Rising Government Debt Could Further Boost Gold’s Value

With prices still going up and up, questions about gold continued to dominate our inbox

Editor’s note: This article was originally published on August 16, 2019 via Legacy Research Group.

With prices still going up and up, questions about gold continued to dominate our inbox.

Gold Stocks
Source: Shutterstock

But one reader email stood out from all the rest, so that’s the one we’ll tackle in today’s edition of The Daily Cut Friday mailbag.

Later on in the essay, we’ll also show you why two Jeffs are better than one.

But before all that… one of your fellow readers explains why you cannot skip the August 7 edition of Teeka Tiwari’s Palm Beach Daily

Reader comment: It was interesting to read about Big T’s thoughts on asset allocation. This is the kind of basic yet foundational information that ALL PBRG subscribers really should put into practice.

– Theron M. (Legacy Research member)

And now for that standout question about gold… and we were fortunate enough to get solid answers from three of our experts.

First up, Bill Bonner’s longtime colleague… Tom Dyson.

If you’re wondering what makes Tom such an authority, well… he just made a $100,000 bet on gold. So saying he has some “skin in the game” is putting it lightly.

Reader question: Why won’t the feds confiscate gold again? With the government knowing everything about us it seems easy to do. If they don’t take it, they can always tax the hell out of it and wipe out any gains.

The total gold value vs. the deficit is small, I know, but I don’t trust our government and feel if they get desperate, they’re apt to do anything that even gives the appearance of eliminating the income disparity that liberals are so worried about.

– Steven B.

Tom’s answer: I find it hard enough to figure out when to buy and sell… how to position-size… how to not freak out every time there’s a pullback.

The government confiscating gold just isn’t on my radar at all.

I guess they could confiscate it. They’ve done it before, so it must be possible. But I just don’t think the government cares about gold anymore. It’s at best a mosquito biting their ass while they’re in a knife fight.

What I mean is, if it ever gets to the point where they’d feel the need to confiscate gold, they have so many other, bigger problems to worry about.

For our next answer, one of our biggest gold bugs – Dan Denning (The Bonner-Denning Letter) – chimes in…

Dan’s answer: Of course it’s a risk. It happened before. It could happen again. Never underestimate the power (or the desperation) of the Sovereign.

There’s an important difference between now and 1933, though, when FDR signed Executive Order 6102, which outlawed the hoarding and possession of gold. The government did that to “demonetize” gold and separate it from the financial system and the calculations of ordinary citizens.

What you’re seeing now, I believe, is the inevitable remonetization of gold. Yesterday (the 15th) was the anniversary of the U.S. ending the Bretton Woods system and the convertibility of dollars into gold. We’ve been on a “fiat” standard since then.

The U.S., at least officially, has the largest official holdings of gold, at over 8,000 tonnes. If we’re entering a new currency regime – which I’m going to take as a given, as a full explanation of this point is beyond the scope of your question – gold is going to be a part of it… a part of what makes currency issued by governments more legitimate in a world where there’s so much government debt.

I think the feds will be quite happy for Americans to have gold in their hands because the feds will want to create the impression that the dollar is again backed by gold. As I said, it’s possible they try to round up all that gold and put it Fort Knox again.

But there are just some risks there’s no hedging against. If the government’s coming for gold, it will have already come for your guns. And by then, we’ll already be living under Financial Martial Law.

Just buy gold on the dips, and extract your money from the banking system, and try to sleep well at night.

And last but not least, Nick Giambruno (Crisis Investing and The Casey Report) offers his insight on every gold bug’s worst nightmare…

Nick’s answer: For thousands of years, gold has been the safe-haven asset. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too. That’s because it’s durable, divisible, consistent, convenient, and has intrinsic value.

When you hold physical gold, no government can easily confiscate, nationalize, freeze, or devalue it at the drop of a hat.

Gold is universally valued. Its worth doesn’t depend on any government.

There is nothing particularly American, Chinese, Russian, or European about gold. Different civilizations have used it as money for millennia. It’s always been an inherently international asset.

And while you’re right that governments can confiscate gold – like the U.S. feds did in 1933, under the pretext of a national emergency – it would be pointless for them to do so again.

Today, only a tiny fraction of the U.S. population owns gold. Heck, I’d bet most Americans have never even seen a gold coin, much less appreciate its value.

This wasn’t the case in 1933, when the U.S. was still on a variation of the gold standard. That’s why the government probably won’t repeat the 1933 rip-off. It’s simply not worth the effort.

For proof, I suggest watching this video of a social experiment of average people on the street being given the choice between a candy bar and a gold coin.

If the government wants to confiscate wealth, it’s far more likely to go for the easy option… steadily debasing the currency by printing money. It’s a stealthy way to confiscate from savers.

Next up for today’s mailbag… several crypto enthusiasts out there are concerned about the recent performance of altcoins. If you’re new to the space, an altcoin is any crypto other than bitcoin.

Reader question: What’s up with altcoins? Performing horribly.

Should I sell alts and go all in on bitcoin?

– Mark W. (Legacy Research member)

Reader question: Bitcoin (BTC) dominance is on a sharp way up, keeping all the altcoins bleeding. The sentiment for the altcoins seems to be underground.

Now my question: There seems to be the belief that a possible altcoin season might not start before BTC reaches its all-time high, which would imply a further increase in BTC dominance and a further decline in the BTC value of our portfolios… Could you please address once more this issue in detail?

Thank you very much, and best regards from Germany!

– Juan J. (Legacy Research member)

Reader question: Hi Daily Cut and Legacy Research team.

Altcoins are getting beaten to hell right now like the Russian in Rocky IV: What do Teeka and Marco think about this? Is there any hope?

I’m hanging on either way!

– Brendan V. (Legacy Research member)

You asked for answers from Teeka Tiwari and Marco Wutzer – two of our top-notch crypto experts – so that’s what we got…

Marco’s answer: In the big picture, absolutely nothing has changed.

If quality projects are on sale because the overall crypto market is temporarily going lower, it’s a buying opportunity. If you want to make big gains on your crypto positions, you need to have at least a three- to five-year time horizon. Projects need time to develop and financial markets are cyclical.

We are closer to the bottom of the cycle than to the top.

In other words, it’s time to buy. The time will come when you will be able to sell your crypto positions at much higher prices, but that time is probably at least a year or two in the future.

Teeka’s answer: You want to own a broad portfolio of coins and you want to have rational position sizes, because when bitcoin goes, the whole market goes.

Typically, it’s a six-month time lag, and this is something I addressed a couple of months ago. Bitcoin will always move first, and it will always move faster than the rest of the market.

We went back and looked at all the moves. And generally speaking, within six months of bitcoin breaking its downtrend line, you see the rest of the altcoin market begin to catch up, and then ultimately outperform.

So that opportunity is still there. But it may not be there for much longer.

The bitcoin rally really kicked into high gear in April… that was four months ago. So the six-month lag is just about over.

 

 

 

 

James Wells
Director

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