama’s old Silver Balboa or Mexico’s silver coins.
You can buy gold bullion by looking for offshore dealers. If you have a particular kind of coin in mind – like the Canadian Maple Leaf or South African Krugerrand, to name a few of the most popular gold coins – then do a search for that particular coin, or find the official mint websites. For example, check out the South African Mint or the Royal Canadian Mint. An interesting and more private option for Americans is restricted circulation coins. When you want to buy gold, these sites all contain helpful tools for finding local and international dealers of gold coins.
Provided you don’t ‘look suspicious’ and you can prove the origin of your funds with some documents, it is quite easy to buy gold bullion coins anonymously with cash. Some countries, like France, charge sales tax on gold and so should be avoided. Others place burdensome restrictions on export, like major gold producers Brazil and South Africa. Others, like San Marino, are simply too far from major gold markets for purchase there to be economical – you would be saddled with high transport and insurance costs.
So where should or can you go to buy gold offshore? The undisputed capital of the business is Zurich, Switzerland. There you can buy and store your gold in the free trade zone at the airport. Major Swiss banks like Credit Suisse will sell you gold directly from their branches in Zurich Airport.
Most countries in mainland Europe are good for buying gold. Luxembourg, for example, is a friendly little place where privacy is still respected in precious metals transactions.
In the Americas, Mexico is another country where you can simply walk in to a casa de cambio and buy gold ‘centenarios’ over the counter for cash. Mexico has suffered from so many devaluations and is also a major producer of gold and silver, so investing in bullion coins has become popular there. There has been a serious effort in Mexico to introduce silver coins as legal tender. (For info on Mexican gold coins, known as Centenarios, visit here…
Urgent Warning: Here’s why you should absolutely NOT Invest in Gold ETFs
In September 2008, shareholders in ETF securities were left high and dry – unable to trade popular commodity securities, due to concerns over the future of their backer, insurance giant AIG. Overnight, banks and brokerages stopped making markets in the Exchange Traded Commodities (ETCs) backed by the troubled insurer. The price of the stoc
Gold ETFs are vastly different to holding real gold. Turbulence, such as the above in the market, can affect the value of those gold ETFs markedly. When you buy an ETF you are buying electrons on a screen. It is not the same as buying real solid gold. What if the bank or fund manager goes out of business? What if trading in the shares is suspended, as for example short selling was just suddenly banned? What if the whole exchange is suspended as has happened in the past? Shares can be subject to massive manipulation and liquidity problems. I believe we will see dual gold prices from now on – one ‘official’ spot price, and another price dictated by pure supply and demand which will dictate what you can actually buy and sell real gold for in the real world.
If you own stock in an ETF, that means you own a stock that depends on the price of gold, rather than gold itself. No matter that corporations such as ETF Securities own gold. How much gold they own is not clearly discernible by the average “Joe Sixpack” who may own ETF stocks.
Even a downgrading by credit agencies like S&P or Moodies can drastically affect the share price in ETF Securities – as it has done! In September 2008 shares in ETF Securities products, which were backed by AIG, were down as much as 50% in one morning after the US insurer was downgraded by the rating agencies. The cold hard reality is that if the issuer of an exchange traded note goes bankrupt, investors holding exchange traded products backed by these notes will join the ranks of other creditors hoping to get their money back. With any gold ETF one does not own actual gold and cannot automatically or instantly redeem gold from the fund.
Indeed, to buy gold ETFs is adventurous and courageous – one might almost say dangerous – activity, in today’s economic climate, with so many Wall Street firms going under.
The same is true, in my personal opinion, to the Perth Mint Certificate Program (PMCP). This program is run by the government of Western Australia, and is offered by many gold dealers and investment advisers around the world. The problem is, when you do due diligence on the Perth Mint program, you will see that you are not really buying physical gold. You are just buying papers or ‘notes’, and redeeming those notes later could involve substantial bureaucratic hassle. You are also reliant on the Australian government. If, for example, the US tried to confiscate all gold held by its citizens, do you think the Australian government would co-operate? Most likely yes!
Also be aware that if you hold shares in an ETF they are reportable for tax purposes. Physical gold however is not reportable. That’s just another reason to consider real gold bullion bought offshore, rather than exchange traded funds.
Peter Macfarlane is an author and lecturer on offshore finance, investment, due diligence and wealth creation matters. He is joint editor of The Q Wealth Report http://www.qwealthreport.com
Gold Investing: A beginners Guide to the Gold Market
The first part of investing in gold will be understanding the price of gold and what effects the price of gold. The price of gold is set by a benchmark known as the London Gold Fixing, a twice-daily (telephone) meeting of representatives from five bullion-trading firms. Furthermore, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day.
Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand, including hoarding and dis-hoarding. Unlike most other commodities, the hoarding and dis-hoarding play a much bigger role in affecting the price, because almost all the gold ever mined still exists and is potentially able to flood the market at the right price.
Given the huge quantity of above-ground hoarded gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production. Investors mainly buy gold as a method of diversification, while others might buy gold for emotional reasons like fearing a depression or supporting a political ideal.
How to Invest in Gold
There are several avenues for investing in gold: gold coins, mining stock, Gold ETFs, certificates, gold accounts, and options or futures.
To start out with Gold Coins are, as many experts believe, the best way to start investing in this precious metal. First, because of the simplicity of the gold coins. Starting out you need not worry about the complexity of many other types of gold investing like ETF expense ratios, undue leverage, option timing or futures speculation. Instead, by starting out with gold coins, you’ll skip all the complex forms of gold investing and move straight into holding an ounce of gold in your hand.
Gold Mining Stocks are the next step up from investing in gold coins. Investing in mining shares takes a little more sophistication but as long as you stick with mining companies with strong balance sheets and positive cash flow you’ll be a head of most other investors speculating on unproven mining companies. There are investing opportunities with junior mining companies, but those shares take an even more sophisticated investor.
Gold ETFs are in line with gold mining stocks we just talked about. Gold ETFs are attractive because of the ease and liquidity of trading the fund. However, beware of any paper touting the amount of gold backing that paper. Remember that’s exactly what the U.S. Dollar was, and now it’s lost 95% of it’s value over the past few years. But if you must buy into a gold exchange traded fund, be sure to look for a fund with a low expense ratio. That way fees won’t eat into your wealth.
Gold Certificate from a $100 tender
Gold Certificates haven’t been around in a while, but basically it’s a piece of paper that guarantees the holder a certain amount of gold. The gold certificate was used extensively in the U.S. between 1882 and 1933. In 1933, it became illegal to own gold, thus all gold certificates were withdrawn from circulation. In 1964, it became outright illegal to own the certificate. I can’t help but wonder if in 1964 the government wanted less people to remember dollars used to be backed by something.
The Dollar Meltdown: Surviving the Impending Currency Crisis
The Dollar Meltdown: Surviving the Impending Currency Crisis
The Dollar Meltdown: Surviving the Impending Currency Crisis with Gold, Oil, and Other Unconventional Investments
By Charles Goyette
Portfolio 2009
248 pages. $27.95
The Dollar Meltdown is definitely a gloom and doom book. Fortunately, the author’s style of writing and enthusiasm for his subject – how to avoid the doom – keep the book from being depressing. Charles Goyette – the author – simply tells it like it is. And what it is, is a sad state of affairs. Goyette’s presentation is composed of four parts: where we are; how we got here; what happens next; and what to do.
Under the heading of ‘where we are,’ Goyette points out that “the future of the dollar has already been determined.” For all intents and purposes, the dollar is dead. It has lost “96 percent of its purchasing power under the Federal Reserve System’s mismanagement.” Along with a valueless dollar, Goyette makes it abundantly clear where we are:
From January 2007 to 2009, 5.1 million jobs were lost; 13.7 million people were out of work and 32.2 million people were on welfare (food stamps). Retirement plans are all but worthless. $9.7 trillion was spent on bailouts. An astonishing number of homes – 19 million – stand vacant. U.S. debt is approximately $12 trillion.
Goyette then proceeds to discuss the great bailout, which he equates to robbing Peter to “subsidize a few hundred banking Pauls.” The result is massive debt. He quotes David Walker, the former comptroller general of the United States, who said, “The system is broken.” In a nutshell, Walker’s statement pretty much sums up where we are.
The second section of the book talks about ‘how we got here.’ Goyettes begins by showing how gold came to “serve as money.” Nations whose economies are based on precious metals are healthy. Those that aren’t, fail. During the Civil War, America first forsook gold and silver. However, by 1879, the country went back to the gold standard. Then in 1934, private ownership of gold was abolished. And in 1971, Nixon chose to go off the gold standard. At that point, inflation took over.
Goyette provides historical examples of what happens when governments choose paper money over the gold standard. He cites China, the Roman Empire, the French Revolution, Germany, and Zimbabwe, where the annual inflation rate “hit 231 million percent in the summer of 2008.”
According to Goyette, the Federal Reserve System is leading America down the same path as Zimbabwe. “Inflation in the U.S. is a result of the Federal Reserve turning government money into debt.” The result is bad investments. “People and businesses make decisions n ways they otherwise would not.” In other words, legitimate investments are replaced by speculation, which is the same thing as gambling. Roll the dice and hope you get lucky. Which means that long-term planning – savings – is cast aside.
In ‘what happens next,’ Goyette predicts that repudiation of debt is looming on the horizon. The forerunner of repudiation is deflation, which, according to Goyette, is what is taking place in real estate values. And the only way governments can fight deflation is by printing money. This leads to “stagflation,” which is “a period of economic stagnation accompanied by inflation.” Somewhere in this scenario, “cash is trash.” Which is when “the crack-up boom” occurs. If and when the crack-up does happen, runaway inflation is the result. And runaway inflation cannot be contained.
Goyette then discusses the precarious position of King Dollar. As he points out, China is the largest foreign holder of Treasury debt. China was also “the largest foreign holder of Fannie and Freddie debt.” When the federal government guaranteed those holdings, they compounded the problem. The only way those guarantees can be effected is by borrowing “more money from … places like China and Japan.”
Since approximately half of U.S. currency is held outside the U.S., if the holders of those dollars begin dumping them, the U.S. would have a very serious problem. The dollar would topple like Humpty Dumpty.
All the aforementioned factors have resulted in what Goyette calls “a command economy.” He defines a command economy as one that “orders the affairs of a nation by coercion.” The government “set prices, controls and directs resources, and oversees production and consumption.” According to Goyette, a command economy leads to poverty. Prosperity, on the other hand, is the offspring of free market economies.
Goyette believes the situation will inevitably lead to wage and price controls and then rationing.
The fourth and final section of the book is ‘what to do.’ Goyette says “there is opportunity in every crisis.” To that end, he offers four categories of investment recommendations. The first recommendation is real money, which means gold and silver. Goyettes suggests putting 25% of your portfolio in “physical gold and silver that you take in your possession.” And you should deal with “a precious metals broker because of their capabilities.”
His second investment recommendation is oil, specifically the United States Oil Fund. Others are mentioned, but his “core recommendation” is the USO. The third recommendation is “real things,” by which he means agriculture and natural resources. ETFs and/or ETNs are his preferred methods of making such investments. And he mentions a number of funds by name.
Goyette’s final recommendation is bonds, which is a little startling until you read through his reasoning. Then it makes sense. His core recommendation is Rydex Inverse Government Long Bond Strategy Fund.
Whether or not investors agree with Goyette’s recommendations, The Dollar Meltdown is a productive read. The author presents his analysis of the present economic situation in grand style, using historical analogies, quotes, and entertaining anecdotes. Plus, what he has to say makes a lot of sense.
On the Read-O-Meter, which ranges from 1 star (pretty bad) to 5 stars (pretty darn good), The Dollar Meltdown thaws 5 stars.
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