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Gold and Silver: Stepping Back and Checking Perspective

Gold and Silver: Stepping Back and Checking Perspective

Dear Reader

I'm a great believer in looking at the finer details and then, every once in a while, taking a step back and seeing how the general picture is progressing. This is the only way to paint a picture that holds one's attention, while giving a true yet detailed image that sits in perspective overall. Look at one detail too long and the rest of the picture suffers. We have a variety of very well informed clients and, recently, many new clients.  So, some of our blogs look in depth at a particular area of Geo-political interest - China, Russia, the Middle East, Greece - while other blogs look at areas of financial interest - Deflation, Gold vs. Real Estate, What Happens when a Currency Dies.  But today, it's time to step back and have a general update, examining again that core premise for some of our newer readers, "Should I own some Physical Gold and Silver?"  This is important, because all other assumptions follow that one question and so we as a professional business like to sure and firm with our raison d'être.  If you have any extra time, as we approach the longer evenings and a school half term holiday, we hope you enjoy this piece as a point of reference for deeper research into any area that interests you. 
 
So, in introduction, much of the real economic news hides behind the headlines.  But sometimes it bubbles up just under the surface. In between adverts for the new James Bond film and news of China's State visit (with a slightly disconcerting accompanying £30 billion investment in UK plc) this morning's Finance section of The Telegraph is literally full of big rising bubbles. Here's an overview:
 
Steel Crisis Strikes at Heart of UK Manufacturing:  "Fears for tens of thousands of jobs in manufacturing as steel crisis sends shockwaves through British industry." 
Independent Shops Declining at Disastrous Rate:  "More shops are now closing than opening."
 
Why There's No Easy Way Out of Spain's Insurmountable Economic Mess:  "Despite being hailed as an unmitigated EU success story, the Eurozone's fourth largest economy still faces daunting economic challenges. Spain remains mired in deflation. Falling prices are an ostensible boon for economic growth as they bolster consumer income. But with consumer prices falling by -0.9pc in September, this descent into deflationary territory has dangerous implications for economic growth and spiralling debt costs. Spain's nominal GDP - a measure of growth which includes inflation - is now lower than where it was seven years ago. 
 
Bank of England Governor Mark Carney to intervene in Brexit debate: "Governor to make speech on Wednesday as Bank publishes report on impact of European Union membership on the economy and banking. The Governor of the Bank of England is to make a speech on the subject on Wednesday in what could prove to be one of the most crucial developments to date in the looming referendum campaign.  Although the date for the referendum has yet to be set, David Cameron, the Prime Minister, has promised it will take place by the end of 2017. Mr Carney is due to give a speech on the evening of October 21 (tonight) to coincide with the release of a report into how Britain's membership of the European Union affects the central bank's ability to manage the economy, and how it affects its ability to protect the country's biggest banks."  That speech should prove interesting, so watch this space for further comment in the coming weeks.
 
I had to remind myself that all these new pieces are from The Telegraph, not a sensationalist tabloid, yet their sheer subject matter is dramatic and wide-ranging.  I think it is obvious to most alert people now that a financial crisis, or economic crash, is factually and imminently a matter of when, not if. Saunter back through the summer months and The Telegraph's Economic Respondent Peter Spence wrote a clear headed piece entitled, "The World is Defenceless against the Next Financial Crisis warns BIS (Bank for International Settlements):
 
"The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank for International Settlements has warned.  The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.  These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.  Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”  This is a beautifully written piece of financial acumen, describing, I believe, with more gravitas the situation I have been trying to convey over the last several months. It is well worth a read.

Here is the UK's Debt Clock. It is dizzying. But you probably already knew that.  £1.6 trillion of debt.  Or is it?  "Mainstream media headlines today are focused on Britain's record national debt, a figure that can only exponentially increase unless the entire mechanism of Government finance is overhauled. The truth however is much worse, factoring in all liabilities including state and public sector pensions, the real national debt is closer to £4.8 trillion, some £78,000 for every person in the UK."

Remember, today's piece is about stepping back and looking at the larger picture. I don't think there is time or space to really take in the full global financial panorama in one week. It may also be a little overwhelming. But to just take in a few of the hill tops we can see from here is enough to help us shake off the cobwebs, as my late grandparents used to say, and keep ourselves awake. Not an easy feet when the shops begin to fill with Christmassy sparkle to tempt us that "all will forever be perfectly abundant." 

The next step, after surveying the general landscape, is to know what to do about it.  Now, I'd like to face full-on the view that, yes, there is an economic crisis imminent, from today through to 2016 and beyond.  But that the answer is to avoid Gold and Silver. This view is out there and so, rather than avoid it, let's examine it.

Trent Hamm from The Simple Dollar responds to a reader writing in to say: "You need to be telling your readers to invest in gold because the dollar is about to become worthless", with this: "I discussed why there are so many ads on the radio and the internet for buying gold and why it’s just old-fashioned salesmanship – creating a demand for a product so you can sell plenty of it."  He looks briefly at one historical crash (Germany in the 20's) and what people did to try to survive. He raises some good, balanced points, that in an economic crash there are other skills and provisions we can store. He is right on this of course, as we have also encouraged our readers to get out of debt and live with as little dependency as possible. But in that sense, he is saying because Action A makes sense (storing up food), Action B doesn't (storing up gold and silver). But why the assumption that the two are mutually exclusive?  We say, do both! It seems actually quite extreme to exclude a second path of protection.  That would be as illogical as saying because Physical Gold and Silver are good don't buy food! 

He also didn't take into account other financial crashes, many of which do involve the general public, and central banks, desperately trying to trade with physical gold (and silver).  During the collapse of the Zimbadwe economy people were literally panning for gold crumbs in the rivers to exchange for bread, grain and cooking oil. Watch this short 7 minute video to see this reality in action. And this fact did not occur in the 18th century but only six years ago, in 2009!  

 


Wouldn't you rather have a nice stock of food, plus you're own coins and bars tucked away?  Trent Hamm also seemed to ignore that before all these crisis, there was a run-up period. It is during this period that investors who already have Gold and Silver are trading in some of their Physical to release larger and larger amounts of cash - as the price of Gold increases - with which to pay the bills, keep up with inflated food prices and generally keep their heads above water.  Sadly, the majority of people usually only wake up during the run-up period to a financial crash and therefore are trying to buy Physical Gold and Silver at precisely the point when those who are prepared are gently releasing small amounts to keep their income steady.  

Lastly, Trent Hamm also doesn't include in his piece the fact that the German hyperinflation, to which he refers, was stopped only be introducing a new currency that was backed by land, industrial good and yes, gold!  Plus, if gold was of no value in a crisis, as he presupposes, why did Germany confiscate the gold reserves of every country they then invaded?  

 We say hold both goods that are useful to you and your family, PLUS invest now in Physical Gold and Silver, before the sometimes long run-up of inflationary and hyper-inflationary really kicks in.

 

 

Having looked at the opposing argument straight in the eye, let's look at the supporting argument and rigorously ask, "Does it make sense?" William Cowie of "Get Rich Slowly" wrote a factual piece back in March of this year when he asked, "How come, if gold was such a terrible thing to invest in, is it by far the oldest, and most consistent investment of all in the history of humanity?" I like this article because he clearly is coming at this subject objectively. The previous week he wrote an article listing some reasons why he thought he shouldn't own Physical Gold! So he's not a Gold or Silver bug. He is clearly searching for the factually based answer to the central question in our title, "Should you own some Physical Gold and Silver?" His dispassionate conclusion was yes and here are his reasons: (*all the following apply to Silver as well)

1. Gold is time-tested

Times change appetites, and so it is with the investment flavour of the month. Dig back through the musty archives of human history, and you will discover that no other investment has stood the test of time like gold. None. As Robert Brokamp mentioned yesterday, there was a time when the latest wisdom said that tulip bulbs were a better investment than gold. And, indeed, for a short period, they were. In the long term, well, you know how that turned out.  From the traders in the time of Hammurabi to Genghis Khan and Marco Polo, the universal investment vehicle has always been gold. We have roughly about 6,000 years of recorded human history — and gold has been a part of all of it.  Compare that to the stock market as we know it, which is barely a hundred years old and still wet around the ears, relatively speaking. And if you think the stock market is young, mutual funds are like kids in diapers running barefoot around the yard. Index funds are the infants in the group, being even younger than mutual funds. All I am saying is be careful before you totally dismiss an investment that has proven itself over a far longer period of time.

Picture source: Goldprice.com

2. Gold is a universal store of value

No matter which country you go to, gold is immediately recognized as valuable. Take out a few pieces of gold in a rural village in Tibet or Tanzania and you’re in business. Try that with an index fund, or even your dollars, pounds, yuan, yen, or rubles. At its core, investing is simply shopping: You shop for things to buy in the hopes they will increase in value and/or give you money every year. The difference between investing and shopping is that, at some point, you have to sell the investment to buy other things. Nobody can predict the future but it is good to know that when it comes time to sell, your investment has been in universal demand for as long as humans have recorded their history.

3. Gold offers safety

For what purpose do you invest? A rainy day. But, when the days get rainy, what happens to most investments? They tank … just when you need them most. Gold, for reasons nobody has been able to fathom accurately, is the investment of choice around the world for those who are preparing for a rainy day. Rainy days are not confined to recessions. Something like the oil embargo of 1973 brought unprecedented change to America. Gold was the only investment which offered safety during that crisis.  Not to be an alarmist here, but domestic upheaval or major war is always unthinkable … until it happens. In just the last hundred years, we’ve seen not one, but two world wars. On top of that, many countries have undergone major changes in government, even revolution. Not long ago, peasants looted the wealthy in two of the largest countries — Russia and China.  It still happens in other parts of the world. Those are not just arcane lines in a dusty library history book; there are many people alive today that experienced those events when they happened. If you are inclined to scoff that something like that will never happen here, consider this: Social upheaval always follows unusual and indefensible shifts of wealth from the poor to the super-wealthy. Again, I am not suggesting this is going to happen to you; but, do you think that America’s run-away debt — like those in other nations, such as Greece — will leave the money world as we know it unaffected?  If anything happens to paper money systems anywhere, gold alone has proven itself as the safest of investments available to the mortal man … for thousands of years. No other investment can make that claim. Even real estate bombed in the Great Depression.

4. Gold remains the most portable investment of all

Heaven forbid that you should have to change countries; but even if you just want to, there is no better means of taking your wealth with you than gold. This type of circumstance can be as dramatic as the Russian pogroms which forced Jews to flee in haste or as mundane as your wanting to spend five years travelling the world. The only instrument of wealth most people took (literally) with them when they faced similar events was their gold.  

5. Gold’s return on investment

In America the gold price was pegged at $35 an ounce until the late ’60s, when the U.S. government started backing away from it bit by bit until, by 1972, gold traded freely. So, let’s compare the return of an investment in gold since that time with an investment in the Dow Jones Industrial Average (since index funds weren’t around that far back):

It is hard to argue against hard facts, but that has never stopped determined scoffers. They try to explain away gold’s superior track record."
 
In conclusion, the joy of it is that such a timeless, sensible investment is also in many ways beautiful.  Many of the coins are miniature works of art, with stunning themes and pictures. The bars are incredibly satisfying to hold and own.  All the facts of historical value are felt in your own hands compared to holding paper currency.  We can instinctively tell Gold and Silver are innate in their international, historical and financial worth.   Ring in to discuss how you may own some of your own.
 
NB: "My Big Fat Greek Family Holiday": I will be away next week enjoying a family holiday to Greece. As my brothers posting in the FCO in Athens comes to an end, nine of the family decided this was our last chance to fill their house, enjoy a bit of late summer warmth and eat a little too much Greek food! I'll keep my ear to the ground for first hand news of both the Greek economy, and the European migrant crisis at its source, and will look forward to blogging to you all in two week's time. 
 
In the meantime, we hope you enjoy browsing Bleyer's beautiful array of Gold and Silver coins and bars. Do pick up the phone for a no-obligation chat with Caroline, Dan or Kathryn.  Because we are a smaller family run business, we can offer our clients quality time with bespoke customer care, which produces a high rate of ongoing business relationships.  Many of our clients have known us for several years and call us any time they feel like owning a little more Physical Gold and Silver.  Start the ball rolling now by calling 01769 618618.
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