Third Time’s a Charm
Posted onIt took Congress three separate attempts – over a span of nearly 60 years – to approve the striking of a 2-cent coin.
The First Attempt
In the spring of 1806, Senator Uriah Tracy from Connecticut first introduced legislation to authorize the U.S. Mint to strike a two-cent coin.
Not everyone liked the idea.
Concerned about fraud, Mint Director Robert Patterson used his political might to stop the plan.
To illustrate his concerns, Patterson sent a brass button alongside two of the composite blanks for the proposed 2-cent coins to Senator Tracy to show how easy it would be to swap a button in the place of the proposed coin.
Senator Tracy backed down.
If at First You Don’t Succeed…
The idea of a 2-cent coin surfaced again in 1836.
President Andrew Jackson’s Treasury Secretary Levi Woodbury proposed a 2-cent coin for the second time. And, the mint assayer produced pattern coins for these pieces.
The Mint Director stepped in. Again.
Robert M. Patterson had taken the helm of the U.S. Mint – the son of Robert Patterson who had stalled the initial attempt back in 1806. Father like son! The young Patterson was also able to stop the 2-cent coin from becoming a reality.
Civil War Created a Third Opportunity
The onset of the Civil War in 1860 created a dramatic coin shortage throughout the divided nation. Citizens hoarded coins. The Treasury Department responded by issuing paper fractional currency – in denominations of 3, 5, 10, 15 and 25 and 50 cents to replace the nation’s silver coinage.
Congress passed the Act of April 22, 1864, which – after three tries – finally passed into a law a provision to create a bronze two-cent piece.
The 2-cent piece was the first coin to sport the motto IN GOD WE TRUST, backed by the support of Treasury Secretary Salmon P. Chase.
First minted in 1864, the 2-cent coin appeared as an initial success as the coin-starved public began to use and circulate the coins.
Yet, once the Civil War ended and regular coins reappeared in circulation, usage of the 2-cent coin dropped precipitously.
In the end, the short-lived circulation of the 2-cent coin was an experiment that failed.
The 2-cent coins were minted only from 1864 through 1873. These unique coins were greatly influenced by politics and war.
In 1865, the Confederate surrender ended the deadliest and most divisive war ever fought on American soil. Nearly 620,000 soldiers were killed, millions more were injured. We have a 2-cent coin from 1865, one of the most pivotal years in U.S. history.
You can see the intricate beauty of this historical masterpiece here.
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Meet Me in St. Louis: The 1903 Louisiana Purchase Exposition Gold Dollar
Posted onMany people forget how much of history is governed by chance. There is no better example of this than the circumstances leading up to the Louisiana Purchase. This enormous part of the U.S. passed through several owners before finally becoming a part of the nation’s identity.
Originally, the 530-million-acre section of land was owned by France because of French explorers who originally laid claim to the area in the late 1600s. During this time, the French built a few settlements near the Mississippi. However, by 1762 the French ceded the entire area to Spain via the Treaty of Fontainebleau. This agreement was conducted in secret as the French had recently suffered defeat in the Seven Years’ War. As a result, the territory west of the Mississippi fell to Spain while the territory to the east went to the British.
By 1799 Napoleon was in power in France. With his grand ambitions to revitalize the French empire he was able to reclaim, through formal agreements, the Louisiana territory from Spain. This arrangement was intended to be secret, however, President Thomas Jefferson learned of the transfer and immediately acted to secure the lower Mississippi area for the U.S. to ensure the port of New Orleans remained accessible to American shipping. The deal would end up being far more expansive, and expensive, than Jefferson imagined.
Napoleon was in fact prepared to sell all the territory. The reason: Napoleon believed that he was at risk of losing the region to the British. However, if he sold the area while it was still in his control, he could at least gain financial compensation for the territory. The U.S. paid $15 million for an area totaling 828,500 square miles. Officials signed the treaty in 1803. The result was the doubling in size of the United States.
Nearly 100 years later Congress authorized a $15 million budget for the Louisiana Purchase Exposition, which was popularly known as the St. Louis World’s Fair. The exhibition included participants from over 60 countries and nearly all the 45 states in existence at the time.
To commemorate the event Congress authorized the minting of 250,000 gold dollar coins. Farran Zerbe, the President of the American Numismatic Association at the time, proposed minting two designs to boost sales by enticing people to own the two-coin set.
Both coins would have the same design on the reverse, an olive branch, and the anniversary dates. The obverse of one coin would feature Thomas Jefferson’s profile, and the other would feature William McKinley’s profile. Initially, the intent was to sell the coins to those attending the World’s Fair for $3 each. This price made the coins relatively expensive given that it was triple the face value.
In total, 20 million people attended the fair and the popularity of the event inspired the song “Meet Me in St. Louis.” Today, the remaining exposition coins are a reminder of the earliest days of the nation and the chance events that gave rise to the expansive territory of the United States.
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Bitcoin Captures Imagination of Future Space Tourists
Posted onWhat do an NFL player’s salary and paying for a hotel on Mars have in common?
The unlikely answer is Bitcoin.
Tech billionaire Elon Musk recently said any future economy on Mars could run on cryptocurrency.
But wait…will that cryptocurrency be Bitcoin?
No sir.
In fact, Musk suggested it could be the cryptocurrencies Dogecoin or Marscoin.
Many people don’t realize how many digital currencies there are!
As of January 2020, there are over 2,000 cryptocurrencies, Investopedia says.
That begs the question, if you are investing in crypto, how can you be sure you are betting on the right horse?
If you’ve been intrigued by Bitcoin and have even invested in it, you aren’t alone.
Everyone wants in on the action – even pro football players.
Russell Okung, a Pro Bowl tackle for the Carolina Panthers, tweeted back in May 2019 that he wanted to be paid a portion of his $13 million salary in Bitcoin.
While sports franchises do go to great lengths to keep their stars happy, this didn’t fly. “NFL players are paid in U.S. dollars,” a league spokesman said. However, Okung decided to convert 50% of his $13 million salary into Bitcoin.
Similarities and differences between gold and Bitcoin
For gold investors, it’s true. There may seem to be similarities between gold and Bitcoin. There are also important differences.
Scarcity
Gold. The physical metal has true scarcity – it is a physical commodity that must be mined from the ground. Eventually, we will run out of gold to mine, although when that will happen is still up for debate.
“While the growth in mine supply may slow or decline slightly in the coming years, as existing reserves are exhausted, and new major discoveries become increasingly rare, suggesting that production has peaked may still be a little premature,” Hannah Brandstaetter, a spokesman for the World Gold Council told BBC. As of now, the below-ground stock of gold reserves is currently estimated around 50,000 tonnes, according to the US Geological Survey.
Bitcoin. Scarcity has been one of the big drivers behind the recent speculative rally in Bitcoin.
Currently, the Bitcoin programmers have set a limit on the number of Bitcoins that can be mined at 21 million. But, unlike gold – there is no true scarcity.
“It’s possible that Bitcoin’s protocol will be changed to allow for a larger supply,” according to Investopedia. There’s nothing to stop the programmers from picking a new arbitrary number in the future.
A hedge against the U.S. dollar
Gold. Some gold investors are attracted to the metal’s proven diversification value and a hedge against the devaluation of the fiat currency. In the current era of Federal Reserve money printing, this is a legitimate concern.
Gold is an excellent choice to hedge against the U.S. dollar – as it is a proven store of value – with central banks and governments around the world recognizing that value. All major governments around the world themselves own tons and tons of gold.
Bitcoin. There’s no proof that Bitcoin will be a store of value, or that in fact governments won’t outlaw its use in the future – so it’s difficult to definitely say you can hedge against fiat currency with Bitcoin.
Privacy
Physical gold and rare coins offer investors the unique benefit of privacy. Indeed, many trust attorneys and retirement planning professionals recommend bullion and rare coins as an efficient and discreet method of transferring wealth to the next generation.
Bitcoin. Not so much anymore. The U.S. government is getting involved and they now ask you a question on page 1 of the 2020 U.S. Individual Tax Return.
The IRS wants to know:
“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest, in any virtual currency?”
“When you sign the form, it’s under the penalty of perjury,” Ryan Losi, a certified public accountant at PIASCIK, a tax firm told Yahoo Finance. “The IRS is just gathering the data, changing the forms to expressly say you did or didn’t, and setting the trap, so in the coming years, the hammer can come down.”
Physical ownership
When you invest in gold, you take physical ownership. You can hold the gold in your hands. You can store it in your home safe or a safety deposit at a bank. Or, you can even elect to add physical precious metals to your IRA accounts.
Bitcoin. There is no physical ownership of anything. In fact, people have lost their Bitcoin to hackers, crooks and even by simply losing their Bitcoin private keys. Here’s just one story:
“A person in Switzerland had saved his Bitcoin private keys in a USB drive which he bought in 2009. In 2016, he transferred the file containing these private keys to his personal computer as the USB was on the brink of breaking. He thought he would buy another new USB and would save the files. However, before he could buy a new one and the software of the personal computer crashed and now, he had no back up of those private keys. The lost keys had the value of around $40000,” coinnounce reported.
Bitcoin isn’t real.
There’s no doubt there’s a speculative mania unfolding right now. But, remember the Tulip Bulb Mania in Holland in 1637. It is, of course, one of the most famous asset bubbles and market crashes of all time.
They were just tulip bulbs – just like you’d buy at your local garden center. Yet, “at the height of the bubble, tulips sold for approximately 10,000 guilders, equal to the value of a mansion on the Amsterdam Grand Canal,” Investopedia says.
Surely there are many predicting that Bitcoin will continue to climb in value. But, is this just hype?
Nouriel Roubini, a renowned professor of economics at NYU’s Stern School of Business, told Yahoo Finance in late December that Bitcoin and other cryptocurrencies have no place in retail or institutional investor portfolios. He stated that Bitcoin is not a stable store of value, it’s not an asset and has no intrinsic value.
Others warn that the Bitcoin boom may not hold up for much longer.
“For all the reasons it’s a strong developing asset class, it may fail,” Gary Cohn told Bloomberg last month.
Cohn served as President Trump’s first National Economic Council chief, holding the post until April 2018, spearheading the successful effort to roll back taxes. Prior to that, Cohn served as president and chief operating officer of Goldman Sachs for 26 years.
Cohn explained the Bitcoin “lacks some of the basic integrity of a real market.”
What’s your next move?
If you’ve invested in Bitcoin, you’ve likely made a significant profit. Given the uncertainty of what may lie ahead – including Bitcoin potentially crashing to zero, it may be worth considering cashing out of your crypto position – or taking a portion of those profits and turning them into a proven store of value – like physical gold.
Check back soon. We’ll continue to analyze the environment for Bitcoin and present our findings. Learn more about the government’s regulatory appetite to get involved in the crypto marketplace. And we’ll look at what central banks are doing now regarding digital currencies and what that could mean for Bitcoin ahead.
We’d love to hear your comments and questions about Bitcoin below. Our portfolio managers are experts in the tangible assets field and are available to answer your questions and discuss the market outlook for gold and Bitcoin ahead. Please call Blanchard today at 1-800-880-4653.
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How Gold Boosts Liquidity
Posted onIn the U.S., gold is a often a means of storing, and growing wealth. In 2020 gold served this purpose well as its value climbed more than 24%. However, many gold investors in the U.S. are unaware of the unique ways that gold boosts liquidity for consumers abroad.
Gold ownership is common in Indian culture as it represents a level of economic status and often has cultural ties to special events, like marriage, in which it serves as a popular gift. As a result, India represents the highest demand for gold jewelry than any other country in the world. The popularity of gold in the country is one reason why so many people use it for more than ornamentation; they also use gold to boost liquidity.
It is common for gold owners in India to pledge their holdings as collateral for loans. Gold is an optimal asset for this purpose because its value is understood by all. Borrowers often enjoy faster loan processing times without onerous paperwork assuring income levels, or credit history. Moreover, a rise in the price of gold unlocks greater borrowing potential for loan seekers in the country.
Given the power of this relationship it is not surprising to learn that just over half of investors in India own some form of gold and that the average Indian household retains 11% of their wealth in gold. It is easy to see the appeal of gold ownership in a country where gold has generated an average annual return of 10.14% compared to an average annual return of 8.11% seen on the BSE SENSEX, an index of 30 companies on the Bombay Stock Exchange.
The relationship between gold and liquidity has increased in recent months as the pandemic continues to take a toll on personal finances. As gold-backed loans have soared so has competition among banks for the lending opportunities. Banks like HDFC, Federal Bank, Muthoot Finance, and Manappuram are all increasing the loans they issue in which gold serves as collateral and today India is home to a $46 billion gold loan industry.
To gain the full scope of this amount consider that as recently as late March of 2020 Muthoot and Manappuram together hold 248.4 tons of gold pledged by borrowers. This total equals nearly half of the European Central Bank’s reserves.
The ability to acquire short-term financial relief from gold underscores the far-ranging value of the asset. Gold can operate not only as a growth instrument and a reserve of wealth. It can also serve as an important bridge over the chasm that occasionally opens when the global financial picture fractures.
For the moment, it appears that the borrowing power unlocked by gold is a characteristic enjoyed abroad far more than it is in the US. Part of the reason for this difference is the fact that gold ownership among individuals is more normative in other countries. In the wake of the COVID crisis US households may awaken to the untapped potential of gold to provide financial security in the event of disaster.
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The #1 Leading Indicator for Gold Prices
Posted onBy David C. Zanca, Senior Portfolio Manager
Winter follows fall, and summer follows spring.
The seasons of nature act as a leading indicator for what comes next. After the leaves drop from the trees in September and October and the temperatures fall – winter follows. After months of snow and shorter days, warmer temperatures and longer days announce the arrival of spring.
In the economic realm, employment and consumer spending are considered leading indicators. These important data points signal whether the economy will grow or shrink in the months ahead.
Since the 2008 financial crisis, a leading indicator emerged for the price of gold. This gold signal offers a perfect and obvious timeline.
What is this leading indicator for gold prices, you wonder?
Let’s take a look at this chart of the price of gold from the St. Louis Federal Reserve. The red circles highlight key Fed actions we will describe below.
Fed Began QE1 in December 2008
In response to the Global Financial Crisis, the Fed announced a new program called Quantitative Easing (QE1) in late November 2008. The Fed stated it would purchase up to $600 billion in mortgage backed securities and agency debt.
Quantitative easing is a policy by the Fed in which they buy government bonds, corporate bonds and other assets in an attempt to inject liquidity into the economy and stimulate economic growth.
What did gold do? Gold bottomed just prior to this announcement at $731.50. By November of 2010 gold climbed to $1375 per ounce.
Fed Began QE2 in November 2010
In early November 2010, the Fed revealed it would purchase $600 billion of longer dated treasuries, at a rate of $75 billion per month. QE2 was announced in November 2010 and ran until June 2011.
What did gold do? During QE2 the price of gold soared from $1,375 to nearly $1,900.
Fed Began QE3 September 2012
In mid-September 2012, the Fed signaled it was launching yet another round of quantitative easing known as QE3. This new round included an open-ended commitment to buy $40 billion agency mortgage-backed securities per month in an effort to improve the labor market.
What did gold do? From a summer 2012 low around $1,600, gold climbed to nearly $1,800 in the fall of that year.
December 2015: First Fed rate hike in nearly a decade
Fed interest rates sat at 0% from December 2008 until December 2015.
In a historic move the Fed attempted to begin a new trend toward higher interest rates with a 0.25% basis point increase in the Fed Funds rate to 0.25-0.50%. In fact, at its December meeting, the Fed stated it planned to raise interest rates four times in 2016.
The stock market reacted violently to the removal of its punch bowl – and the Dow plunged over 2,000 points.
Investors knew the truth – the Fed would not be able to sustain interest rate hikes and begin to remove liquidity from the financial system.
What did gold do? In December of 2015 gold bottomed out at $1,070 per ounce. Gold began to climb in value right after the rate increase as the stock market plunged. Within a few months, the Fed backed away from its claims of continued interest rate hikes. Gold rose $300 per ounce over the next four months.
Bottom line: Zero percent interest rates have become an ingrained and integral part of our financial system, which allows the stock market bubble to perpetuate.
March 2020 – Fed’s emergency COVID actions
The Fed unleashed a historic and unprecedented round of monetary actions in March 2020 aimed at stemming the economic reaction to the COVID pandemic. The Fed slashed interest rates to 0% once again, announced new corporate bond purchases and printed trillions of new dollars throughout the year.
The Fed became both the buyer of last resort and the seller of last resort through emergency actions that ultimately devalued the fiat currency and pushed the U.S. dollar index lower by 10% last year. Overall, the Fed expanded its balance sheet by nearly $3 trillion in 2020 to a record $7.4 trillion.
What did gold do? Gold rallied to a new all-time record high at nearly $2,070 per ounce in 2020 – fueled by the Fed’s massive money printing, QE policies.
What is the number one leading indicator for gold prices?
It is easy to conclude that it is Federal Reserve quantitative easing policy.
The timeline we’ve discussed today reveals a direct connection between the Fed’s loose monetary policy and quantitative easing and a steady rise in the price of gold.
What’s next for gold? Heading into 2021, the Fed and the government appear poised to deliver more of the same – 0% interest rates and more quantitative easing.
Congress passed a new COVID emergency stimulus bill in December, which simply means more quantitative easing. Many expect more emergency stimulus in 2021 as well.
Using history as our guide, these forces will drive gold higher and higher in the months ahead. These Fed policies act as a leading signal for gold and indicate higher prices ahead. The Fed has already stated it won’t even consider raising interest rates in 2021. Do you own enough?
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The Future of Gold in a De-carbonized World
Posted onRecently, President-elect Joe Biden announced a plan to spend $2 trillion during his first term in an effort to accelerate the adoption of clean energy in sectors like transportation and building. The plan is a major step in the renewed initiative to lessen, or even eliminate global warming.
The move is large enough to have ramifications across nearly every industry, including gold, because large scale mining operation require an enormous amount of electricity and fuel combustion.
It is difficult to envision a world that balances decarbonization with gold extraction, yet that is exactly what the mining industry is attempting to achieve.
A new report from the World Gold Council concluded that the emissions associated with gold mining are expected to fall by 35% over the next decade. This drop will come from a move away from coal, diesel, and heavy fuel oil to renewable resources. This transition presents some significant challenges. Numerous countries will need to work in cooperation. Therefore, regulations must change on a global scale to have a global effect.
A major factor in this plan is the number of mines which source power from the electrical grid. This part of the picture matters because the decarbonization of power grids could dramatically reduce the emissions of the numerous mines dependent on this source of power. In fact, in the World Gold Council’s analysis of 158 gold mines 57% relied on grid-sourced electricity. A change to the grid means a change to the emissions profile of many of the world’s mines.
An example of this phenomenon can be seen in Nevada where the emissions resulting from grid electricity are expected to drop by as much as 36%, due to a shift to greener resources. The report also concludes that the emission intensity of grid power will fall by 20% by 2030.
Given the scale of change needed, it is likely that any meaningful drop in environmental impact from mining will need to come in several moves. In addition to grid decarbonization, the emissions intensity of mines could also drop due to changes in asset mixes due to the gradual closing of mines that are particularly demanding of energy. It is inevitable that older mines will simple shut down as the cost of extraction rises while the available stores of gold fall. These closures may be accompanied by the opening of new mines which are likely to be built with greener energy resources from day one. Additionally, other mines will likely employ new technology to become more energy efficient. Finally, recent advancements in solar power technology will also enable mines to adopt hybrid energy sources which will reduce their overall emissions profile.
Gold mines understand that their success and survival is dependent on green resources. These new energy systems are not only imperatives for our future, they are fast becoming part of their business model. Green technology often presents opportunities to capitalize on lower operation costs in the long run.
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3 Quotes about Inflation You Must Read
Posted onInflation is coming. Are you ready?
Listen to what these three luminaries said about inflation:
- Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. – former president Ronald Reagan
- In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. – former Federal Reserve Chairman Alan Greenspan
- Inflation is taxation without representation. – Milton Friedman, Nobel Prize winning economist.
You can’t hide from inflation
Have you thought about what inflation could mean for your accounts in 20 or 30 years?
With average inflation, over 20 years, prices historically have doubled.
Everything you buy today – in 20 years will cost twice as much. Will you be able to maintain your standard of living when that happens?
And, that’s only if inflation stays at the low levels that we’ve seen in recent years. That’s not likely.
If – as experts believe – inflation picks up significantly due to the monetary policies from the Federal Reserve, in combination with skyrocketing debt levels and a weakening U.S. currency – prices could double or even triple much sooner than 20 years.
Peering into the future – the debt dilemma
The COVID pandemic in 2020 triggered massive government spending which sent the national government debt spiraling higher to new record highs above $17 trillion. Alarm bells are going off – yet policymakers just spend more. The ballooning government debt is out of control and exposes are nation to a dangerous economic future.
How high could our nation’s debt go?
Right now – it’s on a vertical climbing path – straight up.
“By the end of 2020, federal debt held by the public is projected to equal 98 percent of GDP. The projected budget deficits would boost federal debt to 104 percent of GDP in 2021, to 107 percent of GDP (the highest amount in the nation’s history) in 2023, and to 195 percent of GDP by 2050,” according to the non-partisan Congressional Budget Office (CBO).
Here’s what else the CBO said: “High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.”
Inflation and Investments
Hard assets will soar
As government debt continues to climb, inflation will grow and the value of hard assets like physical gold, silver and real estate will soar.
Looking back to early 1980 – when consumer inflation surged to nearly 15 percent, what did gold do? “Gold more than kept pace, hitting a then-record $666.75 an ounce after a fifteen-fold rise over the previous decade,” according to a Reuters article.
Gold is already in the midst of a historic bull market – up 24% this year – with a new all-time record high. The experts predict even higher prices ahead in 2021 – with $3,000 an ounce forecast. In the coming years, gold is set to soar.
Inflation hurts stocks
Investing in stocks is riskier than any point in history – especially for those looking to preserve their nest egg.
Here’s what billionaire investor Warren Buffett wrote about inflation in his classic piece for Fortune magazine in 1977: “The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. … If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner.”
Stocks fall (or plunge) during rampant inflation because it reduces how we value future income – as inflation eats away at that future value. A stock’s price is a risk-adjusted value of a company’s future cash flow – and inflation reduces that to fall in value.
Stocks are not the answer in an inflationary environment. Inflation destroys stock market wealth and breeds fear among stock investors.
Inflation can cause interest rates to skyrocket
History is quite clear on what inflation does to interest rates – it sends them shooting higher. In fact, we saw double-digit interest rates in the early 1980s.
With inflation raging as high as 11.6% in 1980, Fed Chair Paul Volcker took action.
He raised the Fed funds rate to nearly 20% — which sent 30-year mortgage rates to a high of 18.63% in 1981, according to data from the Federal Reserve Bank of St. Louis. How could you ever buy a house with mortgage rates that high!
These double-digit numbers may sound unbelievable. But, it wasn’t that long ago – only 40 years. You bet it could happen again – and in fact the Fed is creating the environment for that now!
Inflation: what happens to your money in the bank?
Rising inflation also severely impacts any money you have sitting in the bank.
While you may get a tiny amount of interest from a CD, savings or money market account, the growth of inflation overtakes that interest – meaning your actual money, the purchasing power of it – is falling in value. Inflation destroys the value of your money.
You can protect your accounts against future inflation
Inflation is a deadly, scary and corrosive economic force. And, the government and Fed are setting this country up for another bout of severe inflation in the years ahead.
There are ways you can protect your financial future, even in an inflationary environment.
You need to buy assets that rise in value – as inflation climbs – and that is exactly what gold does.
Here’s what one of Donald Trump’s top economic advisors during his 2016 presidential campaign said about gold.
- Historically, gold has always been a safe haven against inflation and a safe haven in times of political instability. – John Paulson, billionaire hedge fund manager
Protect your assets with gold bullion
The U.S. economy’s instability is like a ticking time bomb. Are you looking for a way to protect your savings and investments from inflation?
Owning physical gold and silver is a time-tested, historic hedge against inflation. It’s a simple solution that can protect your financial future. Do you own enough?
If you have questions about how future inflation could impact your investments or finances – please contact a Blanchard portfolio manager. We can also provide customized recommendations on tangible assets best suited for your personal circumstances, goals and investing time-horizon.
Read Part 1 of our inflation series here:
Are You Prepared for the Inflation Tax?
Read Part 2 of our inflation series here:
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1853 Seated Liberty Quarter – Arrows and Rays
Posted on — 2 CommentsThe 1853 Seated Liberty Quarter was part of U.S. currency that began in the mid-1830s and extended to the late 1890s. The obverse shows the Goddess of Liberty grasping a pole. On the top of the pole is a Phrygian cap. This detail was meant to convey freedom.
The cap is recognized by a distinct fold in the top. Originally, the hat signified the Roman goddess of liberty. In time, this symbolism later appeared in English and French art. While the cap is small piece of the imagery on the 1853 Seated Liberty Quarter, it carries meaning that looms large. In the early days of the United States, the cap was a powerful signal of anti-monarchical sentiment. Even the U.S. Army has used the cap as representation of freedom since 1778. In this context the cap is often seen perched on the tip of a sword.
The theme of liberty is also represented on a small, striped shield with the word “liberty” on the front. Liberty’s hand is caressing the shield to further draw attention to the symbolism. The shield is intended to convey that liberty must always be protected and defended whenever under threat.
The reverse design shows an eagle preparing to fly. Here, the striped shield is seen again. More symbolism is present with the olive branch of peace in the eagle’s right claw and a bundle of arrows in the left claw. It would not be until later in 1866 that the words “In God We Trust” were added to the coin.
The year 1853 brought significant changes to the design. An arrowhead appeared on both sides of the date shown on the obverse. Additionally, rays were added around the eagle on the reverse. These changes were not merely for aesthetic reasons. The U.S. Mint had changed the weight of the coin from approximately 103 grains to 96 grains. The intention behind the change was to discourage hoarding and melting of recently issued coins. The Mint needed a way to visually distinguish these lighter pieces from those that came before. The arrows and rays were the solution.
The rays were short-lived and only appeared in the 1853 version of the coin. The following year the rays were removed, resulting in a version with arrows only. More than 90% of the 1853 minting occurred in Philadelphia with the remaining minted in New Orleans.
While bold in its time, the imagery of the Seated Liberty eventually became the object of criticism. Many cited that the coin looked ordinary and uninspiring due to its minting for more than 50 years. Citizens saw it as merely commonplace. By 1891, a new design was approved, and the U.S. Mint adopted the “Barber Head” image. This replacement, however, was short-lived in comparison to the Seated Liberty coin given that it was only minted between 1892 to 1916.
The Seated Liberty design appeared on the half dime, dime, the quarter, the half dollar, and the silver dollar. The quarter versions are slightly scarcer than dimes or halves of the same date ranges.
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Inflation and “Good” Money
Posted on — 2 CommentsIn early societies items like shells, beads and even clay tokens were used as money.
Ancient societies then advanced to using precious metals including bronze, gold and silver as the basis for their monetary systems.
What defines “good” money?
The key element that is essential to good money is something that maintains its purchasing power over time.
Whether it’s a shell or a dollar bill, good currencies retain their value against a basket of consumer goods over time.
That’s important – because inflation – or the steady increase in goods and services has climbed higher over the past 50 years.
Figure 1 below represents the Consumer Price Index for city dwellers for items in U.S. cities.
There’s no getting around it – prices of everything simply rise over time.
If you think inflation won’t impact you, we’d like to walk you through some important charts to reveal what is happening in today’s unprecedented times and how inflation and decreased purchasing power could severely impact what you can buy in the future.
Declining purchasing power
When the currency you are paying for your goods and services falls in value – and prices rise – you can buy even less with the same dollar.
Figure 2 shows the U.S. Dollar Index. Note its spotty performance over time – and how the value of the U.S. dollar plunged lower throughout 2020 (shaded in yellow on right side).
Gold and silver are currencies too.
Central banks around the globe still hold and actively purchase gold for their vaults. Why? Because it is a currency. Precious metals have recognized value in every corner of the globe.
Figure 3 below shows the value of gold. Note especially the sharp rise in value over the past 20 years. Gold hit new all-time highs in 2020 and many firms forecast more new all-time highs next year as well.
Gold is in rising or bull market.
Why is gold rising?
One of the drivers of the bull market in gold are policies from the U.S. government – that includes Congress, the Treasury and the Federal Reserve.
Chart 4 below shows the U.S. national debt – which hit a new all-time record high in 2020 –above $27 trillion!
You’ve heard about our record levels of government debt, right?
You can see the most recent debt statement from the Treasury here – yes, over $27 trillion.
That’s one big credit card bill.
Sadly, as we mentioned last week – foreigners no longer have the appetite to buy as much of our Treasury debt. Foreign buyers used to hold more than half of outstanding U.S. Treasury debt.
Now, the Federal Reserve has had to step in and buy Treasury debt.
If this reminds you of a pyramid scheme – you wouldn’t be too far off.
This is how it works. Congress spends the money. The Treasury issues debt like 30-year bonds, 10-year notes and 1-year T-bills to pay for the spending.
If foreigners and Americans don’t buy enough of this debt in the weekly Treasury auctions – the Federal Reserve steps in and buys the debt.
How does the Fed pay for the debt? With its newly printed money.
In fact the Fed has printed over $1 trillion in new money in 2020 to purchase Treasuries, according to USA Today.
It’s just like when someone moves personal debt from one credit card to a new 0% APR card, runs up the bill on that one then does the same thing over again. The government is just moving the debt around and it doesn’t actually get it paid off.
If this worries you, you aren’t alone.
These policies set the stage for dramatically higher inflation ahead here in the United States – while the value of our dollar decreases with ever-more money printing.
Why are investors turning to gold and silver today?
It’s simple. The purchasing power of precious metals is rising.
Consider this.
In 1921 a 1 ounce silver Morgan Dollar would put about half a tank of gas in a car. Today that same Morgan dollar would FILL your gas tank! A paper dollar bill today barely would put enough gas in the car to get you from the gas station to the grocery and back home.
The purchasing power of gold and silver is increasing, while the value of fiat – or paper money – is decreasing due to rising government debt and money printing.
What’s in your portfolio?
Many American investors and savers have limited currency diversification – meaning the majority of your assets are held in the U.S. dollar – through stocks, bonds and savings accounts.
Yet, very few savvy investors would hold a portfolio with 100% exposure to a single stock. Yet, in essence – when you hold a portfolio with just one type of money – U.S. dollars – you are in fact doing just that.
Here’s what one economist says:
“There is a lot of heated debate about governments’ inability to keep the money safe. But many investors/savers nevertheless have one-sided exposure to their own country’s money. The US is the most extreme example of that, with a large proportion of investors only holding USD assets.
This is odd (and different to how investors handle currency risk in emerging markets). Very few prudent investors would hold a portfolio with 100% exposure to one stock. But at the same time, they are happy (or not sufficiently concerned) about holding a portfolio with just one type of money, such as dollars. This is a particularly risky proposition in a time with historically large fiscal deficits, and increasingly experimental monetary policy,” said Jens Nordvig, founder & CEO at Exante Data Inc.
The time is right to increase your diversification to gold and silver.
Precious metals are commonly known as hedges against inflation. And, these tangible assets will benefit from the skyrocketing government debt. The current environment makes gold and silver important choices to protect a portfolio.
What are you doing to protect your financial future?
Follow Our 3-Part Series
Read Part 1 of our inflation series here:
Are You Prepared for the Inflation Tax?
Check back next week for the third installment of our inflation series. We will discuss how much debt our country could have in the future, what will happen to hard assets, other assets and interest rates and what happens to your money in the bank?
Gold Estimates for 2021
Posted onThe value of gold surged in 2020. This performance has left many wondering how much further it can go in the coming year. Many believe there is room to run.
Given strong a strong previous 12 months, one might ask what could propel additional growth. The two factors that are most likely to drive gold prices up are low interest rates across the globe and the weakening US dollar.
In recent reporting from Societe Generale analysts projected that gold could reach as high as $2,340 per ounce within 2021 representing more than a 20% increase from prices today. In describing the basis for this estimate, the analysts remarked that “negative real rates, record levels of negative-yielding assets, expanding U.S. debt, a strengthening CNY and, eventually, potential flows into E.M. assets will pressure the U.S. dollar and be supportive for gold.”
Commodity analysts at ING share this bullish outlook. They believe that gold will increase further when a new stimulus package is authorized. They also believe that pent-up demand coupled with an increase in oil prices could lead to rising breakeven inflation which, in turn, is also supportive of rising gold prices.
Moreover, lockdowns earlier in the year, and those starting again, have likely prevented would-be gold purchasers from buying gold. Once the COVID vaccine begins to reach more of the global population throughout the first half of 2021 more people will finally be able to buy. ING expects gold to rise by about 9.4% in the forth quarter of 2021. Outside the US this demand is expected to be particularly strong as people buy for festival and marriage events.
Goldman Sachs has similarly high expectations for gold next year. Analysts there have a $2,300-per-ounce price target for gold. Part of the reasoning for this forecast is the fact that the Federal Reserve has indicated it is willing to allow inflation to rise above 2%. In this setting inflation may prompt people to hedge against the diminished buying power of the dollar. Finally, Goldman Sachs sees the incoming Biden administration as supportive of gold. The reason: a relaxed trade policy should support gold prices.
Finally Bank of America is also optimistic about future gold prices. Their team expects gold to reach $3,000 per ounce citing that “the Fed can’t print gold.” This quote summarizes their perspective which is that gold will remain an attractive store of wealth as many factors diminish the power of normal currency.
The forecasters have made their outlook clear: even with a strong 2020 behind us, gold can still climb in value through 2021. Societe Generale, ING, Goldman Sachs, and Bank of America are all predicting a considerable rise in gold prices as the global economic picture for the next 12 months comes into focus. Clearly the time is now for those who felt they missed the opportunities of 2020. While the run-up has been substantial there is still time to participate in the continued rise of prices.
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