Tag Archives: gold

Debt lifts Gold

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By Nick Barisheff

Special to the Financial Independence Hub

The world is awash in debt, an immense, unfathomable ocean of financial obligations. The stack of IOUs is so enormous, the balances so large, they will never be fully settled without dreadful consequences to the global economy. This tsunami of debt was unleashed in 1971, when Nixon ended the backing of the US dollar with gold.

Since 1971, US debt and gold prices have increased greatly. Traditionally, rampant increases in US debt occur when trying to pull the economy out of an economic downturn as displayed in the spikes that occurred in 2008 and 2020.

Considering the amount of debt that has already been taken on to combat the pandemic — combined with the rising uncertainty involving vaccinations and new strain variants — it can be anticipated that the worst is yet to come. As Democrats push towards passing an additional US$1.9 trillion stimulus package, governments are willing to take on previously unforeseen levels of debt to prop up the economy during the pandemic. This could lead to a promising future for the price of gold.

Manipulation of Precious Metals markets

This divergence has been caused by manipulation of precious metals. A great deal has been written about this and one of the best books on the subject is Rigged – Exposing the Largest Financial Fraud in History, by Stuart Englert.

Price manipulation never lasts, and when it ends there always tends to be a reset to inflation-adjusted levels. The biggest questions are: when and how high will gold and silver prices rise?

However, even with manipulated markets precious metals have outperformed traditional financial markets and have generated over 10% returns in all currencies over the last 20 years.

How soon precious metals rise to normalized levels depends on how rapidly governments and central banks inundate the world with debased dollars and other fiat currencies, and how quickly individuals and institutions lose faith in those increasingly worthless debt-based currencies.

The US national debt alone is nearly US$28 trillion. This doesn’t include the $159 trillion of unfunded liabilities, which brings the total to US$187 trillion or about US$480,000 per American citizen. This number also doesn’t include the $21 trillion in unaccounted federal expenditures discovered by Prof. Mark Skidmore and his economic students at Michigan State University.

Global debt hits 365% of World GDP

Global debt hit $277 trillion last year, or 365% of world gross domestic product (GDP). Public debt as a percentage of GDP has soared to unsustainable and perilous levels. The US debt-to-GDP ratio hit 136% last year. Canada’s debt-to-GDP ratio increased by nearly 80% through the third quarter of 2020, the highest rate among developed nations.

When you translate these incomprehensible and burgeoning debt totals into per capita obligations, it is obvious that they will never be repaid. They can only be inflated away.

Combined with hundreds of trillions in unfunded government liabilities, swelling debt and unregulated financial derivatives form a bottomless abyss that eventually will engulf nations and swamp the entire financial system. Little wonder that in 2002, billionaire investor Warren Buffett dubbed derivatives — which essentially are debt instruments used as collateral to take on more debt — “financial weapons of mass destruction.” At that time derivatives totaled $100 trillion, whereas today they are in excess of $1 quadrillion.

Socialists maintain public debt is acceptable when borrowing is for the common good, and Modern Monetary Theory (MMT) advocates claim unlimited government spending is not a problem. They believe governments can create an infinite amount of currency to fund social services and public works projects. They fail to recognize that debt is not wealth and increasing the currency supply decreases its value and produces price inflation.

Continue Reading…

Precious Metals are the bedrock of the financial world

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By Nick Barisheff

Special to the Financial Independence Hub

Precious metals are the bedrock of the financial world. They have permanent value and are the oldest form of money in the world. If you don’t own physical gold and silver, your investment portfolio lacks a sound foundation. Precious metals are often sought after as a store of permanent value, and as a method of diversifying portfolios.

While cash, bonds, stocks and real estate offer investors financial diversification, precious metals underpin all other assets, particularly during times of economic turbulence and market turmoil.

Imagine an upside-down pyramid containing successive layers of asset classes.

Exeter’s Pyramid

That’s what the late John Exter envisioned when he devised a model ranking assets based on their risk level and financial soundness. The American economist and central banker placed risk-free gold at the apex of the inverted pyramid, below Federal Reserve cash, U.S. treasury bills, notes and bonds, AAA-rated corporate bonds, paper currencies, certificates of deposit (CDs), bank deposits, commercial paper, state and municipal bonds, junk bonds, segments of the Eurodollar market, Third World debt, insolvent borrowers and thrifts. [See graphic on the left]

A monetary researcher and visionary, Exter understood how gold’s scarcity and trustworthiness made it foundational in an unstable financial world. He knew gold would endure amid expanding debt and an unlimited supply of paper currencies, which he referred to as “IOU Nothings.”

Exter’s original gold-based pyramid is a simple yet timeless way of viewing a top-heavy financial infrastructure, which today is burdened by $1 quadrillion in unregulated derivatives, $270 trillion in snowballing global debt and trillions more in unfunded liabilities. In an overleveraged and indebted world, gold is the keystone, supporting all other assets that bear greater risk and loss potential.

Consider these examples:

  • Cash deposits and government bonds lose value to inflation in a low-interest or negative-interest rate environment.
  • Corporate and municipal bonds can become worthless when companies fail and cities default due to excessive debt.
  • Stocks can decline during stock market crashes and may become worthless.
  • Even real estate investments can decline in value when financial bubbles pop and property markets collapse.

All investments ebb and flow with the economic tides. Less stable ones drift like shifting sand. Some wither and perish in the barren financial desert. Physical precious metals endure through the ages. They withstand market chaos and weather financial storms. They retain value. Physical bullion will never become worthless. That’s why gold, silver and platinum are essential in a balanced and diversified portfolio.

Paper-based precious metals investments are riskier

Not all precious metal investments are alike; however, some are riskier than others, especially paper-based products.

Trading precious metals contracts — such as futures and options — on the commodity exchanges is the most speculative, along with owning stocks of startup mining companies that explore for gold and silver deposits. Continue Reading…

Retired Money: Should Retirees speculate?

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My latest MoneySense Retired Money column has just been published, and looks at whether speculation has any place in the portfolios of retirees or those almost retired. Click on the highlighted headline to access the full column: Should retirees speculate? 

As I confess in the piece, even at the ripe old age of 67, Yours Truly has been known to indulge in the odd speculative investment, not always with positive results. You may have seen the oft-used distinction between “Serious Money” and Play Money, aka Fun Money or Mad Money. Mad Money typically means investing money you “can afford to lose,” which usually means relatively small amounts in individual stocks.

No one wishes to lose money, of course; on the other hand, the inevitable trade-off is risk and return. These days, young Millennial day traders congregate at the Robinhood platform: since the Covid crisis hit many of the most popular trades there would strike retirees as unabashed speculations: betting, for instance, that depressed airlines, hotels and cruise line stocks will soar once a Covid vaccine is available. The operative word with this cohort seems to be FOMO: Fear of Missing Out.

The advisors consulted in my MoneySense column say no more than 10% of your total equity portfolio should be allocated to speculations like penny stocks, marijuana, cryptocurrencies or other flyers. To me, speculations should be managed just like a venture capital fund approaches investing in risky startups: Of five specs, they figure one may go to zero, three break even and you hope the fifth results in the proverbial 10-bagger or even 100-bagger, assuming you’ve identified the next Apple, Amazon or Netflix.

Analogy to Las Vegas

While being governed by the 10% rule — which means the more you have the more you have available to speculate — personally I imagine myself in Las Vegas and set limits on what I intend to gamble with. (Let’s use that word, for in a way that’s what it is). Continue Reading…

The U.S. Presidential election, Economy and Gold: What’s Next

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By Nick Barisheff

Special to the Financial Independence Hub

Global stock markets suffered the worst first quarter in their history in 2020, as the COVID-19 pandemic rattled markets. After slowing 5% in the first three months of 2020, the U.S. economy shrank by a whopping 33% in the second quarter. If you think these numbers are bad, it is only going to get worse. The second wave of the pandemic is forcing governments around the world to renew lockdown measures that will push the U.S. economy, and most western economies, to the brink.

Chaotic elections, a battered economy

This is all happening at a time when the U.S. just conducted the most chaotic presidential election in its history in November. Rioting and civil insurrection are occurring in U.S. cities, and crime is accelerating. Lawsuits over mail-in ballots have already started across the country. What’s more, the nomination of Amy Coney Barrett as successor to Ruth Bader Ginsburg promises to be hotly contested, as the choice of nominee will have huge implications following the election. If the election result is disputed [as it was within days of the November 3rd vote: editor] the U.S. Supreme Court may end up deciding whether Trump or Biden will be president for the next four years.

If the global pandemic, civil unrest in many U.S. cities, war looming in Armenia, thus pulling Russia, NATO and the European Union into a conflict were not enough, the U.S. economy, as well as most western economies — including Canada’s – are going to get a whole lot worse.

Overvalued markets, declining corporate profits

U.S. equity markets and corporate profits were already on a divergent path well before COVID-19 hit, and this trend will only continue – especially if the second wave forces more closures and lockdowns in the fall and winter. Restaurants, hotels, travel and tourism, airlines, and small businesses across the country are barely hanging on. Bankruptcies are set to skyrocket.

Coming defaults in the real estate sector

One of the biggest economic issues — one that hasn’t received a lot of attention — is the wave of defaults that will hit all areas of the real estate sector. Financial districts of major cities are ghost towns. It’s just a matter of time before large tenants terminate or default on their leases. Developers are stuck in a rut, as demand has collapsed.

Mortgage defaults and collapsing real estate markets will in turn lead to problems in the banking sector. In fact, mortgage delinquency rates in the U.S. climbed to 8.2% at the end of June – the highest level since 2011. More than 8% of all U.S. mortgages were past due or in foreclosure.

The U.S. Presidential Election, The Economy, and Gold | Nick Barisheff

To keep the economy from collapsing, the U.S. Federal Reserve and other western central banks are going to have to print even more money, which will only exacerbate the bubbles in the financial markets and margin debt levels. What’s most worrisome is that all these factors — declining markets, a shrinking economy, and the second wave of the pandemic — are morphing together just as the U.S. is about to face one of the most chaotic presidential elections in history.

How should investors proceed?

What are investors to do? If you listen to the media or those in the industry, the mantra is to stay invested for the long term. That strategy works well during long bull markets. However, this strategy doesn’t make sense when you’re standing on the edge of a precipice — which we are today. Continue Reading…

Q&A: The case for Gold

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By Michael Kovacs

(Sponsor Content)

The case for gold is still strong.

Gold has had a record run this year with the price passing through US $2,000 per ounce. That has pushed the S&P TSX Global Gold Index is up 48.98% [1], year-to-date, making it a top performing group on the Toronto Stock Exchange. By comparison, the S&P/TSX composite index was down 2.68%.

Gold’s resurgence after a nine-year bear market began early last year. Rising uncertainty about the staying power of the global recovery combined with interest rate reductions led to concerns about a weakening US dollar and a resurgence of inflation.

The impact of the Covid-19 pandemic has accelerated these trends. Global growth has fallen sharply and central banks have undertaken even more aggressive interest rate cuts to stimulate growth. The yields on bonds have fallen with some sovereign issues now in negative territory. The US dollar, which is used to price gold, has also declined against a basket of currencies.

Harvest Portfolios Group launched the Harvest Global Gold Giants Index ETF (TSX: HGGG) in January, 2019 to position itself to take advantage of a rebound in gold’s fortunes. The strategy behind HGGG could not have foreseen the pandemic, but the ETF’s performance has proved it is well positioned to thrive with this added challenge.

In a Q&A, Harvest President and CEO Michael Kovacs [MK below] revisits the blueprint underpinning the ETF and explains why the outlook for gold continues to be positive. He also discusses how the ETF aligns with the core Harvest philosophy of owning strong businesses.

Financial Independence Hub: Did you expect gold to be this strong in 2020?

MK:  We were looking at a weakening economic cycle, but we could not have anticipated the pandemic; what happened this year is beyond anyone’s imagination.

We launched the ETF as a defensive investment because the economic cycle was pretty long in the tooth. We were not gold bugs, but had watched the market for some time, especially gold company shares.

How do you see the outlook for gold?

Gold may have got a bit over-priced in the short term, but over the next 12-to-18 months it should touch U.S. $3,000 an ounce, which is 50% higher than it is now. Why? The pandemic has created a whole new ballgame.

It ties into the massive amounts of stimulus injected into the global economy by governments and central banks.  As a result of the pandemic, governments are budgeting with wartime percentages of debt. These levels will devalue currencies and could bring back inflationary pressures. That’s good for gold.

Warren Buffett recently bought his first gold holding, a stake in American Barrick. What does that say?

It was an unusual move considering that Buffett is a long-time value investor with a dislike for gold. He prefers assets that have cash flows or pay dividends. But he didn’t buy bullion, he bought the second most valuable gold company in the world, a great gold producer with great assets. It has a growing cash flow and pays a dividend. So, it’s a logical place for Berkshire Hathaway to diversify.

How will the Harvest Global Gold Giants Index ETF benefit from these trends?

When we launched the ETF, gold had been in a bear market for eight years. The industry had consolidated, share prices were low and we saw considerable value. At that point, average production costs for the model portfolio were U.S. $800 per ounce and most of the target companies were cash flow positive. We believed that if gold rose there would be a lot of upside potential. That is what has happened and will continue if gold prices rise. Continue Reading…