Information Line - April 2023

Perspective
By Rich Checkan

Spring has sprung!

This is one of my favorite times of year. Signs of new life and rebirth are everywhere. We shake off the cold. We come back out of hibernation. We feel alive.

And this year, we are witnessing a rebirth and a new life for gold and her fellow precious metals. As a result, gold was on everyone’s mind at the 25th Annual Investment U conference in Ponte Vedra Beach, Florida last week.

Virtually every speaker made some sort of reference to gold, no matter how unrelated their particular topic was. Attendees wanted to know the best ways to buy it with both personal and IRA funds. Financial planners were looking for options for their clients who have been asking for ways to own gold.

To think… just a month ago… gold was still fairly well hated. But that’s how quickly things can turn.

It All Started with the Dollar
For the first nine months of 2022, the U.S. dollar was absolute king.

It rallied from 94 on the U.S. Dollar Index early last year to a peak near 114. Twenty percent appreciation in nine months is a BIG move for a currency by any measure.

At the time, we suggested using what we anticipated would be short-term dollar strength to buy some cheap and hated gold and silver.

In fact, here is exactly what I said in September’s newsletter…
 

“Buy gold. It is dirt cheap, but it will not remain so for long. Secure your purchasing power with gold. Let gold do for you what it has done for so many people throughout thousands of years.

Do not wait to buy the “more expensive” gold in the future.”


Within a month’s time, the U.S. dollar lost 5% of it’s value, and the bear trend had begun. That continued through the end of January. February showed a bear market rally for the dollar that took the U.S. Dollar Index from 101 to 104.

That is over.

The dollar resumed the weakening trend in March. Earlier this week it touched below 102. And as expected, the primary winners as the dollar weakens are gold and silver.

It’s Not Too Late
Of course, with gold testing the $2,000 level and with silver looking comfortable above $24, investors are starting to become concerned they missed the boat. They are worried they are about to buy that “more expensive gold” I mentioned last September.

Nothing could be further from the truth. Gold is just getting started.

Analysts have already begun raising their forecasts for the average gold price this year. I’ve seen predictions of an average around $2,400 an ounce this year. Since we have been struggling to break through resistance at $2,000 for over three months now, it will take new all-time highs well above the $2,075 previous high to achieve such an average price.

Expect further U.S. dollar weakness ahead.

Therefore, expect further gold and silver strength ahead.

What to Do?
I have several suggestions for you…

1. Read the entirety of this newsletter.

We have assembled a fantastic line-up of insights from some of the best minds in the financial newsletter industry… Doug Casey, Dr. David “Doc” Eifrig, and Frank Holmes.

2. Join us for our 2nd Quarter On the Move webinar.

Adrian Day and I will welcome Doug Casey for a look at everything from banking to precious metals to resource stocks to Doug’s extremely popular novels.

3. Join us at the MoneyShow Las Vegas.

Take the trip to fabulous Las Vegas at the end of the month to hear from experts across every facet of investing. Right now, you have boatloads of questions. At Bally’s Paris, there will be boatloads of answers.

4. Buy gold and silver now!

As gold continues to assault the $2,000 price level, take the failed attempts as an opportunity to buy the dips on each pull back. Last week, three failed attempts to breach $2,000 saw gold retreat to $1,950 per ounce temporarily. Gold will get through this resistance, and we expect it to run once it does.

Buy here. And… if you don’t believe me… listen to our good friend Chuck Butler of the Daily Pfennig…
 

“To me, Gold has flirted with $2,000 a couple of times in the past 10 days, and each time the paper traders (Price manipulators), saw to it that the shiny metal didn’t gain further… But… this is like an asset that keeps bumping higher against a psychological level, and then finally does, and never looks back… I think that once Gold closes over $2,000 and opens the next day up, that we could be off to races… I’m just saying… So… use this dip in the price of Gold as your (as the song above says) Last Chance to get gold below $2,000…”


5. Enjoy spring… at peace with the fact that you have taken the steps to protect your portfolio.

Please note that Asset Strategies will be closing early on Good Friday. The office will close at 1 PM Eastern Time, and we will reopen with normal business hours on Monday, April 10th. Also, If you are considering buying gold, silver, or platinum at Perth Mint, we can place orders Wednesday by 4 PM. Perth Mint is twelve hours ahead of us, and they will be closed both Good Friday and Easter Monday.

Even at $2,000 gold and at $25 silver, in my opinion, both metals are cheap, hated, and screaming for you to buy them.

Doing so is the best way I know to Keep What’s Yours!

Call us at 800-831-0007 or send us an email.

—Rich Checkan

Editor's Note: Best-selling author, world-renowned speculator, and libertarian philosopher Doug Casey has garnered a well-earned reputation for his erudite (and often controversial) insights into politics, economics, and investment markets. We will be hosting him for our Q2 On the Move Webinar on April 19th at 7 pm. Register here to claim your complimentary spot.

Feature
Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse
By Doug Casey

You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.

This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.

Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.

Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.

Bank deposits, until quite recently, fell strictly into two classes, depending on the preference of the depositor and the terms offered by banks: time deposits, and demand deposits. Although the distinction between them has been lost in recent years, respecting the difference is a critical element of sound banking practice.

Time Deposits. With a time deposit—a savings account, in essence—a customer contracts to leave his money with the banker for a specified period. In return, he receives a specified fee (interest) for his risk, for his inconvenience, and as consideration for allowing the banker the use of the depositor’s money. The banker, secure in knowing he has a specific amount of gold for a specific amount of time, is able to lend it; he’ll do so at an interest rate high enough to cover expenses (including the interest promised to the depositor), fund a loan-loss reserve, and if all goes according to plan, make a profit.

A time deposit entails a commitment by both parties. The depositor is locked in until the due date. How could a sound banker promise to give a time depositor his money back on demand and without penalty when he’s planning to lend it out?

In the business of accepting time deposits, a banker is a dealer in credit, acting as an intermediary between lenders and borrowers. To avoid loss, bankers customarily preferred to lend on productive assets, whose earnings offered assurance that the borrower could cover the interest as it came due. And they were willing to lend only a fraction of the value of a pledged asset, to ensure a margin of safety for the principal. And only for a limited time—such as against the harvest of a crop or the sale of an inventory. And finally, only to people of known good character—the first line of defense against fraud. Long-term loans were the province of bond syndicators.

That’s time deposits. Demand deposits were a completely different matter.

Demand Deposits. Demand deposits were so called because, unlike time deposits, they were payable to the customer on demand. These are the basis of checking accounts. The banker doesn’t pay interest on the money, because he supposedly never has the use of it; to the contrary, he necessarily charged the depositor a fee for:

1. Assuming the responsibility of keeping the money safe, available for immediate withdrawal, and
2. Administering the transfer of the money if the depositor so chooses by either writing a check or passing along a warehouse receipt that represents the gold on deposit.

An honest banker should no more lend out demand deposit money than Allied Van and Storage should lend out the furniture you’ve paid it to store. The warehouse receipts for gold were called banknotes. When a government issued them, they were called currency. Gold bullion, gold coinage, banknotes, and currency together constituted the society’s supply of transaction media. But its amount was strictly limited by the amount of gold actually available to people.

Sound principles of banking are identical to sound principles of warehousing any kind of merchandise, whether it’s autos, potatoes, or books. Or money. There’s nothing mysterious about sound banking. But banking all over the world has been fundamentally unsound since government-sponsored central banks came to dominate the financial system.

Central banks are a linchpin of today’s world financial system. By purchasing government debt, banks can allow the state—for a while—to finance its activities without taxation. On the surface, this appears to be a “free lunch.” But it’s actually quite pernicious and is the engine of currency debasement.

Central banks may seem like a permanent part of the cosmic landscape, but in fact they are a recent invention. The US Federal Reserve, for instance, didn’t exist before 1913.

Unsound Banking
Fraud can creep into any business. A banker, seeing other people’s gold sitting idle in his vault, might think, “What is the point of taking gold out of the ground from a mine, only to put it back into the ground in a vault?” People are writing checks against it and using his banknotes. But the gold itself seldom moves. A restless banker might conclude that, even though it might be a fraud on depositors (depending on exactly what the bank has promised them), he could easily create lots more banknotes and lend them out, and keep 100% of the interest for himself.

Left solely to their own devices, some bankers would try that. But most would be careful not to go too far, since the game would end abruptly if any doubt emerged about the bank’s ability to hand over gold on demand. The arrival of central banks eased that fear by introducing a lender of last resort. Because the central bank is always standing by with credit, bankers are free to make promises they know they might not be able to keep on their own.

How Banking Works Today
In the past, when a bank created too much currency out of nothing, people eventually would notice, and a “bank run” would materialize. But when a central bank authorizes all banks to do the same thing, that’s less likely—unless it becomes known that an individual bank has made some really foolish loans.

Central banks were originally justified—especially the creation of the Federal Reserve in the US—as a device for economic stability. The occasional chastisement of imprudent bankers and their foolish customers was an excuse to get government into the banking business. As has happened in so many cases, an occasional and local problem was “solved” by making it systemic and housing it in a national institution. It’s loosely analogous to the way the government handles the problem of forest fires: extinguishing them quickly provides an immediate and visible benefit. But the delayed and forgotten consequence of doing so is that it allows decades of deadwood to accumulate. Now when a fire starts, it can be a once-in-a-century conflagration.

Banking all over the world now operates on a “fractional reserve” system. In our earlier example, our sound banker kept a 100% reserve against demand deposits: he held one ounce of gold in his vault for every one-ounce banknote he issued. And he could only lend the proceeds of time deposits, not demand deposits. A “fractional reserve” system can’t work in a free market; it has to be legislated. And it can’t work where banknotes are redeemable in a commodity, such as gold; the banknotes have to be “legal tender” or strictly paper money that can be created by fiat.

The fractional reserve system is why banking is more profitable than normal businesses. In any industry, rich average returns attract competition, which reduces returns. A banker can lend out a dollar, which a businessman might use to buy a widget. When that seller of the widget re-deposits the dollar, a banker can lend it out at interest again. The good news for the banker is that his earnings are compounded several times over. The bad news is that, because of the pyramided leverage, a default can cascade. In each country, the central bank periodically changes the percentage reserve (theoretically, from 100% down to 0% of deposits) that banks must keep with it, according to how the bureaucrats in charge perceive the state of the economy.

In any event, in the US (and actually most everywhere in the world), protection against runs on banks isn’t provided by sound practices, but by laws. In 1934, to restore confidence in commercial banks, the US government instituted the Federal Deposit Insurance Corporation (FDIC) deposit insurance in the amount of $2,500 per depositor per bank, eventually raising coverage to today’s $250,000. In Europe, €100,000 is the amount guaranteed by the state.

FDIC insurance covers about $9.8 trillion of deposits, but the institution has assets of only $126 billion. That’s about one cent on the dollar. I’ll be surprised if the FDIC doesn’t go bust and need to be recapitalized by the government. That money—many billions—will likely be created out of thin air by selling Treasury debt to the Fed.

The fractional reserve banking system, with all of its unfortunate attributes, is critical to the world’s financial system as it is currently structured. You can plan your life around the fact the world’s governments and central banks will do everything they can to maintain confidence in the financial system. To do so, they must prevent a deflation at all costs. And to do that, they will continue printing up more dollars, pounds, euros, yen, and what-have-you.

Most people have no idea what really happens when the banking system collapses, let alone how to prepare…

As we get closer to a widespread banking collapse, choosing where to put your money is crucial to ensuring it doesn’t get caught in the crosshairs.

Owning gold is essential. Gold has held its value for thousands of years. It has preserved wealth through every kind of crisis imaginable. Gold will preserve wealth during the next crisis, too.

That’s precisely why legendary speculator Doug Casey and his team just released a new video on this topic, including what the mainstream media won’t tell you about gold. Click here to watch it now.

Editor's Note: Every weekday in Health & Wealth Bulletin, Doc Eifrig shares his best tips, tricks, and hacks to show you how to become a better investor, live healthier, and take control of your life back from big industries. Health & Wealth Bulletin is your free guidebook to intriguing health and wealth ideas... and how to live a "millionaire lifestyle" on far, far less than you can imagine. Click here to sign up today.

Hard Stuff
Why You Want to Buy the Asset Everyone Hates
By Doc Eifrig

I've long made the case that everyone should own some gold. You could be 25 and just starting out in your investing career... or 10 years into retirement. Every investor needs to own this precious metal.

The reasons are simple...

Gold has been used as a currency through all recorded history. Its supply is limited. And even in the era of money-printing, central banks keep huge gold reserves. If the money system breaks down, they know a vault full of gold will be valuable, which makes a currency more credible.

Put it all together and gold has long been the ultimate chaos hedge. When things get rocky in the economy or stock market, folks turn to gold as a safe haven. It has historically held its value across borders, cultures, and political systems... in peacetime and in war.
We won't spend more time selling you on the history of gold today. Instead, we want to dive into why gold may end up being the best-performing asset in 2023.

Now is the perfect time to own gold as a short-term investment for three specific reasons...

It's cheap, it's hated, and it's in an uptrend.

And when this setup happens, it can lead to monster gains.

Folks have given up on gold because it hasn't lived up to the hype as inflation protection. The price of gold is roughly the same today as it was when inflation first topped 5% in mid-2021.

Plus, rising rates have pushed many investors out of gold. Since gold doesn't have any yield, and all asset classes compete with each other, the yields on other investments matter.

When government bonds pay 1%, for example, holding gold becomes more attractive. You don't give up much yield. But when government debt pays more – say, 5% – some investors move from gold to bonds.

That's what we've seen recently. As an asset class, it's hated.

Global gold exchange-traded funds ("ETFs") saw a net outflow of $534 million in December, $1.6 billion in January, and $1.7 billion in February.

This marks 10 straight months of outflows.

In total, global gold funds registered net outflows of $3 billion last year. Demand for gold surged in the first four months of 2022 as folks wanted protection from geopolitical risks, but the trend reversed. Investors ran from gold all summer.

On the other hand, because the pace of outflows has slowed every month since September, bearish sentiment may have peaked.

And investors may not want to pull any more capital out of gold funds because the precious metal is now on the rise. The price of gold has increased 21% since its September lows...
 

Editor's Note: Frank Holmes is the CEO of U.S. Global Investors—a company that produces quality analysis concerning gold, precious metals, natural resources, and emerging markets—in conjunction with his work as a fund manager. Frank is a long-time friend of ours, and we've chosen to share his article originally published April 3, 2023. For more articles like this from Frank and other leading experts, you can subscribe to the U.S. Global Investors newsletter here. 

The Inside Story
Time Could Be Running Out To Buy Gold At These Prices 
By Frank Holmes

Gold appears to be well-positioned for a strong pump that could carry it to new all-time high prices in 2023—and beyond. As you know, I’ve been following and writing about the precious metal market for a very long time, and I see a number of unique catalysts at the moment that could contribute to higher gold prices. If you’re underexposed or have no exposure, time could be running out to get in at these prices.

Below are just three potential catalysts for stronger gold.



Emergence Of A Multipolar World And Rapid De-dollarization
I’ll begin with what I believe to be the biggest risk that could be beneficial for gold prices: de-dollarization. Recently, I wrote about the end of the petrodollar and the possible emergence of a multipolar world, with U.S. on one side and China on the other.

Take a look at the chart below. The purple line shows the combined economies of G7 nations (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.) as a share of global GDP, in purchasing parity terms. The green line shows the same, but for BRICS countries (Brazil, Russia, India, China and South Africa). As you can see, G7 economies have steadily been losing their economic dominance to the BRICS—China and India, in particular. Today, for the first time ever, the leading developed countries contribute less to global GDP than the leading emerging countries.
 

That may be set to change with the rise of a multipolar world in which half of all commodities are traded in U.S. dollars, the other half in another currency—the Chinese yuan, perhaps, or a BRICS currency of some kind, or a digital currency such as Bitcoin.

An increasing share of commodities is already being settled in non-dollar currencies. Last week, China settled a liquid natural gas (LNG) trade with France in yuan for the first time ever as the Asian giant seeks to expand its economic influence around the world. Since Russia’s invasion of Ukraine last year and the international sanctions that followed, Russia’s de facto reserve currency has been the yuan, according to Kitco News.

Some economists believe the time is right for a major competitor to the dollar to step up. Jim O’Neil, the former Goldman Sachs economist who coined the acronym BRIC, wrote an essay recently urging BRICS nations to challenge the greenback’s dominance, saying that shifts in U.S. monetary policy create dramatic fluctuations in the value of the dollar that affect the rest of the world.

Gold would be a direct beneficiary of dedollarization since it’s priced in the greenback. Gold is trading at or near all-time highs in a number of currencies right now, including the British pound, Japanese yen, Indian rupee and Australian dollar, and it would likely be hitting new highs in USD terms as well were the dollar to be devalued.

Acceleration Of The Liquidity Crisis And Return Of Quantitative Easing (QE)
The next potential catalyst has to do with the ongoing shakiness of certain segments of the traditional financial sector. Pressured under an estimated $620 billion in unrealized losses, the U.S. banking industry has seen the failure of two large firms this year—Silicon Valley Bank (SVB) and Signature Bank—and a significant erosion in depositors’ confidence.

As a result of these failures, people and companies have withdrawn tens of billions of dollars from banks. In March, bank deposits were down more than $500 billion compared to the same month in 2022, a more dramatic year-over-year change than the savings and loan crisis in the 1980s and 1990s and the financial crisis.

Where is all this capital going? Money market funds, which are perceived to be safer and, in many cases, deliver higher yields than savings accounts right now. A record $5.2 trillion now sit in these funds, according to the Investment Company Institute (ICI), and the stockpile is expected to get much higher.



Many regional and community banks were already facing a liquidity crunch due to massive unrealized losses, and the sudden withdrawals will only amplify things. As reserves drop, banks will become less and less willing to lend to households and businesses, slowing the economy even more than the Federal Reserve’s rate hikes.

In the event that the liquidity crisis expands into a full-blown recession, the Fed will have no other choice than to pivot and begin another cycle of quantitative easing (QE). The central bank has been trying to unwind its balance sheet, but in an effort to stabilize the banking sector, it added nearly $400 billion in the two weeks ended March 22. Over the same period, the price of gold jumped 8.6%, reversing its 2023 losses.   



Two Cold Wars
The final catalyst on my list involves worsening diplomacy between the U.S. and its allies and Russia and China. Relations between the West and the East are about as bad as I remember them ever being, and they could get way worse before they get better.

In recent interviews and webcasts, I’ve been saying that the U.S. is facing two Cold Wars right now with Russia and China. I hope that these conflicts remain “cold,” but there’s always the possibility that they become something more—in which case, I would want to have exposure to gold.

I won’t spend a whole lot of time on this topic, but I want to point you to a recent article that appeared in Foreign Affairs. According to the article’s two contributors, Chinese Leader Xi Jinping appears to be shoring up his country’s military readiness by increasing the defense budget and building new air-raid shelters in key cities and “National Defense Mobilization” offices. “Something has changed in Beijing that policymakers and business leaders worldwide cannot afford to ignore,” the piece reads.

Whether the military build-up is a precursor to an invasion of Taiwan or something else remains to be seen.

What I do know is that investors have put their trust in gold in times of geopolitical risk and uncertainty. I’ve always advocated for the 10% Golden Rule, with 5% in physical gold (bars and coins) and the other 5% in high-quality gold mining stocks, mutual funds and ETFs.