The pandemic appears to be in its third, and final act. It is true that the disease will still be in our lives for some time to come. We will face variants, and the possibility of ongoing annual vaccinations. However, the darkest days of contagion are likely behind us. What remains is an economy on the rebound.

Many economists are anticipating a strong, and prosperous second half to 2021. As recently as mid-March the Federal Reserve raised its forecast for domestic growth in 2021 by more than 50%. As a result, GDP is expected to reach 6.5% this year. If accurate, that figure would be among the highest in recorded history. While these forecasts offer plenty of excitement there is a less discussed and often unseen aspect to the economy today: fragility.

Gregory Daco, chief U.S. economist at Oxford Economics, has explained that the recovery is “fragile.” Part of what makes the US economy fragile today is the fact that many businesses are still struggling to find their way forward. Many companies aggressively pivoted, or even changed their model to accommodate the pandemic setting. Now, as COVID continues to recede, those businesses are determining what aspects of their initial change they want to preserve, and what aspects they want to abandon. Additionally, many businesses were able to stay afloat with borrowing and are facing the considerable cost of repaying those loans. Finally, much of the recovery is due to recent fiscal stimulus which, while critical and necessary, is not sustainable.

This “fragilizing” of the economy, however, is not only the result of the pandemic. These effects have been taking hold for some time and are structural in nature. That is, they are part of moorings that anchor the global economic system. One key factor of the global economy of the recent past and present is that it is characterized by output divergence. The level of output of various economies across the world varies considerably. As a result, the burden of maintaining the health of the global economy is shouldered by fewer and fewer countries.   

At the same time, continued globalization means that more countries are discovering that their success and survival are tied to the health of other countries. Simply, what happens “here” is highly contingent on what happened over “there.” The result is a more tenuous and fragile setting.

In such an environment there are many stores of wealth that become increasingly volatile. The value of the dollar is tied heavily to trade imbalances and the threat of inflation. Meanwhile, stock prices are subject to disruptions in the global supply chain that is so necessary to many businesses seeking annual growth.

Weathering the storm of a pandemic has demanded unimaginable resources. Any new, unforeseen threats could take a serious toll as many emergency reserves have been depleted. This aspect of a recovering but extremely fragile economy underscores the importance of storing a portion of personal wealth in assets that have less reliance on today’s increasingly delicate economy. For many the answer is gold which is not as prone to the threat of externalities as other assets and investment instruments.

Capitalizing on a rebound means remembering to gird for the ever-present threat of a new challenge. As Author Nassim Taleb explains “globalized economic systems operate as one. Errors spread and compound.”

This sentiment seems to encapsulate the underpinning of a gold investment strategy because, as former Federal Reserve Chairman Ben Bernanke once explained, “The reason people hold gold is as a protection against what we call tail risk, really, really bad outcomes.”

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Americans have accelerated the accumulating of liquid cash more than ever. The M2 money supply, sometimes called the “M2 money stock” is at its highest point in recorded history. Moreover, the figure has risen at a near vertical ascent since the start of 2020. As the Wall Street Journal reports, the M2 “has increased by an astonishing $4 trillion. That’s a one-year increase of 26%—the largest annual percentage increase since 1943.”

The M2 money supply is a measure of physical currency, demand deposits, negotiable order of withdraw accounts, and travelers’ checks (called the M1 money supply) and “near money” which includes less liquid assets like savings accounts, money market accounts, and certificates of deposit.

The massive growth of the M2 money supply is due to several factors. First, the U.S. has increased their purchasing of Treasuries and mortgage-backed securities. These purchases have added to individual accounts. The second factor is a similar increase in activity from commercial banks. Since the beginning of the COVID pandemic these transactions have added a total of approximately $1 trillion to M2. Third, U.S. companies initiated a dramatic drawdown of $800 billion in credit lines to help weather the pandemic. However, much of this activity occurred between February and April of last year. In recent months corporate bank borrowing has decreased “leaving a net $300 billion increase,” according to reporting from the Wall Street Journal.

The question some gold investors might have is “why does this matter?” One answer can be seen from data published by the World Gold Council which shows that “gold has been more effective in keeping up with global money supply over the past decade.” This relationship is one that we have discussed previously at Blanchard when we explained that “In 2011, gold reached a historic high of $1,900 an ounce just as the M2 money supply surged above 10 percent on a year-over-year basis.” The same Wall Street Journal reporting referenced above concluded that the M2 money supply is expected to increase by another $2.3 trillion in 2021 which will translate into a 12% increase in the total “even without any new lending or further purchases of securities by banks.” Simply, the rise of the M2 money supply likely bodes well for the value of gold.

This dynamic is poised to intensify as more American’s begin receiving their stimulus checks. More money will be in hand among a populace that has already added to their cash holding considerably over the last twelve months. The personal savings rate reached 20.5% in January which is a meaningful increase over the 13.4% seen in December of 2020. In the meantime, more investors are looking for ways to grow their wealth as fixed income assets continue to underwhelm. Additionally, as the Federal Reserve continues to take an aggressive stance towards monetary policy the value of the dollar is coming into question as money floods the system. In this kind of setting more investors seek reliable stores of value for their cash and gold enjoys new life.   

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Privacy. It’s a fashionable buzzword today – and almost a quaint concept.

The breathtaking advances in technology continue to chip away and erode privacy.

Yet some Americans – especially younger people, have less concerns about the digital footprint that we leave behind with every internet search, text or even your exact geographical location every minute of the day (which is tracked by the location services feature on your cell phone).

Baby Boomers are very concerned (47%) about data privacy use on cell phones versus only 28% and 29% of Gen Z and Millennials, respectively, according to Statista.

You may be wondering – how does privacy relate to money and precious metals investing?

The answer is simple. National digital currency.

From Sweden’s e-krona to the Bahama’s Sand Dollar – more than 60 countries have experimented with national digital currencies over the past year, according to the Bank for International Settlements.

Some see a dark side to the emerging national digital currency technology.

Last year China began testing its digital currency in cities like Shenzhen, Suzhou and Xiongan. Chinese citizens invited to try out the electronic yuan received a link they could click on to get a balance of 200 e-yuan – which was then displayed in their bank app.

To spend the money, Chinese citizens scanned a store’s QR code, or gave a QR code to a retailer to scan.

Consider this.

1. The digital currency expired in a few weeks.
2. They could only spend the e-yuan within city limits and at select stores.

Can you imagine if your money had an expiration date? And, you could only spend it within certain geographical borders or at specific places?

“The development of a hyper-centralized digital yuan would also create the world’s largest repository of financial transactions data, allowing the authoritarian Communist Party of China unprecedented access to ramp up surveillance of ordinary citizens,” Akram Keram, a Chinese expert at the National Endowment for Democracy wrote earlier this month in a Washington Post article.  

Going Cashless?

The goal of the digital yuan is to replace cash used in everyday commerce.

Over 750 million people in China bought goods online last year. Goldman Sachs estimates that digital yuan could be used by 1 billion people in the 10 years.

One of the advantages of using paper money and coins is anonymity.

Even for law abiding citizens, it could be unsettling to know that a government is tracking (and controlling) every dollar or yuan that you spend.

The digital yuan “would give the Chinese Communist Party something that no government has ever had in history: The ability to monitor in real time the minute financial dealings of its citizens,” said Yaya J. Fanusie, an Adjunct Senior Fellow at Center for New American Security  and the author of a new report on China’s digital currency.

“The privacy concerns arise largely from the massive amount of insight a CBDC [central bank digital currency] would give Chinese authorities into its users’ financial data and behavior, as well as information about anyone who interacts with those users – including, potentially, American citizens,” Benjamin Powers wrote in a recent Coindesk article.

Governments could also just cut you off from your digital money.

“In a digital-yuan-consumed society, the government easily could suspend the digital wallets of dissidents and human rights activists,” Keram wrote.

China is leading the world in the push to take its currency digital. The country already ranks and blacklists citizens as part of its social credit system and digital currency could easily be connected to that system.

That’s why diversification into tangible assets offers an often overlooked benefit – extreme privacy.

Precious Metals and Rare Coin Ownership is Private

One of the many benefits of diversification into physical precious metals is discreet and private wealth accumulation and transfer. Gold bullion and rare coins are easily transportable and not tracked by any financial institution or government.

For estate planning purposes, with rare coins and precious metals, you can split your wealth among your heirs evenly, or in whatever proportions you prefer.

You can preserve your wealth in a way that is portable, secure, and private.

Many precious metals investors choose to store their investments in a fireproof home or business safe or a bank safe deposit box.

International Storage Options

For the ultimate in privacy, some investors turn to the International Depository Services (IDS) of Canada, a precious metals depository in Toronto. Assets are stored here in an international personal custody account, which is off depository balance sheets and beyond the reach of the U.S. government.

Another option is the Strategic Wealth Preservation Storage Facility. The SWP is a precious metals storage facility located in the Cayman Islands. Independently owned and operated, this non-financial institution is the closest off shore storage option for North American investors seeking to internationalize their hard assets.

The Bottom Line

Advances in digital currency are coming. While you can’t change or stop these developments, when you invest in tangible assets like gold bullion and rare coins you get additional peace of mind that a portion of your assets are private.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Bitcoin and gold are wildly different currencies that both present one interesting question: what happens when we mine all of it?

Many people are surprised when they learn that there is a finite amount of Bitcoin. Given that it is entirely digital, it seems more coins could always be generated. In truth, there are exactly 21 million Bitcoins available. Today, approximately 18,647,356 Bitcoins have been mined with about 2,352,643 waiting to be “unearthed.”

A Bitcoin is mined by an individual who solves complex mathematical problems with the help of a computer, or network of computers. In doing so they are able to add “blocks” – a group of approved transactions – to a chain consisting of many other blocks. The work of a miner is competitive because the individual who successfully solves the math problem is rewarded 6.25 Bitcoins. Originally, the reward was an astounding 50 Bitcoins. However, the Bitcoin system contains a rule that the reward will be halved every 210,000 blocks. The average amount of Bitcoins mined per day is about 900. Most analysts agree that the last Bitcoin will be mined in 2140. This means that approximately 12% of all Bitcoins that will ever exist remain to be mined.

How does this compare to gold? Estimating the remaining stores of below-ground gold is more difficult and involves less certainty. However, most research suggest that roughly 54,000 tons of gold still sit in the ground which represents about 21% of all gold on the planet. Analysts forecast that the remaining stores of gold beneath the surface would be fully depleted by 2035 in a 2015 report from Goldman Sachs.

These two timelines raise another question: what is the long-term value of each? Here, Bitcoin begins to look surprisingly limited despite it’s advanced technological underpinnings. The popularity of Bitcoin may, in time, erode its value given that the fervor around blockchain technology has spawned more than 4,000 other cryptocurrencies including Ethereum, Litecoin, and Cardano. Some of these alternatives have pulled investors away from Bitcoin in recent years because they are less expensive alternatives that provide the possibility for a similar growth trajectory.   

Other contrasts should be considered by the long-term investor choosing between Bitcoin and gold. For example, gold will always have a demand in the jewelry market. Gold will always have some form of practical application in technologies like computing. More importantly, gold has long been a global currency. While Bitcoin may be catching up, it has a long way to go before it equals the legitimacy of gold in every nation.

Finally, investors must consider the issue of concentration. The US Treasury is the largest single entity holder of gold. However their stores total just 4% of all above-ground stock. Meanwhile, 95% of all available Bitcoins rest in the hands of 2% of all Bitcoin holders. This figure suggests that much of the power behind Bitcoin resides with a small, elite group.

Both assets represent value. However, upon closer examination the recent hype propelling Bitcoins meteoric rise suggests that long-term investors should consider the factors that present risk that may get lost within the excitement.  

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Too often gold’s value is relegated to a simplistic analysis of supply and demand. This approach to understanding the strategic value of a gold investment ignores several other important aspects of the precious metal. For this reason, the World Gold Council recently released a comprehensive report exploring the four factors that together represent the unique strategy of investing in gold. Here, we offer a summary of those four concepts and an explanation of why they matter.   

Returns that Outperform

Gold can improve the risk-adjusted return of a portfolio. Since 1971 the average annual return of gold has been almost 11%, placing it on equal footing with equities while also outperforming bonds. When examined over a period of 10, or even 20 years, gold has also outperformed other asset categories including emerging market bonds, EAFE equities, REITs, and hedge funds. This significant performance has enabled gold to outpace inflation by rising faster than increases to the consumer price indices (CPI). Moreover, gold has often safeguarded investors against inflation as evidenced by its average annual price increase of 15% during periods when inflation increased higher than 3%. This metric is especially relevant to investors today as concerns about inflation continue to rise. For example, publications like The Economist warn that factors like a 180% surge in shipping container costs are a harbinger of inflation.

Diversification that Works

In an increasingly globalized world, the diversification offered by index equity funds is diminishing. Additionally, diversification is becoming elusive as the returns of these funds is increasingly driven by fewer companies. Consider that a decade ago the five biggest US stocks represented 10% of the S&P 500. Today, the five largest stocks account for almost 25% of the same index. As a result, a handful of companies drive the movement of a basket of stocks meant to diversify a portfolio. For this reason the real diversification gold offers is critical in periods of falling equity performance. The metal increased in price by 21% between December of 2007 and February of 2009 when the global financial crisis wreaked havoc on investor holdings. As the World Gold Council shows, “gold has been more negatively correlated with equities in extreme market selloffs than commodities and US treasuries.”

Liquidity that Simplifies

Recent investor outcry has illustrated the importance of liquidity. In the early months of 2021 several prominent brokerage companies halted trading of several popular equities. The firms claimed this was necessary to prevent a collapse in their over-heated clearing houses. In contrast, gold offers more liquidity than the Dow Jones Industrial Average, US corporate bonds, and US 1-3 year treasuries, based on a measurement of one-year trading volumes in US dollars. This feature is important to investors who want the peace of mind that comes from knowing that there is a fluid market which will accommodate their trades at any time. Without liquidity an investor is not in control of their holdings because they do not always have the option to buy and sell. Part of gold’s liquidity comes from its lower volatility relative to US equities, EAFE equities, REITs, and more.

Long-Term Growth

The World Gold Council analyzed the average US pension fund portfolio over a five, ten, and twenty year period. Their conclusion: the average portfolio would have earned a higher risk-adjusted return with lower drawdowns if gold comprised 2.5%, 5%, or 10% of the total holdings. Additionally, their research showed that “the higher the risk in the portfolio – whether in terms of volatility, illiquidity or concentration of assets – the larger the required allocation to gold, within the range in consideration, to offset that risk.” This finding makes intuitive sense because so much of the value proposition of gold is differentiated from the value drivers influencing equities and fixed income investments. Simply put, gold is valuable for reasons that are wholly different from the value of a stock or bond.    

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

In the world of professional sports, after years of stellar performance commentators might say a talented athletic star has peaked. From there, it’s a slow gradual decline.

Sure, the professional athlete might show a few flashes of the previous greatness – but overall the trend points down. The previous raw talent, incredible moves and confident success of the aging athlete is diminishing – right before your eyes. Perhaps the athlete will retire from sports gracefully – or maybe he will stay in the game to the bitter end – and eventually only become a shell of his former talents and skills.

In the world of finance, a comparison is being made to the U.S. dollar and even our country as a whole. Perhaps, you’ve even heard some people compare the United States right now to the fall of the Roman Empire – suggesting America has peaked in its greatness – and our country is now in decline.

That’s debatable of course – and the outcome is still yet to be determined.

But, there’s no debating that the value of our U.S. dollar has taken a beating.

In 2020, the U.S. dollar lost 10% of its value.

In simple terms – that means your $1.00 bill is now worth 90 cents. Or, your $500,000 investment portfolio now only has the purchasing power of $450,000.

Part of the problem is that many officials running our country fail to acknowledge the policies that are driving this trend – which continue to devalue your hard earned dollars.

Policymakers are on the brink of passing another big government aid package – a $1.9 trillion emergency stimulus bill.

How will our government pay for that? Not out of its coffers – our government doesn’t have an extra $1.9 trillion sitting around in an official account to spend. The U.S. Treasury will issue new U.S. bonds and T-bills to pay for that. That’s right – our government will take on new debt to pay for this big aid package. Yes, it’s just like putting it on a credit card.

What does this mean for the U.S. dollar and gold ahead?

There are “very big signals that the proverbial kitchen sink is about to be thrown at an effort to prop up a fragile economy, an effort that may have short-term impact but in the long term will cause further pain and ultimately will be negative for the U.S. dollar and positive for gold,” Bryan Slusarchuk, chief executive officer of Fosterville South Exploration Ltd. told Bloomberg.

As our government continues to print new money – just like the aging athlete – commentators are warning the U.S. dollar decline is underway.

• ING analysts predicted the U.S. dollar could lose up to 10% of its value in 2021 – against most major currencies. That’s on top of last year’s 10% decline.
• Analysts at Goldman Sachs agree, writing in a report that they forecast “the trade-weighted U.S. dollar falls another 9 per cent over the next 12 months”.

Has America peaked?  That’s debatable, of course.  America has long thrived because of our people – our hard working, entrepreneurial and determined spirit – we are a nation of innovators and we’d never give up on our beloved country.

Yet, the writing on the wall for the U.S. dollar is clear.

As an investor, you need to protect your wealth from government policies that steal your future purchasing power.

You don’t need to watch the aging athlete in decline – and watch your future financial security slip away because of it. There are simple steps you can take now to protect your financial future – like increasing your allocation to precious metals – which are recognized as hard currency around the world and can never be devalued by any government printing press.

Blanchard can help you diversify your assets out of a declining asset like the U.S. Dollar and into tangible assets. If you’d like to discuss your unique financial situation and long-term goals – and learn more about how increased diversification into precious metals can help protect your money – call a Blanchard portfolio manager today for a personalized portfolio review.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.