3 Minute Gold News

A Quick Read for Busy People

An interview synopsis of Jim Rickards, New York Times bestselling author of The New Case for Gold, The Death of Money, Currency Wars and The Road to Ruin, with Alex Stanczyk from The Gold Chronicles March 2018 vidcast.

Jim is the Editor of Strategic Intelligence, Chief Global Strategist for Meraglim Inc., former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defense.

by: Elaine Diane Taylor

Topics:

Gold
Gold as Insurance

Jim Rickards

GOLD

Gold is now in its third bull market in history.

Prior to 1971, and in different ways before 1933, the world was on a gold standard. You didn’t really have bull markets or bear markets in gold because the whole idea was that the money was gold. Or the money was backed by gold.

Gold was a constant store of value and had a constant exchange rate. People were happy with that and they weren’t looking to make money on it. Gold was money.

It’s only after countries went off the gold standard that you have to ask what the ratio is of dollars to gold by weight. So with that you have bull and bear markets as the price rises and falls.

Gold entered a bull market in December 2015.

It’s been at the $1,350 U.S. per ounce level three times in the past three months. It’s fluctuating now and could be down tomorrow and back up to that level the day after that.

The real story on gold at the moment is that it’s showing a lot of strength in the face of very adverse conditions.

From 2013 – 2017, and back further, the pattern of the movement of the U.S. dollar price of gold and real interest rates was correlated.

Money, bonds and notes competed with gold for the investor dollar.

Gold has no yield while the other instruments, like bank deposits, 5-Year notes or 10-Year notes, do have a yield.

The higher the real yield is the more an investor is inclined to the buy the note instead of the gold, because they get a higher return. For a lot of people that’s the reason to hold or not hold gold.

It’s not Jim’s reason for holding gold.

Gold is a hedge. It’s insurance.

The correlation between gold and real interest rates makes sense, but at the beginning of 2017 they started to diverge. And now it’s getting more extreme by the day.

Since the beginning of 2017 real interest rates have been going up while the dollar price of gold was also going up.

That’s highly unusual.

Either gold has to come down sharply to get in line with real interest rates, or else real rates have to drop and get back in line with gold.

Jim believes real interest rates will come down. The narrative about strong growth in the U.S. business cycle is not happening. We’re seeing the Fed taking rates higher for no good reason.

Gold looks forward more than the 5-Year note, and it’s saying that the Fed needs to back off from raising interest rates and from tightening money supply.

The Fed won’t drop rates, but they can use forward guidance and signal that they’re going to skip a hike. Jim believes they’ll hike one more time in June, but if he’s right and the economic forecast slows then they won’t raise interest rates for the rest of the year.

The price of gold being strong right now is also just a matter of supply and demand.

Gold is rising because no matter what the rates are doing people want gold.

Americans aren’t buying gold right now but the central banks of Russia, China and now Iran and Turkey are buying all the gold they can. On top of that you have India consumer demand.

Mining capacity right now is not growing and is barely keeping even. The idea of “peak gold” may or may not be true, but you don’t have to even consider that.

Mines went off-line in 2013, 2014 and 2015 when the price of gold was in a bear market and they weren’t making money. They can’t just turn them back on like flipping a switch. It takes years to get mines back on-line.

Gold buyers are correctly anticipating a flip to ease by the Fed. The Fed is tightening right now, and will have to reverse course, which will give gold a huge boost later in the year.

Plus there’s a shortage of supply.

It looks bullish for gold.

GOLD IS INSURANCE

Jim has consistently said that he recommends a 10% allocation of investable money into physical gold. He views gold as insurance against the rest of the 90% of investments.

Investable assets is not the same as your net worth. It’s not your business equity or your home equity. Those two things are not what you want to invest or speculate with.

Whatever assets are left after you put those two things aside are your investable assets.

It could be a savings account, a 401(k) or a stock portfolio for example.

Take 10% of that amount, which is less than 10% of your net worth, and put that into physical gold. Put some in silver if you’d like, but primarily put it into physical gold.

Never go all in. That would be a bad choice.

If you put 10% into something and it goes down 20% then you’ve only taken a 2% ding overall, and you likely made money on everything else.

If you buy gold as you go along, accumulating it over time, just 10%, and put 90% in other investments, then the physical gold is insurance against the other parts of your portfolio. It’s like buying fire insurance for your house. You don’t expect to make money on it, but you’re really glad you have it if there’s a disaster.

When you have gold, if stocks out perform gold in some stretch – and sometimes they do,  of course – look at the opportunity cost.

Here’s an example:

If 90% of your portfolio went up 30% and 10% of your portfolio (which is gold) went up 10%. What’s your opportunity cost?

Your opportunity cost is 10% of 20%, in other words 2%. That’s what it cost you in terms of overall  portfolio performance to be in gold instead of stocks for the 10% slice.

That’s the cheque you’re writing to the insurance company in order to have insurance in case  the stock market falls 20% or more in one day (which it did on October 19th, 1987) or just does a  very quick 10% down in a couple of weeks, which we’ve seen twice in recent months.

You write that insurance cheque, and now you preserve wealth in the gold portion of the portfolio.

It’s a  mild thing if the stock market drops 20% in a day or falls 10% in a few weeks, but if there’s a major event like a global liquidity crisis, when they shut the stock exchange (which has happened many times, and people tend to ignore it) and the price of gold is going up $100 an ounce in a day and then $200 an ounce the next day, you won’t be able to find any gold to buy.

The Mint will be back ordered and the dealers’ phones will be off the hook. There won’t be any gold available to buy, and it will be the thing to protect you from the losses in the rest of your portfolio.

That type of scenario is a Hurricane Katrina type of disaster and that’s the reason to have gold. You will be very happy you do. Just a 10% slice.

When it under performs think of it as insurance.

When it outperforms in a disaster you’ll be very glad you have it.

Jim Rickards can be found on Twitter and at James Rickards Project.

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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.

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Gold is at $1,341.40 U.S. per ounce.

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I’m in Vancouver and the sun is shining. Soon going to Vancouver Island. Meeting with a printer tonight for jewellery packaging. Very excited about that. The boxes are designed and the proto-type is beautifully made. The papers and fabrics will be chosen. The gold flakes and small nuggets are beautiful, shining and from The Gold Rush Trail, fair paid and ethically sourced. The glass is boro silicate; scientific grade. Today I’m studying designers of art, The Art of War, Sir Francis Bacon, Mark Twain and the history of gold as money. Writing and playing music as usual. All is well. Everything unfolds in its time. Pay attention to the times and take care of yourselves. Don’t worry about rushing what you wish for or dreading what you don’t. The little steps when times are quiet prepare you for the big leaps when the wheel turns. :)

Elaine Diane Taylor~

April 10, 2018

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Coins and Crowns

words and music Elaine Diane Taylor
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.

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A Terrible Breeze (North Korea and Nuclear War)

The news comes down
A little bluebird sings
Words of war
Fire and furious things
Of testing might
‘Til no patience knows
If keeping still
Still keeps you safe at home

It’s a terrible breeze
They speak of today
Of threats that used to live a world away
We all know wind
Can blow both ways
And a terrible breeze can blow it all away

A worldwide net
Sees our village grow
Until we all forget
What each one used to know
How a blind bird’s wings
Can reach the shore
And turn the wheel of peace and war

Village fools sinking down, down, down
Debt and gold wound in numbered shrouds
Deal of a life it’s bread and clowns
Can we afford another go around?
The news comes down.

It’s a terrible breeze. The news comes down.

Single available on iTunes

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Not Much of a Holiday (Greek Debt and Media Persuasion)

words and music Elaine Diane Taylor

SOCAN/ASCAP

Single available on iTunes

The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.

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Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.

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The Gods of the Copybook Headings

words by Rudyard Kipling and music by Elaine Diane Taylor

SOCAN/ASCAP

from the album Preparing for the Fall available on iTunes

The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

Another Week on Wall Street

words and music Elaine Diane Taylor

SOCAN/ASCAP

from the album Coins and Crowns available on iTunes

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.

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