The bottom is in for gold… Why you should expect higher prices ahead… In the mailbag: “The Late Great USA has passed the point of no return”…
Right after we launched The Daily Cut last August, we passed on a big call on gold from Strategic Investor editor E.B. Tucker.
E.B.’s a gold industry insider and one of our go-to experts on the gold market here at Legacy Research.
And as we told you in our August 27, 2018 dispatch, E.B. had spotted a giant “tell” that gold prices had bottomed and were due for a rally…
Fund manager Vanguard was shuttering its flagship precious metals fund. Here’s E.B. on why that mattered…
The Vanguard Precious Metals and Mining Fund managed $2.3 billion in assets. It announced it was slashing its gold exposure from about 60% of the fund. And it said it would cap its total precious metals and mining industry exposure at 25%.
Gold had seen an almost 10% drop in the previous three months. And the fund had dropped 24% in the past year. I’m a big believer that when you see a big fund change its focus like that, it’s always something to watch. And it often signals a bottom in the market.
In other words, the shuttering of the Vanguard fund was a classic contrarian buying signal. And it wasn’t the first time. E.B. again…
This isn’t the first time Vanguard adjusted its precious-metals fund just as gold hit a bottom. In 2001, Vanguard removed the word gold from what was then its Vanguard Gold and Precious Metals Fund. Soon after, gold set off on a nearly decade-long rally.
And as you can see from the chart below, E.B.’s call on gold last year was spot on…
Since Vanguard closed its fund, the price of an ounce of gold is up 10%.
E.B. is one of the most plugged-in gold investors we know.
Before joining the Legacy team, he comanaged a fund that focused on precious metals companies.
Today, he’s on the board of a fast-growing gold royalty company. (Gold royalty companies finance mining companies in return for royalty payments on the gold they dig out of the ground.)
He also has an impressive track record of spotting major inflection points in markets.
For instance, after the subprime mortgage crisis, E.B. cashed in his retirement accounts to buy a portfolio of Florida real estate for pennies on the dollar. As he put it…
Nobody was buying real estate back then. Nobody had any money. I didn’t have much. Some people say I was smart to cobble together a portfolio of homes. At the time, I didn’t feel smart at all. I was actually terrified.
When absolutely nobody is buying rental houses… when you’re the only buyer… you don’t feel smart. You stay up all night wondering if you’re the biggest idiot out there.
But this contrarian bet paid off. Today, E.B. makes 20% in rental income after paying all expenses.
And at the end of 2017, amid the euphoria over bitcoin’s 1,251% rise that year, E.B. predicted the crypto market would head lower in 2018.
And as we told you in yesterday’s dispatch, that marked the start of the “Crypto Winter” – the long, difficult period of falling prices that took bitcoin down 80% peak to trough.
Last December, he went on Kitco News, which is dedicated to precious metals investing. And he called for gold to hit $1,500 an ounce by the end of this year. (You can watch E.B.’s interview in full here.)
That’s almost a 12% increase from where it trades today. What’s going to drive that big move higher?
According to E.B., the same thing that always drives gold higher – the search for safety…
You have to think like a big fund manager. Because they’re the folks who really move the needle on asset prices.
You look at the U.S., and you see we’ve gone on this 10-year run with levitating stock prices. You’re looking at Amazon going up half a percent every day for five years… or whatever it was. And you’re thinking to yourself, “This is getting a little stretched.” Meanwhile gold went down consistently over that time, so you start adding some into your portfolio as protection.
The big picture here is that we’ve had a longer than expected run in some of the most popular stocks of the day. And we’ve had a longer than expected exodus from gold ownership. Once people see the writing on the wall for the bull market, that’s going to reverse… and reverse hard.
And gold doesn’t just help insure investment portfolios from falling stock prices. It’s also “disaster insurance” for your savings.
Gold is money that exists outside of the banking system. And as E.B. put it, that makes it valuable in a time of radical monetary experiments.
These experiments aren’t front and center on most folks’ radars right now. But they haven’t gone away…
According to a new post on the IMF website, it’s eyeing the phasing out of physical cash to allow governments to trap savers in negative rates.
The best way to think of negative rates is as a tax on your savings.
So for instance, with a negative rate of 4%, each year you’d lose $4,000 on every $100,000 of savings you hold in a bank.
And if the IMF gets its way, holding them anywhere else won’t be an option.
You see, as long as there’s physical cash, people can escape negative rates on their bank accounts by holding cash instead.
But if governments phase out physical cash – and this is already starting to happen, as we explained here – there’s no escape. As an IMF research team put it…
In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2% to minus 4% to counter a severe recession. […] Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive.
The IMF wants to phase out of physical cash to leave savers like you with no option but to pay a negative interest rate tax on your savings in the next crisis.
And that’s another reason to own gold. It’s the only asset outside the control of central banks like the Fed. So it keeps your wealth safe from wealth grabs such as negative rates.
Tomorrow, we’ll have more from E.B. on the best ways to play the continuing rally in gold we mentioned above… including a simple portfolio allocation guide you can follow if you’re looking to get some gold exposure.
On Wednesday, February 27, E.B.’s making a big announcement.
Along with Legacy Research cofounder Doug Casey, E.B.’s sharing the details on a little-known strategy he says can help you generate gains 10x bigger than options.
It’s a type of investment Doug uses, too… And that we think should be on every Daily Cut reader’s radar.
Over the past couple of weeks, we’ve been focused on some of the ways the folks in Washington want to “soak the rich.”
And it prompted one of your fellow readers to tell us to butt out of politics here at the Cut…
I think you need to stay out of politics. Or are you getting into politics because you’re stumped on the financial side of things, because you don’t know what to do and you have to fill up space in these long say-nothing essays? Your political thoughts are biased and very shallow – and unappreciated.
– Kathy K.
But not everyone thinks that’s wise… or even possible…
To paraphrase Leon Trotsky: You may not be interested in politics, but politics is interested in you. Especially the politics of the “world improvers.” When politics approaches the realm of wealth confiscation, we all better start paying attention.
– Howard T.
Machiavelli, probably the most astute observer of all those who have written about republics, found that every democratic society contains two competing groups: those who would like to rule, and those who do not want to be ruled.
Politics consists of the unending struggle between these two groups, both of whom are integral to civic society.
Anyone who claims to be above politics, or to have no political opinions, is merely announcing that s/he is not intellectually engaged in our democratic society and does not mind being ruled by others. S/he is content to be a silent pawn in our civic society – one of its innumerable, blameless sheeple.
– David H.
The LGUSA (Late Great USA) surpassed the point of no return as far back as the 1980s, according to numerous studies. Mentioning that to flag waving citizens who get all their information off the tube could get you hurt because most have no clue what’s going on in the background.
Now, if you want to send these clowns into a rage, tell them about how when they filled out the application for a passport and listed themselves as a U.S. citizen, they were tricked into giving up all their God-given rights and became serfs.
With a population that, for the most part, has no clue the USA is supposed to be a constitutional republic and thinks we are a democracy, there is no chance this wave of ignorance will be reversed before the train wreck of all train wrecks occurs. Throw in $100 trillion or so of debt into this mix and it really gets interesting.
– Farnsworth F.
Should we steer clear of politics at the Cut? Or are we right to pay attention to Washington’s wealth grabs? Tell us your thoughts at [email protected].
We love to hear from our readers. And we regularly feature your feedback in our mailbags.
February 20, 2019