The Gold Market Discussion with Jim Clark: Goodbye 2014, Hello 2015

The Gold Market Discussion with Jim Clark: Goodbye 2014, Hello 2015

by Jim Clark
January 2, 2015

Well, a new year is about to begin and gold has continued to surprise us, ending the year with continued volatility, but holding its own and ending slightly under $1,200.00. Many signs point to gold enjoying a solid 2015. As we look at currency crisis in Russia and the year to date fall of the euro and the yen, as well as gold’s decoupling from the dollar, along with huge government debt that has governments looking for ways to raise revenues (from your wealth), let’s examine the events that make gold and silver an extremely attractive and safe haven, in spite of what happens in the financial markets.

One of the interesting events in the past few weeks has been gold’s performance in relation to the dollar. In previous bull markets, gold has risen when the U.S. dollar fell, and vice versa. However, gold recently rose to its highest levels in this bull market the very same day the rallying dollar achieved its highest level, showing that prudent investors around the world are bidding up its price because they want to own gold. This phenomena of gold moving with the dollar rather than opposite the dollar, along with an 11 percent drop in the euro and a 12 percent drop in the yen, with more currency devaluations to follow, points to a bull market for gold. Add to that, the fundamentals of supply of the metal with China, India, and Russia buying huge quantities, the NY Fed vault gold holdings dropping to its lowest in the 21st century after huge withdrawals, and you have the makings of a solid gold market.

In fact, gold has been the second best performing currency of 2014 after the dollar. Yes, gold is a currency and has survived all fiat currencies for centuries (see chart below).

Gold is an asset class that is outside of the financial system making much of it secure from government confiscation and global economic collapse. The government has long been looking at the nearly $20 trillion in retirement assets in the Unites States. Perhaps you recall that in his State of the Union Address in January, President Obama said he would direct the Treasury to create a new retirement plan. Well, he has now made good on that promise and created a retirement plan that Congress never voted for. The plan is called myRa, and calls for participants to invest in a “non-marketable, electronic savings bond,” only available to participants in the myRa program. The bond pays virtually no income and is completely illiquid. The myRa requires no minimum investment to open an account and promises no fees for investors. So taxpayers are covering the costs, and investors are encouraged to build wealth by lending money to the Feds. Though the subsidies in myRAs are likely to be small at first, the history of government programs is that they expand over time. And since our government doesn’t believe that Americans can make their own choices regarding health care, how long until they determine that Americans can’t make their own choices regarding retirement planning?

And another threat to the confiscation of citizen assets comes from the International Monetary Fund (IMF) October Fiscal Monitor Report. The report recommends a series of escalating income and consumption tax increases for the high-debt nations culminating in the direct confiscation of assets. Remember that governments and central banks pumped trillions of dollars of your money into the banks and stock market over the last several years. But debt levels are becoming unsustainable, so they are looking around at private savings. Here is an excerpt from the report: “The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”-a one-off tax on private wealth-as an exceptional measure to restore debt sustainability…The tax rates needed to bring down public debt to pre-crisis levels are sizable. Reducing debt ratios to end-2007 levels would require a tax rate of about 10 percent on households with possible net wealth.” Forbes, who first reported on the IMF report, pointed out three key points: 1. There are not enough rich people to fund today’s government debt. And that means all households with positive net wealth such as retirement savings or home equity would have their assets plundered under the IMF’s formulation, 2. Confiscation of these private assets will merely “restore debt sustainability” allowing the continued tapping of the bond markets, 3. The IMF makes no proposal to reign in the spending and entitlement programs that are bankrupting us. If they fail to engage in this wholesale robbery, the only alternative scenario they posit is government bankruptcy and hyperinflation.

And again from the legislative front, Congress has just passed a new spending bill that allows banks to once again use your deposited money to bet on highly-risky derivatives-the same kind of casino-style gambling that caused the 2008 collapse. Yes, that’s right. After 2008, regulations were put in place to prevent banks from using your deposits in risky derivatives known as “credit default swaps.” Now those regulations have been removed, allowing the banks to once again bet on what Warren Buffett once called “weapons of financial mass destruction.” After 2008, you, the taxpayer, bailed out the “too big to fail” banks for trillions of dollars. The credit default market has grown to a staggering $30 trillion dollars. So, this time, when the bets on credit default swaps go bad, governments and central banks will not be able to bail out the banks. Think what that could mean for the savings and investments of millions of people invested in bank-issued paper investments, as well as national governments and large institutions.

So, it looks like 2015 could be an interesting and wild ride from an investment point of view, and gold looks poised to do what it does best-protect wealth. It has been doing that for over 6,000 years. Did you know that gold doubled in the years after the financial collapse of 2008, and silver increased over five times during those same years? Call one of our Precious Metals Experts to find out about starting the year with some investment peace of mind.

I’ll be keeping a sharp eye on the market, and I encourage you to do the same!

Jim Clark