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The news around the world has been rather interesting over the last few weeks. We have Iran trading Oil for Gold instead of PetroDollars. The Greek crisis still has not been solved while Italy, Spain and Portugal are struggling to stay solvent. China has signed fourteen currency swap agreements bypassing the US Dollar. The Federal Reserve has announced that it will keep interest rates at or near zero until 2014. The US has just raised its debt limit once again, with little opposition. We all know that 2012 is an election year in the USA which usually means very little will be done in Washington.
So what will we see this year? Will we see Deflation or Inflation? Currently I hear news out of the USA and here locally in Panama that items are going up in price. I just spent a week in San Jose, Costa Rica where one liter of Coca Cola was $2.50. They were just forced here in Panama to raise the minimum wage to $500 just so people could afford to survive. You can imagine the repercussions, many businesses will have to let employees go in order to keep the doors open. Here in Panama we use the US Dollar as our currency. Who is to blame for the inflation we are seeing? It is not the printing presses fault. It is the powers behind the printing.
Way back on November 21, 2002 there was a Federal Reserve Governor named Ben Bernanke, who gave a speech to the National Economist´s Club. In this speech he outlined exactly what he would do if he was Chairman of the Federal Reserve in the instance of a financial crisis or Depression.
- The Federal Reserve would lower the interest rate to zero
- Purchase Securities from Banks (GM, Chrysler)
- Increase the Money Supply
- Buy Countries Debt QE1, QE2, QE3 and QE Infinity
- Devalue the Dollar
I will not go into each of these scenarios individually. We all know that points one through four are already in play. The one that has not occurred yet is the devaluation of the Dollar. Mr. Bernanke calls himself a student of the depression. He has studied The Federal Reserve actions during that time. Here is an excerpt from that speech.
Ben Bernanke November 21, 2002
Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it´s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt´s 40 percent devaluation of the dollar against Gold in 1933-34, enforced by a program of Gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt´s devaluation.
Original speech can be viewed here
On April 3rd 1933 President Roosevelt declared the Presidential Order 6102.
All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933.
At this time Gold was valued at $20 per ounce. Shortly after the Gold confiscation was completed the Federal Reserve revalued Gold at $35 per ounce or a 40 percent devaluation of the currency. Remember that during this time the Dollar was backed by the promise of Gold.
In my mind Mr. Bernanke is telling us what he is going to do next if the economy does not respond to the other four measures that he has implemented. What would a 40% devaluation of the US Dollar do to your savings if everything is in US Dollars or a currency pegged to the Dollar? The devaluation of the US Dollar would be great for Gold, Silver, Home Values, Debt and the stock market. What about the people that do not have hard assets? People who live off Social Security, Government Subsidies, Fixed Incomes and Savings will have a difficult time. Imagine tomorrow you wake up and your savings has just been devalued 40%.
Growing up I was taught that putting your savings in the bank was important. Today it seems that the idea is no longer valid. What Mr. Bernanke has told us is that he will devalue the currency in order for the country to continue to have growth. What are you doing to protect your family and future?
By: Randy Hilarski - The Rare Metals Guy
One of the most common questions I hear in the metals business is, “where do I store my metals?”. This question is often posed by a person, foundation or trust that is looking to secure their investments. Usually we hear about buyers of gold, silver, platinum and palladium who want to protect their assets but now there is a growing number of clients who are looking to diversify beyond the core metals we all know so well. How do we best protect our assets today with all the uncertainty? Here I will discuss why a portion of your metals should be stored offshore, and in what form works best.
What kinds of Metals can an Entity Store Offshore?
The metals people most often store outside of the country are gold and silver although experienced metals buyers might also buy platinum and palladium. Recently clients have been able to buy other rare industrial metals like tellurium, cobalt, molybdenum, hafnium, indium and tantalum. A few years ago the average investor would not have had the ability to buy some of these metals unless they owned a company that produced items which needed these rare industrial metals.
Why is it Wise to Store Offshore?
In the 1930′s during the Great Depression the US government confiscated all privately held gold. US citizens were not able to possess their own gold again until the 1970′s. Will we have a similar situation this time around with the world in its current state of transition? How is the US government planning on fixing this situation? Many countries are choosing inflation, currency devaluation, low interest rates and austerity measures. When these techniques fail to rein in the problems will governments turn to gold and their populations’ assets? One thing I know is that indium, cobalt, tantalum, tungsten and many of the other rare industrial metals and rare earth metals are on the critical metals list of the USA, EU, Japan, Korea and China. The question is whether rare earth metals and rare industrial metals will ever be deemed so crucial to economic and industrial applications that a country may decide to control the purchase of these metals. We see what China is doing with these metals and one must ask ones’ self, “Could these control measures spread to my country?”.
The old saying, “don’t put all your eggs in one basket”, applies here. Clients commonly say, “I want to be able to touch my metals”. This is great, and encouraged but the stress of knowing so much of your assets are under one roof can be too much to handle for the average person. The metals can possibly become a liability and risk to you and your family’s safety.
Why would I not take delivery of Rare Industrial Metals and Rare Earths?
Some clients may wish to take delivery of their metals. This can be done just like gold and silver but the big difference is that these metals are used in industry. When the client takes the metals to the broker they will ask for the metals to be assayed. This is the process of taking a sample and sending it to a lab to verify purity. Also when dealing with rare industrial metals the amounts can be quite large and take up a good deal of space. Some elements like hafnium are controlled because of its use in nuclear technologies and it cannot be transported internationally. The metals trader stores the metals for the client and upon request resells the metals.
How do I Store the Metals Offshore?
When researching where to store your metals make sure to do thorough due diligence. There are many options for the investor. The most common choice is a safety deposit box in a bank. Safety deposit boxes are the most widely recognized. They are great for small allocations of metals. Storing in your second home offshore is also a common choice. This is also good for the client who has a small allocation of metals. Offshore bank vaults are also an option but can be rather expensive. The best option for clients with medium to large amounts of metals is an offshore private vault or depository. The prices are reasonable and they offer unparalleled privacy. A good example would be the Zurcher Freilager AG free zone in Switzerland.
What about Taxes?
This is a complicated issue that needs to be addressed by a tax professional. Every country has its own tax rules which are far beyond my expertise. As far as the Zurcher Freilager AG is concerned, as long as the assets are sold within the free zone it is a tax free event.
What are you doing about securing your future? Every day we hear more and more about an unstable financial market, geo political uncertainty, governments overreaching and bad economies. Wouldn’t it be prudent to have your assets spread out across the world?
What is holding you back?
By: Randy Hilarski - The Rare Metals Guy