Tag Archives: Currency

What is “real” money?

Throughout recorded history, true money has been defined as a tangible item accepted for exchange and considered to have value.

Diverse items ranging from tulip bulbs to seashells to weaponry have been considered money at some point in history. However, none of those items have stood the test of time.

Neither have government issued fiat currencies. Throughout history all fiat currencies have failed or likely will fail again.

Currencies are not “real” money

If you ask the average guy on the street to define “money,” 99 out of 100 will likely answer “paper money,” the U.S. Dollar or a similar response. Technically, that?s an incorrect answer. Paper money and base metal coinage are just government issued currencies, a form of debt.

On the other hand, gold, and to a lesser extent silver, fit the historical definition of money and have for thousands of years.

So why have gold and silver survived the test of time as a true form of money? And why have gold and silver been universally accepted as money throughout recorded time?

gold bullion vs gold coins

Unlike government-issued currencies, gold and silver have been considered “real money” throughout history. [Photo credit: BullionVault Bullion bar in sea of coin via photopin (license)]

Why gold & silver are “real” money

Here are a few reasons why gold and silver are well suited to be considered money:

1. Gold and silver are LIQUID, meaning they are easily exchanged, traded, bartered with or sold for non-monetary government issued currencies.

2. Gold and silver are CONSISTENT. That refers to the fact that gold and silver are easily recognized, and their appearance and composition have never changed.

3. Gold and silver are DIVISIBLE. Smaller or larger units of precious metals are proportional in value. Most other tangible items of value are not.

4. Gold and silver are CONVENIENT, meaning even small units hold noteworthy value and are easy to carry and transport.

5. Gold and silver are DURABLE. That means, as with all precious metals, they are not biodegradable, nor can they evaporate and disappear without a trace. That is not the case with many forms of “so-called” money.

6. And finally, and maybe most importantly, gold and silver cannot be created “on a whim.” Both are FINITE. Whereas there?s almost an infinite amount of paper on this planet, there?s a very finite amount of accessible precious metals.

If you have any questions about true money, which is by historical definition physical gold and silver, please contact the non-commissioned professionals at Jack Hunt Gold and Silver at your convenience.


Why Cryptocurrencies Shouldn’t Replace Gold in Your Portfolio

The cryptocurrency phenomenon continues with its mind-boggling volatility and millions of dollars gained and lost on a minute by minute basis.

Despite recent setbacks, Bitcoin and other cryptocurrencies have enjoyed significant appreciation since their initial offerings. But is this sudden rise a true indication of crypto’s value?

The Advantages Of Gold Over Bitcoin

Although with luck you may pick a “crypto winner,” I believe gold is a far more useful asset than cryptocurrency.

Here are a few reasons why:

1) A vast majority of cryptocurrencies will fail.

The current rise in cryptocurrencies can be compared to the stock market’s dot.com bubble that burst in the year 2000.

A few internet companies like Amazon and Google survived; the rest failed. It is probable the same is true of cryptocurrencies.

Assuming governments don?t eventually create their own digital currencies, only a few, if any, current crypto offerings have a chance to survive and be profitable.

2) Cryptocurrencies have a lack of security.

Security is a major issue facing the cryptocurrency industry.

There are all too frequent major hacks involving a crypto exchange. With security issues surrounding cryptocurrencies not fully resolved, their ability to compete with gold or traditional investments is limited.

3) Speculation and hype are driving the value of cryptocurrencies.

Since the beginning of 2017 cryptocurrency values have skyrocketed. But this irrational spike in crypto prices suggests this is no more than a bubble.

Most individuals buy them for the sole reason of selling them in the future at a profit. This is pure speculation, not hedging.

Cryptocurrencies vs Gold price volatility

Compared to gold, the price of cryptocurrencies is much more volatile, making them a shaky financial hedge. [Chart: Valuewalk]

It’s a dubious bet to use such a volatile form of currency as a hedge against fiat currencies or inflation.

4) Cryptocurrencies are surprisingly similar to fiat money.

The definition of fiat money is a currency that is legal tender but not backed by a tangible commodity.

This has been the case with all major currencies, including the U.S. Dollar, since the United States abandoned the gold standard in 1971.

It?s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they?re also not backed by any sort of physical commodity.

Logic suggests that you can?t hedge against a fiat currency with another form of fiat currency.

5) Gold is liquid; cryptocurrencies are not.

Gold is one of the most liquid assets available. It is easily converted to cash and its value is not restricted by national borders.

The same cannot be said about cryptocurrencies. It’s ironic–as speculation in cryptocurrenices skyrockets, so have the fees to transact in them or convert out of them.

For example, according to BitInfoCharts.com, Bitcoin’s transaction fees have vacillated wildly from a low of $0.68 per transaction this time last year to $55.00 per transaction in late December.

Currently, the rate is $5.00. The fee is fixed no matter how much you spend.

Obviously, these rates are not conclusive to retail transactions. As a result, retailers who were accepting Bitcoin are now backing away from it.

Liquid, Bitcoin is not.

6) Cryptocurrencies do not have gold?s history as a store of value.

While cryptocurrencies have been around for less than a decade, gold has been a store of value for thousands of years.

Over time we’ve seen that stocks and bonds have a minimal or negative correlation with gold, particularly during recessions, making gold a sound hedge against inflation, recession and fiat currencies.

In 2017 a rising stock market went hand in hand with rising cryptocurrency prices. In recent days, sharp drops in the stock market and crypto market were nearly simultaneous.

All this suggests a lack of hedging value in the cryptocurrency market.

Cryptocurrencies Are No Substitute For Gold

The purpose of this article has not necessarily been to criticize cryptocurrencies.

We suspect that a limited number will do very well over time as the technology they represent has a bright future.

This article is simply meant to dispel the notion that cryptocurrencies can somehow replace gold in a 21st century portfolio. The simple answer is they can?t.


Removing Capital Gains Taxes from Precious Metal Trades

Recently lawmakers in Idaho and Arizona have passed bills removing Capital Gains Taxes from transactions involving gold and silver bullion.

Normally, when individuals sell gold or silver they must pay capital gains on any increase of the value of their precious metal investments.

However, many consider precious metals, especially gold and silver, to be a form of currency, not an investment in the traditional sense.

It seems that lawmakers in Idaho and Arizona have now realized that their citizens shouldn?t have to pay taxes on their precious metal holdings simply because of the Federal Reserve?s questionable dollar related philosophies.

Gold & Silver Moving Toward Role As Currency

So now we have two states in the last few weeks that have passed bills removing capital gains tax on gold and silver. The Arizona and Idaho legislation is a noteworthy step towards the reintroduction of precious metals in their rightful role as both real money and as a high quality storehouse of value.

Gold silver idaho currency

Idaho and Arizona lawmakers recently voted to eliminate capital gains taxes on gold and silver trades, helping to move the precious metals toward their role as currency, rather than investments. [Image: Tenth Amendment Center]

In 2011 the state of Utah was the first state in 80 years to pass a bill that made gold and silver legal tender once again. Thus, citizens in Utah are legally allowed to use silver and gold to pay either taxes or for goods and services if both parties agree.

But what’s even more interesting is that Utah just recently introduced a bill for a State Gold Repository. This bill would build on the state?s Legal Tender Act, creating a foundation for further action to encourage the use of gold and silver as money.

This would be still another step toward breaking the Federal Reserve?s monopoly on money. The legislation would add several key provisions to the state law designed to encourage the use of gold and silver as legal tender.

Passage would set the stage for the expansion of gold repositories in the state and authorize further study on numerous sound money policies. Specifically, this bill authorizes the investment of public funds in specie (coins with precious metal content) legal tender held in a commercial specie repository.

Demand For Gold & Silver Will Increase When Dollar Falls

As I write this, we now have three states encouraging the use of gold and silver as real money. Not only does this legislation help to reintroduce gold and silver as sound money, it also sets the stage for new depositories across the states to house citizens? precious metal holdings.

Granted, there are only three states onboard with plans equating precious metals with currency. However, I believe that this is just the start for numerous other states to follow suit. The dollar will eventually tumble due to massive monetary printing and staggering debt.

Americans are hopefully preparing for what may be on the horizon. Precious Metals are currently being valued in a manipulated highly leveraged gold and silver paper trading market, a system that cannot last forever.

When the paper markets finally crack under the massive weight of debt and derivatives, there will be a mad rush of investors looking for gold and silver. The overall demand for tangible assets will lead to shorter supplies and higher prices for precious metals.


2016: A ‘Safe Haven’ Year for Gold?

 

As global equity markets tumble, many analysts say it could be time for gold to shine once more as a safe buy in times of market turmoil.JHGS.US-gold-eagle-2012

Spot gold prices are hovering just below $1100.00 per troy ounce as I write this, reflecting a modest 1% increase since January 1st. However, that 1% increase would look extremely appealing to those holding equity based portfolios. Gold prices recently topped $1100.00 for the first time in over two months as the dollar fell in response to concerns over both the Chinese economy and weaknesses within our own economy.

There are numerous reasons that Gold could be at the very least a stable investment option this year. They include but are not limited to; extremely volatile equity markets, escalating tensions in the Middle East, and military related instability in both North Korea and Iran.gold bullion

Gold?s recent stability and strength amid broad ?risk off? sentiment could renew investor interest. Gold is currently holding above its 50-day moving average in spite of a relatively strong US dollar, helped by lower US yields and physical demand.

During times of financial uncertainty and geopolitical turmoil, investors funnel money into assets that benefit from ?risk-adverse? sentiment or act as a store of value. Whether gold can be considered a safe haven may be subject to debate. However, gold prices have recently risen despite China?s economic slowdown, escalating tensions on the Korean peninsula and the significant downturn in global equity values. With so much uncertainty, demand for gold as a tangible safe haven asset is again on the upswing.

U.S. Gold eagles Available In All Sizes


Lower Metal Prices Creating Supply Issues

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Recent depressed prices for precious metals have led to the usual market response, a surge in physical demand for bullion coins and bars globally. This is not only confirmed by the volume of our local and national sales of late, it’s confirmed by sales figures and production issues at both government and private mints and refiners. There have been frequent shortages of many of the most popular silver and gold bullion items both locally and nationally over the past several weeks. Here at Jack Hunt Gold & Silver we have been out of virtually every product we offer at one point or another over the last month. Ultimately these production glitches, delivery issues and shortages have led to rising premiums on physical metal.

Meanwhile the U.S. Mint has reintroduced sales of its Silver Eagles, albeit on a strict allocation basis, following a three week suspension in July. On July 7 the U.S. Mint was forced to suspend sales having exhausted its inventory. That action suggests there was either a shortage in physical silver blanks or the physical silver bullion needed in the manufacture of the blanks. Since the lifting of the official suspension the mint has placed restrictions on distribution and Silver Eagle sales remain “allocated” to wholesalers like ourselves in order to maintain a minimal inventory at the mint.

The U.S. Mint is legally required to supply as much silver as needed to meet demand. Their inability to do so suggests demand remains very robust. July Silver Eagles sales are estimated at slightly over 4 million units compared to the June totals of 4.8 million coins. However, considering sales were suspended for three weeks in July the sale of 4 million Silver Eagles in less than ten days suggests extraordinary demand.ca9eeeae-ff6e-4d7d-aa30-cc560caefcf7

The U.S. Mint is also seeing strong demand for Gold Eagle coins, especially the one ounce coin. July sales of over 136,000 one ounce Gold Eagles easily doubled June sales and represents the highest monthly sales total since April 2013.

There has been an excessive amount of negative publicity directed towards precious metals over the past several months. This negativity is not supported by market activity in physical silver and gold where shortages are common despite falling prices.


Why is HSBC Long Term Bullish on Gold?

bullish-bearish

The US economy hasn?t fully recovered from the last recession, what many have referred to as the worst since the Great Depression, but another economic downturn could be looming in the not too distant future, according to one prominent economist.

In a recent article from the Financial Times, HSBC Chief Economist Stephen King commented on the historical trends of recessions and depressions. Mr. King stated that most recessions historically occur every eight to nine years and the last US recession ended about six years ago. If history does indeed repeat itself the US could be facing another recession in the not too distant future. What?s worse, Mr. King noted, is that US policy makers don?t appear to have the ammunition to fight off the next significant economic slump.

Mr. King suggested several potential triggers for the next recession; a collapse in overvalued equity markets, a sizeable slowdown in the Chinese economy, systemic failures across the pension fund and insurance industries and a possible premature tightening of interest rates by the Federal Reserve.

Mr. King did note that the government had several options to minimize the impact of a future recession although none seemed very appealing.

He stated the Federal Reserve would have to restart its quantitative easing program, historically beneficial to the price of gold.

The government could also allow for even more significant budget deficits and pass stimulus measures similar to Franklin Roosevelt?s Depression era social programs. Unfortunately it?s not the 1930?s and increasing government spending nowadays could create a pension and healthcare fuelled debt spiral. Such measures historically weaken the US Dollar versus foreign currencies and are bullish for gold and silver.

Finally, another option would be to raise the age of retirement. However, that might be political suicide considering the increasingly larger bloc of senior voters.
In reaction to Mr. King?s comments, HSBC precious metals analysts issued their own statement saying that any of the aforementioned scenarios offered by Mr. King would be very positive for the gold market. History tends to support that line of thought.


Greenspan on Gold

?Gold is the premier currency where no fiat, including the (U.S.) dollar, can match it.? – Alan Greenspan, 2014

Such words might be taken with a grain of salt if they had been uttered by any regular Joe, but that is simply not the case with Alan Greenspan. From 1987 to 2006 Mr. Greenspan was the highly respected and influential Chairman of the Federal Reserve System. During his tenure, Greenspan enacted policies deemed inflationary by many, defining an era of economic bubbles that ultimately burst. Recent interviews and writings suggest that Mr. Greenspan has returned to his old way of thinking, as he frequently quotes from a highly publicized pro-gold essay of his from 1966. In that essay Mr. Greenspan stated the absence of a gold standard ultimately leads to the loss of wealth through inflation. He also states that the anti-gold sentiment of ?welfare states? (in this case the U.S.) is simply a way to hide deficit spending as being ?a scheme for the confiscation of wealth.?

Further examination of Mr. Greenspan?s writings reveals his even broader acceptance of gold as an alternative to traditional investments. His writings note that gold has special properties that no other currency, with the possible exception of silver, can claim. For several thousand years gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when gold or claims to gold are offered in payment of an obligation. Today, the acceptance of fiat money?currency not backed by an asset of intrinsic value?rests on the credit guarantee of sovereign nations with the ability to effectively tax its populace, a guarantee that in crisis situations has not always matched the universal acceptability of gold.

usgoldeagle2014To summarize Mr. Greenspan?s recent words and writings even further: If the US dollar or any other fiat currency were universally accepted at all times, central banks would have no reason to hold any gold. The fact that most central banks do hold gold suggests their currencies are not a universal substitute for gold, even the supposed ?almighty? US dollar.