inflation hedge Archives

Brighter Days Ahead for Gold

“It’s a new dawn, it’s a new day.” —Nina Simone

Those lyrics from the timeless Nina Simone song Feeling Good certainly draw a parallel to the present state of gold.

After a rough couple of years, gold begins 2015 with a clean state. It will take time to shake off its hangover, but the yellow metal is looking good early into the new year.

Of course, gold still has its fair share of critics. Willem Buiter, chief economist at Citigroup, recently referred to gold as a “shiny bitcoin.” Refuting such a ludicrous statement isn’t worth the digital ink. Instead, we’ll keep it short and simply say: Such a statement ignores 6,000 years of human history.

Not all gold bears are as controversial. Most analysts pessimistic about gold’s near-term outlook cite the strong dollar, rising interest rates, and deflated energy prices as headwinds, though we would argue that each of these factors actually reinforces the need to hold gold… but that’s a discussion for another day.

Rather, let’s take a look at what some of the sharpest financial minds are saying about gold:

• In terms of gold price expectations, it appears that the repair of technical picture is now behind us and that a stable bottom has formed. The next 12-month price target is the USD 1,500 level. Longer term, a parabolic trend acceleration, with a long-term target of USD 2,300 by the end of the cycle.—Ron Stoferle, Incrementum Lichtenstein

• In the long term, however, I am more bullish on the gold price than I have ever been. All central bankers want inflation, and one day they will get it. Betting on inflation is the surest thing I have ever bet on in my life.—Pierre Lassonde, Chairman of Franco-Nevada (FNV)

• The lengthy bottoming process in gold seems to be nearing its close. The conditions that led to a decade-long rise in the gold price in 1999 are quite similar to today. Gold is not just ignored but hated by mainstream investors—it’s the Rodney Dangerfield of investment concepts.—John Hathway, Comanager of Tocqueville Gold Fund

Optimism about gold is also showing up where it matters most: the spot price. Gold has climbed nearly 12% since its November low and is off to its hottest start since 2008. Last week’s surprise announcement by the Swiss government to sever its peg to the euro provided the latest boost. It’s yet another reminder to own gold, the only asset that isn’t somebody else’s liability. We see this as a recurring theme in 2015.

Article originally posted in the January issue of Smart Metals Investor at HardAssetsAlliance.com.

Employing the Infinite Banking Concept

submitted by jwithrow.

Yesterday we examined the merits of the Infinite Banking Concept. Today let’s look at some IBC strategies to build capital and mitigate inflation.

If you combine the Infinite Banking Concept with a fundamental asset allocation model you have the makings of your own personal central bank. If one were so inclined, just like a central bank, one could establish tangible reserve requirements and use the policy’s ever-growing capital base to purchase tangible assets. Your job as Chairman would be to continuously acquire assets based on your allocation model as your central bank’s capital base grew in size to maintain your specified reserve ratios.

The possibilities with this strategy are endless!

The hardest part of employing the Infinite Banking Concept is being patient enough to capitalize your policy over the first several years until the policy becomes self-sustaining.

Imagine a world in which more people take control over their financial destiny by using the Infinite Banking Concept as an integral part of their financial plan. This strategy has the power to mitigate the boom-bust cycles created by the Federal Reserve and the fractional-reserve banks because people employing the IBC strategy would not have much need for traditional bank financing.

The power of the Infinite Banking Concept can truly be unlocked if families were to implement this strategy generationally. For example: what if parents were to set up IBC policies for their children as soon as they were born?

The IBC policy would have the opportunity to grow for twenty years or more, and the next generation would automatically have a large pool of capital available to them upon their maturation into adult-hood. This pool of capital could be used to finance specialized education or to start a business with no student or bank loan necessary.

The child would also receive a substantial death benefit payment down the road when the parents were to pass on from this world. That death benefit could then be used to set up larger IBC policies for future generations so the family’s pool of capital would continuously grow over subsequent generations. Every single one of your children and grandchildren would have access to a significant pool of capital to help them build self-sufficiency and resiliency.

Talk about an individual revolution!

A generational implementation of IBC in this way could gradually transfer the power of the purse away from governments, central banks, and Wall Street and back into the hands of individuals where it belongs. This would cause the financial sector to shrink tremendously, which would free up capital for more productive purposes across the board.

You see, the financial sector doesn’t really produce much of anything. It is more like the money changers of old in that the financial sector does little more than temporarily warehouse capital and then move it around, siphoning off small fees at every stop along the way. The financial sector certainly plays a very important role in a developed economy, but that role should be much smaller than what it is today.

So how do we know that the IBC strategy will survive the Great Reset? The answer is that we don’t know anything for sure.

But life insurance companies have a built-in inflation hedge as they can charge higher premiums to new customers on an ongoing basis as the currency loses value. Additionally, if the currency were to completely collapse, it is highly likely that life insurance companies would re-value their policies in terms of a new currency or maybe gold (we should be so lucky). Also, if you operate your personal central bank wisely and use your capital to purchase precious metals and other real assets, then you have a currency hedging strategy already in place.

Hopefully this chapter has done the Infinite Banking Concept justice, and you can see why we think it is a powerful tool for individuals disciplined enough to devote the time and resources necessary to capitalize a policy.

Investing in Gold and Silver Bullion

submitted by jwithrow.

Investing in gold and silver bullion is, believe it or not, much easier than investing in stocks, mutual funds, exchange-traded funds, or bonds.

If the concept of investing in gold and silver seems strange to you, it is only because the financial media has marginalized the precious metals in order to sell more paper equities and the mainstream media has associated the precious metals with paranoid dooms-dayers. And apparently you haven’t been reading our little blog here.

You see, gold is money. It has been for all of recorded history.

You can’t pay your taxes with gold because your government knows that no one would want government currency if you could. And then your government would be in big trouble.

We talk about the ‘why’ in more detail here and here so now let’s look at the ‘how’.

Gold and silver bullion is available in the form of coins and bars of varying weights and measures and purchases can be made either in person at a reputable coin dealer or online through an internet dealer.

The advantage of buying from a local coin dealer is that you can pay in cash anonymously and you can potentially develop a working relationship with the dealer. The downside is that you will have to pay your state sales tax on all bullion purchases made at a local dealer.

The advantage of buying online is that you don’t have to leave your home and you can avoid the state sales tax (for the time being, anyway). The downside is that you cannot purchase anonymously and there is a delay between purchase and delivery.

Gold and silver bullion can also be sold back to the same dealers – be sure to research their individual policy.

The IRS currently classifies precious metal bullion as a collectible and thus taxes the gain on sale at the collectible rate which is 28%. Keep this in mind if you choose to invest in gold and silver bullion, especially if you sacrifice anonymity and purchase online. Also, be sure to stay updated on the current tax laws regarding gold and silver bullion as they could change at any given time.

There are many strategies when it comes to investing in gold and silver but a general rule of thumb is to stay away from unique collectibles (numismatics) unless you are very knowledgeable in the field. The reason being is that numismatics carry a much higher premium than standard bullion from well-known mints but there is a much smaller market for these rare coins and thus they are much less liquid.

Our favorite strategy is to dollar-cost-average into both gold and silver periodically at the ratio of one American Gold Eagle to twenty American Silver Eagles.