GOLD – The Ultimate Buy and Hold

Last night, I was telling my wife of the frustration the past five years has wrought on Precious Metal holders – or, as they call them in the Bitcoin world, “hoddlers.”  It’s been far worse, and longer, in the “paper PM investment” world – as the Cartel has not only annihilated mining shares, but the mining industry as well; as not only have reserves been decimated, whilst mine production has – perhaps, permanently – peaked; but share counts and debt burdens have exploded, limiting shares’ upside potential even under the best case scenario – which fortunately, must inevitably arrive.

To that end, since exiting mining shares six years ago, I have consisently said they were amongst the worst reward/risk investments imaginable – but that if timed extremely well (which in hindsight, has proven to be nearly impossible), they could provide outsized trading gains – as they did from late 2015 through mid-2016, for example.  Moreover, when the Cartel is inevitably broken – assuming it doesn’t occur due to the type of “black swan” event that shuts down stock exchanges – mining shares could easily generate extraordinary short-term gains; until, equally inevitably, governments nationalize mines and/or enact “windfall” profit taxes.  As trust me, when the Cartel is broken, it will result in – or be caused by – plunging confidence in fiat currency.  Which in turn, will cause Precious Metals to be viewed as the money they have always been – and consequently, governments to consider Precious Metal mines “national security assets.”  In my opinion, of course.

Why do I bring this up today?  I mean, I literally haven’t discussed mining stocks in years; partly, because after owning them from 2002 to 2011; and working in the mining sector from 2006 to 2011 – after which, I joined Miles Franklin; I not only “burnt out” on them, but lost all interest in them as investment vehicles.  They served that purpose extremely well in the early years – particularly 2004-2006, before the Vancouver Stock Exchange, since renamed the “Venture” exchange peaked.  However, in my “older years” – particularly now that I’m a father – I consider tham little more than extremely risky speculations.  To the contrary, in my “early middle age,” what matters most is the safety of my principal.  Which, after nearly two decades of investing, I have learned, painfully so, is best done by investing not in derivatives – like mining shares, ETFs, and closed-end funds – but the real thing.  And the same goes for my crypto-currency investments, as I invest solely in Bitcoin; as opposed to cloud mining schemes, altcoins, and start-up service providers.  In other words, not only have I become a lot more risk averse in my “old age,” but I finally realized that, when investing in physical gold and silver, the overall benefits of physical metal ownership – both current and potential – are far greater; including the most important “benefit” of all, the “sleep of the just” I enjoy each night, knowing my investments are, for all intents and purposes, immutable.  In other words, gold and silver, unlike “paper PM investments”; and essentially all derivative proxies; are the “ultimate buy and hold.”

I’ll get back to said benefits momentarily, but first I wanted to go over some of the past 24 hours’ incredibly “PiMBEEB” events – which cumulatively, add significantly to the comfort I take in holding physical gold and silver.  And I do mean, significantly.  Starting with the incredible news, unreported by the MSM of course, that the ECB plans to, I kid you not, securitize the toxic, historically overvalued sovereign bonds on its $4 trillion balance sheet.  In other words, the exact same thing Goldman Sachs and others did at the top of the mid-2000s housing bubble – in repackaging toxic mortgage loans; selling them to investors at exorbitant spreads; and as an added “bonus,” creating “synthethic short positions” to benefit on the bonds’ inevitable collapse.  Who the ECB believes will invest in such c—p is beyond me, given that the only reason they trade at such ludicrous valuations is relentless ECB monetization – particularly given the precarious, rapidly deteriorating state of the European banking system.  However, the mere fact that such a toxic product is even being discussed by Central bankers tells you how desperate they are for “solutions” to the unprecedented problems they created.  And consequently, the levels of fraud they will stoop to to offload their problems to taxpayers – as if that will matter a whit, when the system inevitably, spectacularly implodes.

Or how about, as I look at crude oil prices plunging anew today, yesterday’s Macro Tourist article, pondering the identity of the “mystery massive long supporting the oil market” – particularly since early 2016, when oil prices crashed.  I mean, just how much more obvious can it be that, as I have espoused for more than a year, an ad hoc “oil PPT” was created when prices plunged below $30/bbl, given the potentially horrifying global ramifications on a massively overleveraged sector featuring more junk debt than perhaps the next ten sectors combined.  Not to mention, the risk posed to America’s only remaining Middle East ally, Saudi Arabia – which Donald Trump, in complete contradiction to his campaign rhetoric, embarrassingly, and disgustingly, feted last week.  To wit, this weekend’s shocking, bombshell news that Saudi cash reserves are in freefall mode, despite said “oil PPT’s” best efforts, tells you all you need to know of how dire their financial situation is; and consequently, their political position, and the fate of the dying “petrodollar” itself.

To that end, yesterday’s Zero Hedge article discussing Saudi’s “newest strategy to boost oil prices” couldn’t be more telling, of the (blatantly obvious) fraud being attempted; first, in attempting to form an alliance with hedge funds, to ensure “support” in the fraudulent paper oil markets; and secondly, to reduce exports to the U.S., whilst increasing them overseas – hoping that the “transparency” (i.e, fraud) of U.S. inventory data “influences” perceptions of what is today, as I write, the worst energy glut in global history.  Which I assure you, isn’t going away anytime soon, as the only reason it hasn’t completely imploded yet is buying by a Chinese regime desperate to avoid perception of the economic collapse decimating its own, historic bubbles.

Throw in the following sundry stories of economic collapse – like the toxic “CoCo” bonds of Spain’s sixth largest bank, Banco Popular, collapsing; U.S. commercial banks dramatically reducing auto loan originations; and U.S. homeowners’ “cashing out” mortgage refinancings at a rate not seen since the run up to the biggest housing crash in global history; and you can see why gold is indeed the “ultimate hold.”  Not to mention, as the U.S. political regime deteriorates to Banana Republic status – led by a President who can’t even control an addiction to social media that has made America, in short-order, a diplomatic pariah and laughing stock.  And again, I have nothing against Trump personally – as discussed at great length here; but simply, any actions, like incoherent, unedited midnight “tweets,” that weaken our nation.

As I watch the dollar index hit a new post-Election low – despite the massive problems in Europe and Japan; and interest rates flirt with their own post-Election lows – despite the Fed’s continuing, maniacal insistence on “tightening” into an environment best described as “dotcom valuations in a Great Depression Era”; I can’t help thinking how comfortable I am holding physical gold silver.  Which, aside from the potentially dramatic upside catalysts discussed above; and countless others; have been suppressed by a desperate, maniacal Cartel to their lowest-ever inflation-adjusted valuations.  Which is why I enjoyed Ted Bauman’s fabulous “gold isn’t money” article yesterday, and decided to utilize it as the principal focus of today’s piece.

In it, he reflects, in nearly parallel fashion to what I wrote in July 2014’s “is gold money?  Who cares!”; i.e., physical gold (and by proxy, silver) are not owned because they are “money” – which universally, today’s fiat-loving governments fight tooth and nail to prevent the public from believing; but alternatively, because they are the best stores of value mankind has ever known.

Not to mention, a handful of other “investment benefits,” such as…

• Purchases of gold bullion aren’t reportable to the U.S. government. Many people think they are. That’s because if you pay with cash or a cash equivalent for $10,000 or more worth of bullion, the dealer must submit IRS Form 8300, “Report of Cash Payments Over $10,000 Received in a Trade or Business.” This requirement, however, isn’t specific to precious metal purchases. It applies to all cash transactions over $10,000, no matter what you’re buying. If you buy bullion with a credit card, there’s no need to tell Uncle Sam.
• You don’t have to declare gold bullion when you bring it into or take it out of the U.S., the way you do with currency. Admittedly, this is a tricky issue, and many people advise you to play it safe and declare it anyway to avoid trouble. But technically, gold bullion is just like any other personal property — furniture, a car, etc. — and cross-border movements don’t have to be reported if the value exceeds $10,000, as is the case with any form of currency (including legal tender gold coins).
• You aren’t obligated to report gold stored outside the United States. Whether you keep it in a safe-deposit box (my comment, like Miles Franklin’s unparalleled “Private Safe Deposit Box” program in Canada) or a private vault, gold bullion is considered personal chattel property — an asset no different from jewelry, artworks or any other valuable thing. By contrast, if you keep money in a foreign financial institution, you’re faced with all sorts of onerous reporting requirements, such as the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA).
• You report and pay capital gains taxes on gold sales — but can also deduct losses. The IRS classifies gold bullion as a collectible. That means profit on its sale can be taxed at the maximum capital gains rate of 28%. The actual rate you pay is determined by the amount of time you’ve owned it and your ordinary income tax rate. You’d report capital gains from gold sales on Schedule D of Form 1040 and pay the tax when you file. By contrast, if you sell gold bullion at a loss, it may potentially offset other capital gains or even ordinary income

For these reasons, and countless others in today’s historically unstable political, economic, and monetary climate, gold (and silver) are indeed the “ultimate buy and hold” assets, in my very strong opinion.  Or, as Ted Bauman puts, it “set it and forget it.”