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Tags: gold | invest | market | bank

Gold the Anarchist

Gold the Anarchist
(Stock Photo)

By    |   Thursday, 09 June 2016 03:32 PM EDT

I just had a great interview with Jim Rogers. He’s always got his eye on some completely off the radar investment that I normally wouldn’t even think about. And I love his humility — he’s one of the few people who will preface nearly all his answers to questions with an “I don’t know for sure, but…”

That said, we both agree that markets are in a precarious place, and that a lot of political and monetary events could cause a big drop soon. Or markets could go crazy and decide that, since stocks are the best game in town, it’s time to get out of cash, dump the bonds, and go all-in on stocks.

Inflation seems to be on the rise. So does uncertainty, thanks to the political push-and-pull between status quo politicians and the more activist variety. That’s been good for gold. Jim Rogers isn’t buying right now, but I am.

I like gold. It’s OK at these prices, but certainly not a phenomenal bargain. So, even though I like it, I’m not going wild buying up as much as I can. Rather, I’m just looking to buy some insurance against some unforeseen disaster.

Depending on the nature of the disaster, gold may do well, or it may not. During the financial crisis, gold sold off heavily as hedge funds had to liquidate all their positions. But it didn’t have the kind of run-up that stocks or housing did during the bubble years; nor did it fall as steeply as stocks. It was simply at the latter stage of the crash when all positions were being liquidated for cash.

While gold recovered more quickly than stocks, it’s since been in Mr. Market’s doghouse for the past five years. From a peak of $1,900 in 2011, it slid to around $1,000 last year. It’s now showing signs of life, with a recent rise to $1,270.

I’m no gold bug. At least, I don’t think I am. I’d like to think I’m just a gold realist. And I recognize that gold does well when there’s a fear of anarchy—aka, the financial system being under stress that could lead to collapse or some other radical change. In 2008, we had fear that the global financial system would completely meltdown. It didn’t. But it brought with it a change nearly as bad: hefty government and central bank intervention.

What gold bugs get wrong about the metal is that it seems more like a double agent than an anarchist. The world’s largest holders include the central banks of major developed countries, as well as the IMF. Most of those countries have kept their gold reserves steady in recent years. Only emerging market countries, still on the fringe of the global financial system, have made major additions to their reserves.

But now we face the danger of negative interest rates. They’re becoming a popular policy with central bankers around the industrialized world. Led by the Bank of Japan and the European Central Bank, negative interest rates simply mean investors in government bonds get to pay a fee to do so. It hasn’t hit bank accounts yet, unless you count “bail-ins” like those in Cyprus a few years back.

Negative interest rates just take the existing concept of lowering rates to stimulate the economy a step further. It’s a logical progression, but the consequences are unknown.

When capital is negative, banks are sending a very loud and clear message that paper money is worthless. That’s a win for gold.

If even a small percentage of the population thought that this posed a problem with their bank accounts, we’d probably start seeing major cash withdrawals at banks. In order to make that difficult, banks would have to impose capital controls, or we’d have to see countries stop printing large denomination bills.

Say, the Europeans just decided to stop printing the 500 Euro note. And there’s been talk about banning the Benjamin in the United States. Makes you wonder what’s next, doesn’t it?

But it’s not just individuals who are starting to act rationally. Commerzbank, based out of Germany, is looking to build several vault facilities to hold physical cash. Yes, most people just think of cash as a checking account balance or some ones and zeroes on a computer somewhere.

But the perception is shifting that only physical bills should be cash. The problem is that there aren’t enough bills for everyone to close out their bank accounts. We could see a real run on the bank — where people want their money out in cash. And if Commerzbank is any indication, it won’t stop with individuals.

In light of these developments, it now makes sense why gold has started rallying — and why it’ll likely continue to do so. Despite being a major asset of central banks, gold is starting to act like an anarchist against their stupidity.

Join in. Start accumulating some physical gold. And add to your physical cash holdings as well. Negative rates or not, banks love charging fees, making cash under the proverbial mattress a safer, or at least less-costly, bet.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and is managing editor of Financial Intelligence Report. To read more of his work, GO HERE NOW.

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I just had a great interview with Jim Rogers. He's always got his eye on some completely off the radar investment that I normally wouldn't even think about.
gold, invest, market, bank
Thursday, 09 June 2016 03:32 PM
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