Is Gold Still Golden?

I'd be interested to hear your comments on silver.

I would also like to hear your thoughts regarding silver. How will it perform against gold?

I noticed that the silver price lately seems like it's behaving like an industrial metal where the spot price is dipping along with copper, oil, etc.

I thought for the last 2 years that it would behave more like a monetary metal. It seems to be tanking possibly because of lower demand for industrial applications.

The question I have on silver is do you think the price is being manipulated as many feel it is?

Compelling argument about gold - problem is that there are many risks....buying or adding to position after 500% gain not really smart arriving late to party...gold chart looks very similar to Nasdaq 2000, Japan 1990, Oil, China bubbles and pictures don't really lie. Gold and corresponding etf holdings can be confiscated by government in future and wipe out all value, if gold does go up another 500% then unfortunately, and most peasants don't realize is, that means end of the world type environment and no one will have to worry about their portfolio's or gold or anything other than keeping an ar-15 or pump shotgun next to your front door when anarchy and madness roam the world.

John W., it's true there are risks with gold and eventually it will crash like the Nasdaq 2000.

My take on gold isn't so much "how high will it go"?

It's more of "how low will the dollar go"?

All western governments and central banks made it clear since 2007 that they will print, spend and there's just no political will to do the right thing and balance the budget and pay down the debt.

If the government tries again to confiscate our gold again and foreigners can still buy then the prices will sky rocket for certain.

I do think however they will create some sort of "special gold tax" or something like that so when we sell it for cheaper dollars the government will get their share for certain.

I don't believe our government will ever confiscate anyone's property anymore when they can kill us with king george types of taxes as they are always doing.

I am concerned that the gold bubble may not behave like bubbles of the past/present. The reason for this has two components:

1) Investors will have learned, painfully, that bubbles are not safe. They will be wary of growing bubbles in the future and will be better equipped to recognize and deal with them.

2) Investors are already recognizing gold as a bubble. This is a critical difference between gold and the other six bubbles mentioned in the book. Overlooking this fact is dangerous indeed.

When you combine the two factors above, you get a lot of investors staying away from gold out of unwillingness to participate in bubbles, which of course hinders its price rise, or at very least, creates an incredibly volatile market.

While no one knows what will happen in the future for certain it looks like our "leaders" will borrow and print all the currency they need to pay the bills.

I can't see any other asset class that will survive this inflation disaster better then gold.

Just the other day I heard Harry Dent on Bloomberg stating that when the expected crash (or aftershock) finally arrives that gold will crash along with the stock markets.

I don't exactly agree with his viewpoint since he isn't taking Bernanke's printing press into consideration.

Does he or anyone think Bernanke will just sit by and let a deflationary death spiral happen?

It's certainly possible, but not likely IMO.

Larry A,
Concerning silver and whether it is behaving like an industrial metal:
This is a URL of a Peter Schiff interview, on yahoo finance:
http://finance.yahoo.com/blogs/breakout/fed-fuel-gold-silver-highs-schiff-191226174.html?sec=topStories&pos=1&asset=&ccode=

I did not watch, but read the summary beneath the video. Peter mentions about silver being under pressure due to its industrial component, and he believes that central bankers are buying gold, not silver. These thoughts fall in line with what you speculate, and what I've read from others, in that with the world in danger of tipping back into recession, that would hurt the silver price.

Also interesting in that summary, that the yahoo writer referred to gold as that barbaric metal :-).

Great commentary. I've began a move to Gold ~18months, but still want to keep a 65/35 split in Gold to Cash. The question is what to do with the cash? Today, it remains in a Money-Market but rates are embarrassing. The book mentions Bond Funds. I've looked into such vehicles as a High Yield Bond, 2 of which are HYG & JNK. Do either of these fit the profile for your recommended Bond Funds? Thanks!

Having been a gold bear since 1981 I predicted $250 by 1999....18 years (based on cost +15%). I became a bull in 2005 when it breached $500 (x2) but nervous at every +100% since as it retraces. I answer to John Witherspoon we have to remember gold went from $35 to +$800 (x22)in the space of a decade. I predict it will top out around $5000 in 2017. Interestingly around that level the US gold reserve would be worth about 10% of their outstanding dollar debt.

Ok, after viewing comments here and other areas....anecdotal indeed, I believe the gold market is going to have one heck of a crash now to clean everyone out before (if/when) there's a continuation of an uptrend. Too many people still bullish on Gold, still buying this pullback with no fear whatsover, that's not how the bull continues...it has to scale some negativity and skepticism ....gold may have to drop below or near 1000 before people panic out.Again, who's to say gold has not burst it's bubble too...look at Japan and Nasdaq - same chart essentially as gold.

finally, does anyone agree with me that if Gold does go up to the strasphere (someone said $5000) that we will be living in a much diff. world? You can see unrest starting already...I'm talking about Apocalypse Now with financial markets in ruins and gold the only thing worth value....guns and butter. If Aftershock does happen, then there will be World Wars, murder, looting, pillaging, rape - every man for himself type environment. Money will not be worth anything and you have to steal and loot food and things to survive - people should be buying things of value now before Apocalpse/Armageddon rains down and the earth is a miserable place to live. Anarchy and Madness is coming soon folks if/when Aftershock happens! Sad.

Gold will be driven by flight to quality, once investors realize that (1) everything else is yielding 1% or less return, WITH risk, and (2) gold stands out as the only investment that has consistently risen through all the crashes and busts. That is when the bubble will really start to build.

The build-up will further accelerate if the threat of a a partial gold standard, forces China and India to convert their USD reserves at least partially into gold. Finally, as political paralysis and lack of will to solve problems makes the US less attractive to foreigners, they will withdraw their funds. causing the USD to fall and the gold price to rise.

@ John Witherspoon:

This is about your fear that gold is behaving like Nasdaq in 2000. It& 39;s not.

GOld trading began in earnest with the GLD spider created in 2005. Its chart during 2005-2011 is very similar to the Nasdaq composite from 1990 to mid-1996. Both are pretty much linear, not bubble-like. If gold from here on behaves like the Nasdaq did then, it will peak at $7200 in mid-2015.

There was no massive panic while the Nasdaq marched towards a deadly cliff, and there will be none this time. We stil have a ways to go. And please read the Aftershock book. You will find that it does not forecast armageddon and WWIII. It forecasts great high earnings for the 30% to 40% of the workforce that will be employed - most likely in the service sector.

Did anyone see the bet P. Grandich proposed with J. Nadler (Nadler refused to bet, apparently). If nothing soon comes out to indicate that there will actually be money-creation, by the Fed or over in Europe or both, I am guessing that gold will struggle still. It seems to be struggling and I suspect that lack of actual, overt money-creation is the reason. Wanted to "throw that out" for chewing on. I cannot see why gold continues to struggle. If Europe this weekend does not agree to increase their bailout fund, what might happen to gold?

Thanks for your comments everyone. Regarding silver, as we explain in the book, we expect a lot of volatility in the short term, even more so than gold. As a hybrid metal, it has the opposing forces of decreasing industrial demand and increasing investment demand acting on it, and it may continue to be volatile even for the next five or six years. As more and more investors lose confidence in the markets, though, silver should start to track gold more closely and move in an upward trend.

Also, Larry, without pointing fingers, we will say that there are some strong indicators that both gold and silver prices are in fact being manipulated as many suspect.

John,
We don't think things will be quite that chaotic. Though violence is always an issue in a depression, the relative wealth of the US and the relative peace of our time will prevent us from reaching total chaos. While there will be some lawlessness in the economy, we think investments and possessions will still be respected. We are planning on writing more about this topic in the near future, either in future books or possibly as a special report. Stay tuned.

The government is unlikely to confiscate gold since it won't be very useful as a form of currency in our modern economy (though increased taxes are likely). The dollar will be worth much less, but it won't be dead.

David,
You make interesting points. Many investors don't like gold right now, because it hasn't done as well as stocks and real estate in the past. That's why we see volatility in gold prices right now. But after the remaining bubbles pop, and there are few safe investments out there, people will rush to gold out of desperation. It will be a bubble, for sure, but it's fine to invest in a bubble as long as you get out before it pops, and that's a long way off. (Most people don't see bubbles until after they pop. People are still denying the bubbles that exist right now.)

Scott,
Generally speaking, High Yield Bonds are okay in the short term – say the next 18 months to 2 years – but as we get closer to the Aftershock they will be unsafe. Therefore they require active management. We can't recommend specific investments in this forum, but you may want to look into our private consulting service. (The link is at the top of this page.) Thanks.

Surely, won't essential resources be even more important that gold? If things get really dire, then land, water and ability to produce and prepare food will be even more important that gold. You can't eat gold. While people will want to put their value into something, even gold is just another metaphor for true wealth.

After reading your book my thoughts on owning gold have been confirmed and I am ready to make it a sizeable portion of my investment portfolio. My question to your team is the following; What is the best way to own gold if I want to purchase it with money from my IRA account?

If one purchases gold how can its authenticity be verified?
Thank you

Good question, Henny. It's good to remember that even in a mega-recession there will still be quite a bit of wealth in the US. If you cut our $14.5 trillion economy in half, that would still be more than any other country today. Those who invest in gold now will be able to afford plenty of resources when the time comes, and even for those less fortunate, welfare and other options will be available. We shouldn't expect to see starving in the streets. Not in this country, anyway.

Ryan, your IRA should allow you to invest in gold ETFs which closely track the price of gold. See Chapter 7 in Aftershock 2nd Edition for more information on these investments, and be sure to check with your financial advisor before making a move.

Diane, definitely research any gold dealer you do business with and make sure they are trustworthy before buying. It's probably a good idea to stick with recognizable minted coins and bullion such as Canadian Maple Leafs, South African Krugerrands and American Eagles.

Your book talks about rise in gold from the US point of view (ie the US dollar is falling in value). What about the price of gold in say HK dollars or Singapore dollars ? Will it be the same ?

It seems that a lot of countries are engaged in competitive devaluation of their countries currencies. Does the increase supply of US $ or for that matter the Euro also export inflation to other countries as well, resulting in overall devauation of all currencies worldwide, and hence the price of gold worldwide ? (I read a book somewhere that China also prints currency to avoid the appreciation of their Yuan, (when the exporters who are paid in US $, converts their US$ into Yuan, from China Banks). Is that true ?

Fiat currency can be created at will and there is no limit to how much can be created.

At the rate the world goverment is creating these units, not only gold, other physical assets such as land, foodstock can only increase.

I don't see a reason why ppl should focus on gold only.

Concerning silver, if a loaf of bread used to cost a dime when 90% silver coins were still in use before 1965 and it goes up to, say, $15 per loaf from about $3 per loaf today, then don't you think that silver will follow suit by raising a similar 5x? No question with quite a bit of volatility, of course.
Also, what is your theory on the fact that silver seems to have, in the past 100 or 200 years, always traded in a range between 16 and about 72. Do you think that relationship could get broken and the gold/silver relationship jump over that range at any time?
Finally, after reading your book, despite the risk of your losing your credibility, I am dying to know your thoughts on how high gold will go before topping. Can you share that?

Good questions, Don. Gold is generally a good hedge against inflation, and so you can expect it to go up as the dollar goes down (and to go up relative to other currencies that suffer from inflation). But, more importantly, after interest rates go up and stock, bond and real estate markets crash, gold will be a major safe haven for investors fleeing from other assets, which will drive its value up even in inflation-adjusted dollars. This is why we actually predict a major gold bubble which itself will eventually pop. But that's a long way off.

We can definitely expect to see inflation of other currencies around the world (which will also be good for gold), but it won't have the same impact as the devaluing of the dollar, which will send foreign investors fleeing and cripple many export-based economies that depend on the US. It's true that China prints currency (and buys US dollars) to keep its goods cheap for us, but ultimately this and other attempts to prop up the dollar will fail.

Victor,
We tend to prefer gold as an investment for its protection against inflation and its role as a safe haven investment (eventually leading to a gold bubble post-Aftershock). As we point out in our books, though, businesses in the necessities sector, such as basic food production, are relatively safe and can do very well for many years to come. It's not necessarily an easy option for everyone, though, which is why we tend to focus on gold, which is easily traded as an investment.

I tracked the history of gold, and noticed that when Nixon took the dollar off the gold std in 1971, Gold went into a bull run, taking the price from US$35 to as high as US$850, by 1980.
THis was because the US was printing money to finance the Vietnam war, resulting in France eventually losing confidence in the US$, and requesting for GOld from the US govt, by presenting the US$.

However, I noticed, that Gold subsequently went into a slump from 1981 onwards, and probasbly stayed there at about US$250/- or thereabout until 2001, when the present rally took off.

Now this slump in Gold price took place, even in the midst of the US govt& 39;s printing of money (correct me, if I am wrong). Does this not invalidate this theory that Gold will rise due to currenct printing ?

Julian,
We expect silver to track gold pretty closely in the long term, meaning it will rise with inflation. The complication in the short term is that its value is tied not only to its investment value but also to its industrial use. In the short term, its value as an industrial metal will go down due to decreased production, but when inflation really hits hard it should behave more like an investment metal, which will drive its value up.

With both gold and silver, we're going to resist the urge to name a peak value. But we think anyone invested in these metals will be very pleased in the long term.

Don,
Gold was in a bubble during the inflationary period of the '70s. The bubble popped in the early '80s after inflation was curbed by higher interest rates set by the Fed. That is, the money supply was contracted, not expanded. Gold was stagnant for much of the '80s while inflation was kept low. When inflation goes up, the price of gold goes up with it.

And we also cannot raise interest rates to their early 1980& 39;s level or the economy will crash and there will be no way the Government can borrow money at "Paul Volker interest rates".

Let me first say that I really enjoyed the book and the insight into how gold plays into this economic crisis. I have two inquires specifically regarding gold. One general; one more specific to what has been going on recently. In general, I agree with the book& 39;s outlook that in times of high inflation and uncertainty gold has historically been a place to hold wealth. I especially appreciate how the book touches on one of my personal observations which is that gold has little to no intrinsic value; however in times of crisis it is a place of safety. Historically this has been so, but why? And theoretically couldn't some other means of wealth storage come along rendering gold significantly less valuable? Just something I must consider before putting large faith into a metal.

Secondly, it has been noted how the spot price of gold has gone up over 7 fold in a ten year period. Is it not possible, if not probable, that some of these inflationary and instability fears are not already baked into the current high price if even only as an investor hedge at the moment. I guess what I am inquiring is how does one know how much of the current price is based on fear of the future. Is it not possible the reason a lot of stock have done down in value is that investors see gold as a better investment? Sorry for the long posts.

Brett,
Very few people, at least in the US, actually own any physical gold. Do you know anyone personally who does? In fact, it is a pain. You have to figure out where to store it. But if there was real fear out there, let alone terror or panic, a lot more people would be talking about it and a lot more people would be trying to buy it. Right now, when i try to tell people they need to buy gold to protect themselves from inflation, they are mostly resistant. Anecdotally, that is why I think gold has quite a ways to go up.

Spot on, Brett. We do think that in the very very long term gold will lose its status and cease to be a monetary metal. But that's a long way off. It is still seen as a safe haven investment, and with the dollar bubble ready to pop and markets ready to crash, gold will be the place to be for some time. Ride the bubble as it inflates, get out before it pops (we're talking 10-20 years down the road here).

To the Aftershock Team, I agree mostly with gold and silver becoming (as your book states) "The biggest, baddest bubble of them all" and it will eventually pop big time.

Looking back however at 5000 years of human history it seems that gold and silver will be money until the end of time and probably will not cease to be a monetary metal.

It seems like we have cycles where we have strong economic growth so stocks, bonds and real estate is the investment of choice and the cycle changes (in this case it was around Y2K), where PM's have a 15 to 20 year bull market.

I fell gold will go to the stratosphere, burst and several decades from now history will repeat.

One thing I respectfully disagree with in Aftershock is that we will learn from our mistakes and I do not feel we learn from our mistakes or we simply wouldn't be here today.

All the best!!!

Excellent book. It dovetails with Chris Martenson's beliefs on high levels of inflation and a collapse in the economy due to the impossibility of credit expansion at previous levels needed to maintain growth. It's been a few months since I read the book and I may have missed it there, but Martenson focuses heavily on peak oil - the decline and more expense related to production, which will also have devastating consequences to an already fragile economy. Also, our aged infrastructure will cost $ trillions that we don't have. Seems we will indeed become a third world country in some respects even though we may be better off than many as the book suggests.

I don't see why people starving in the streets is not a possibility in the USA. It sounds quite possible and even probable. With most people being urban dwellers who rely upon a supermarket for almost all their needs, a break in the supply chain for even a few weeks would cause more than distress, particularly for those who are not in a position to amass food in advance, get access to it elsewhere, or pay the high prices to buy whatever can get through.

The way the government treats citizens in the USA I don't have a lot of faith in relying upon welfare or 'other options'.

I think in relative terms the US citizens will be hit the hardest only because the standard of living there is very high. However, in absolute terms many other countries will be far worse off due to large populations, less than developed infrastructure and export driven industries.

Doug, I happen to like Chris Martenson's work.

He states the truth that oil is really the true wealth in our economy.

If he happens to be correct about the world currently arriving at peak oil then the "Aftershock" will look like a picnic compared to a serious oil shock.

In time we can always fix the money problems since they are man made.

To find a cheap energy source that will replace oil? That's not going to happen over night.

Ironically the Aftershock will actually help us with the peak oil crisis since under those dire economic times oil demand will be very, very low yet expensive due to dollar debasement.

I Have a question. Since GOLD historically goes up and down with Crude Oil prices, how come Gold will continue to go up, while Crude Oil prices will drop, due to a slower world wide economy. Can you explain how this will work?. I am asking after reading your very good book & 39;Aftershock& 39;.

Great question, laroushka. Gold tends to follow energy prices, and often tracks other assets closely as well. What we're looking for is decoupling, by which we mean that gold's value will break with other assets and be driven by its status as a safe haven investment amidst crashing asset values and massive inflation. There's already some evidence of decoupling in gold prices, but it will take a little longer before it decouples entirely.

Are the big Gold ETF's really trustworthy in the long term?

Good question, Hugo. I wonder the same. Especially after reading this.

http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=22649:d-day-near-for-gld&catid=48:gold-commentary&Itemid=131

Holding gold ETFs in the short term is fine, but in the long term we definitely prefer investments backed 100% by physical gold (or, even better, holding gold yourself).

RE: Larry Anderson's post on November 24, 2011

In his 2004 book "Hot Commodities - How Anyone Can Invest Profitably In The World's Best Market", author and investor Jim Rogers examined those cycles. He found out that bull stock markets are followed by bull commodity markets and vice versa every 17-18 years or so. If he's right, we should be past the middle of a commodity bull cycle. So indeed the price of gold may be expected to increase for another 5 years.

gold is mentioned as a hedge against inflation and a devaluing dollar, and gold ETFs have been included, but what about the tax consequences? Will the rise in price offset the additional taxation gold receives being it's taxed as a collectible- a higher rate than that for capital gains on equities? for those who hold it less than one yr, it's taxed at their ordinary income rate. Seems like there's also something squirrelly about gold ETFs- because when the ETF itself sells physical gold or silver, any gains or losses are passed to the investor, who then faces the maximum 28 percent tax liability even if they didn't actually realize the gain.

I fear the gov't is going to eventually tax the piss out of us and gold will be hit even harder. Any ideas or solutions? I don't recall "Aftershock" covering taxation or tax sheltering.

Aftershock Team,

I get the impression that currently, the gold price is primarily tracking the temporary uptrends in the stock market and in all commodities, typically experienced after the Fed gives any indication of plans for additional QE or when news comes out of the EU that additional easing may be provided by the Central Bank to help mitigate the European debt crisis.

These seem to me to be more short-term upswings in Gold that have little to do with concerns about long-term inflation and are more short-term plays. As a result, I expect a temporary crash in gold which mimics the coming crash in the stock market, and that the big gains predicted in Aftershock will not occur until we begin to witness the confirmed reports of high inflation.

How can people be concerned about inflation when we're not seeing any out there?

- Chris

Chris, it's looking like we are seeing deflation or at least deleveraging which produce the same results.

This is the currency supply collapsing.

Deflation is the result of a bursting credit bubble and that is what we have had since 2007.

The inflation and dollar devaluation which is good for gold will be the result of central banks (especially the fed) doing more QE.

Also don't forget that next year is an election year, so Bernanke and the politicians will borrow, print and spend for certain.

Can someone steer me to reading material? Or perhaps one of you can give me a quick answer. Internet searches have not helped me. Here goes:

My understanding is that the volume of gold contracts that trade on the futures markets greatly exceeds the amount of physical gold there is in the entire world. Does the ETF GLD control a lot of this metal trading in gold futures? If so, is that not a concern that if a bunch of people want to take delivery, the futures markets will not be able to deliver and this would crash the futures markets? Would not this crash GLD?

Being closed-end funds, do you know if PHYS (a physical gold trust which claims to really have the gold) and CEF are not subject to this same problem/concern? I thought that CEF and PHYS auditing makes me more comfortable holding them than GLD, but I want to be sure. If GLD has the gold in some bank somewhere, what happens when the banks sell gold due to needs for cash with customers pulling out, especially in Europe.

Thanks.

There have been some very interesting comments and questions so far, and I would like to share my perspective the ups and downs of valuations.

Regarding the price of Gold (or oil, or the value of the dollar). Whether on Wall Street, or Main Street, or a rural road, Gold (and everything else including currency)is worth what two or more parties are willing exchange for it. It is always about perceived value, never about "real value". Anyone assigning a "real" or "practical" value is statement of their perception of of its value. Oil is not worth much to someone who doesn't know what he can do with it unless he can find someone willing to trade for it. The ups and downs in values are caused by the changing perceptions of value of one thing relative to other things.

Gold will go up and gold will go down. Understanding why is the key.

Jeffrey,
There are definitely tax considerations to take into account with gold, and gold may even be taxed more as we get to the worst of the Aftershock. However, we think this is worth it in the long term. After all, they'll be taxing it because that's where the wealth will be. Better to have investments that perform well and be taxed for it than to lose wealth and get a lighter tax bill.

In the case of PHYS, you're right that redemption of shares can have an adverse effect on the asset value, which is why the redemption procedure is designed to discourage redemption. This is a downside when trying to redeem shares (which is why one may prefer to sell shares and have them taxed as capital gains), but an upside when holding shares. Like any investment, there are positives and negatives. For now, we like PHYS and think it's worth the downsides. We'll let readers know if that changes.

Chris,
We can expect plenty of volatility in gold between now and when the dollar bubble bursts (still probably 2 to 4 years away). We've seen some rise in inflation, but you're right that it won't be until it gets to significant levels that gold will really take off.

Derek,
The fact that GLD is not 100% backed by physical gold is definitely a concern, and there could be issues with liquidity down the road which is why we consider it more of a short term option to be in the gold market.

We definitely prefer a fund that's backed entirely by physical gold, like PHYS. But even then, it's not risk free. Redemption terms are not ideal and it could be a problem redeeming shares when gold soars. For this reason, it's not a bad idea to hold a gold ETF now but plan to move to physical gold as we get closer to the dollar bubble burst (either through redemption or selling shares and buying directly from a coin dealer).

That being said, we like PHYS, and think it's worth the premium, as we've said elsewhere. Just be aware of the potential risks down the road.

Sorry if this was covered already, but what are your views on investing in dividend-paying gold mining stocks ?

For the Aftershock Team: when buying gold and premiums notwithstanding, does it matter if I buy gold coins versus bars? Ditto for silver.

Also, I buy metal monthly and I split it about 60/40 gold/silver. Would you split it differently?

Ted, just my 2 cents it probably doesn't matter whether it's bars or coins so long as it's .999 at least as far as gold is concerned.

One thing with silver however is that silver has many industrial uses which will fall in demand when the Aftershock hits, but in the long run it should do well as things improve and it may also shoot to the moon due to the fact that it's being used up and they aren't discovering much more.

In my opinion if you are holding .999 coins this may do well as the dollar collapses, but by law it cannot be used for industrial applications due to the fact that the government recognizes the coins as money (not Bernanke however LOL) and it cannot be melted down.

Aftershock Team,

The European debt crisis seems to be driving more investors into the dollar and putting a downword pressure on gold. This is contradictory to the events which your book predict, in which international investors will leave dollar-denominated assets and move into assets outside the U.S. How do you reconcile what is happening now with your long-term view?

-Chris

It is funny what people "know." Just in this comments section, some people know that gold will hit 5,000. Others know the gold bubble is already bursting, and somebody else knows it will burst in a few years. Somebody knows apocalypse is on the horizon and another knows that things will get tight, but society will remain intact. Somebody knows that gold is intrinsically worthless and oil is true wealth while another person knows that once the currency tanks, gold is the only place left.

Me? I don't know anything. So I buy some gold, and I buy some silver, and I buy some guns, and I buy some water and food for 6 months. I'll probably pass on oil. For now, anyway.

Gordon,
This was brought up on a different blog topic. Copying our response here:

"We bring up gold mining stocks on pages 207-09 in Aftershock 2nd Edition. In summary, there are potential advantages in gold mining stocks, especially in the long term, but there are some risks. Mining stocks may be hit by the stock market crash in the short term. Then there are issues with the particular companies: Are they purely in gold mining or do they get much of their revenue from other resources? Is the company well-managed and honest? Do the research and make sure you know what you're getting into."

Ted,
It might be a good idea to stick with forms of gold that are most easily traded, which usually means coins such as Canadian Maple Leafs, American Eagles and South African Krugerrands. Large bars tend to be a more difficult to trade, which could be a problem when you want to liquidate.

There is no right mix of gold and silver. Just keep in mind that silver will have a couple more years of volatility before it takes off as an investment metal.

Chris,
We won't see investors fleeing dollar-based securities until inflation starts to take off (i.e. CPI approaches double digits). We don't expect that to happen for another 2 to 4 years.

We readily admit that we can't predict—and don't try to predict—every short term movement in the economy, but we're not surprised by anything that's happening right now. Our forecast hasn't changed.

Harry Dent and the Aftershock book have similar views with regard to the upcoming depression. However Harry Dent see DEFLATION big time and Aftershock sees INFLATION. If Gold saw major corrections with the stock markets drops in 1930's and 2008, why would it be different this time? Harry Dent forecasted a gold/silver correction prior to September 2011 and so far, the recent events has showed he may be on to something. I own a bunch gold/silver and this has not been fun. No cheerleading please. What is the hole with his deflation projection?

Why am I the only retired female reading and commenting on this blog?
Aren't there any other women who do their own financial management?
I am considering entering the gold 'market' but don't have another 10 years to see if the gold bubble pops, and my descendents are not savvy about this.
I still have reservations although I pulled up the Monex site mentioned in the latest book and may have a chat with them.

Paul,
The first mistake that is often made is to equate shrinking asset values with deflation. It's true that shrinking asset values are often an effect of deflation (such as during the Great Depression), but the two phenomena are not inextricably linked.

Another mistake Dent and others make is to assume that in a crash, all the bankruptcies and balance sheet restructuring will cancel out any increases in the money supply, leading to deflation or at least minimizing inflation. The theory is that canceled debts "destroy" money, but a simple thought experiment gives the lie to this: If you lend me money and I spend it all, I may not be able to pay you back, but the money you lent me is still in circulation. It went wherever I spent it. The debt may be destroyed, but the money is not.

(cont.)

To Paul (cont.):

Dent also suggests that because many baby boomers are entering their retirement years, they will become more frugal with their dollars, which will make them more scarce and thus create deflation. There is something to this, but it's a stretch to think that some extra penny pinching in one demographic is going to counteract the huge increase in the money supply we've seen.

The bottom line is that inflation is about the money supply. An increased money supply = devalued currency = inflation. And we've seen the monetary base increase at an unprecedented rate, and can expect more.

All this bodes well for gold in the long term, regardless of any volatility between now and when inflation really takes off. There are many reasons why gold can take short term dips, but keep in mind it is still up significantly since a year ago. Silver has a good long-term projection too, but the volatility will last longer due its hybrid status.

Joan,
For the record, even if this thread may look like a boys club, we do have women commenting on other blog posts. (And, of course, one of the authors herself is a woman, so you're not alone.)

Unfortunately, "buy and hold" is a thing of the past. (It never was a sound strategy, but it takes a 2008 or a 1929 to get that message across.) We think gold is golden in the long-term, but even that won't last forever.

If you have a significant amount to invest and you'd rather not do too much of the legwork, you may want to look into a management firm. (And we'd be remiss if we didn't mention our partner, Absolute Investment Management, as a suggestion.)

So, if "increased money supply = devalued currency = inflation", does it stand to reason that the converse is true, I.e. "DECREASED money supply = valued currency = DEFLATION"? What are the causes for deflation such that those with views similar to Dent's get the inflation vs deflation argument incorrect?

Presumably it is the balance between supply and demand that determines currency value, and not just supply ?

If the US had a million dollars in circulation and a population of one million, then 20 years later had two million dollars in circulation and a population of 5 million, presumably the value of the dollar would have increased ?

Also, if the average cost of production for food and goods goes down in a free market and the supply and demand of the dollar remain constant, presumably the value of the dollar goes up ?

Scott and Gordon, you are both absolutely correct. When the economy grows and the money supply doesn't, deflation occurs. Another way deflation could occur is when banks would go bankrupt and all demand deposits with that institution would be lost — this isn't relevant today because demand deposits are guaranteed.

Dent's prediction of deflation, though, has to do with boomers saving for and during retirement, and the supposed destruction of money through balance sheet restructuring and bankruptcy. Again, the first phenomenon is greatly overstated in the face of massive money printing, and the second is simply incorrect.

One question I have for the Aftershock team stating above the dollar bubble could happen "2-4 years from now".

I noticed that in the Aftershock book/s and America's Bubble Economy unless I missed it there's no mention of the trillions of derivatives.

In other words if one or many European countries officially defaults this year and some major banks would be bankrupt as a result wouldn't that cause a credit event which would force the fed to print trillions to cover these bets just like AIG only bigger?

I'm beginning to think the CDS derivatives may cause the Aftershock much sooner then later.

Larry,
You definitely have the right idea here. Banks won't be able to depend on derivatives, and this will lead to money printing in order to keep them from shutting down (maybe not trillions of dollars, but hundreds of billions).

The reason we'd stand by our projections here is because this is an eventuality we've taken into account. We can't be too precise, but we still think roughly 2 to 4 years is a good bet.

One of the problems with reconciling inflation vs. deflation senarios is the definition of money. It's not sufficient to define what 'you' mean by it, but rather how it acts in the marketplace. Some deflationists include credit with your M0+. Since there is massive deleveraging, which will continue, even accelerate, the net effect is money contraction (=deflation). After all, you can buy the same things with credit that you can with cash.

At the very least, I'm conflicted, although invested in PM.

Since reading Aftershock I looked at acquiring gold and silver bullion into my IRA. I researched which IRA administrators provide that service as well as which precious metal depositories are highly recommended. Selecting a depository that is only a storage facility and is not connected with the IRA Administrator and also not affiliated with the mint that sells the metals provides a more secure approach than those who lost out with MF Global.

After reading many articles about China and India buying up large quantities of gold and silver, I have a concern that the US government, which doesn't appear to be buying, may some day decide to seize the depositories and all that is stored in them. That would be an easy way for the US to acquire gold and silver when the demand overwhelms the supply.

Does the Aftershock Team feel that seizing depositories is a realistic possibility?

I have been researching the government debt history and found that during the 1940s and 50s that the Debt: GDP actually reached 120%. Currently we are around 100% which is still high but not unprecedented. I suspect that the 120% was somehow related to the depression and war around that era. But I am wondering how they were able to get the ratio down so quickly. It was back down to around 50% in 1960. Was this reduction due more to paying down the debt quickly or was there massive growth in GDP? And is it possible for the US to bring down the ratio now as well? I realize this is more about the debt bubble than the dollar bubble but they are all connected so I wanted to see what the team's opinion was on this. Thanks!

Speaking of war, as Brett commented above, there is a lot of talk about war in the middle east that might grow and turn into World war III. If a large scale war would break out what would be the effect in today's bubble economy?

Bud,
We hope to get into the deleveraging issue in detail in our next book, which comes out later this year. But, as a brief summary, deleveraging will not offset a huge increase in the monetary base. Even when credit — not cash — is used to make purchases, sooner or later the money ends up in a deposit account, and unlike during the Great Depression, the government will not allow deposit accounts to be wiped out. (Depositors at one institution may suddenly find themselves customers of another institution, but their deposits will still exist.) Thus, deleveraging can slow the expansion of the money supply, but it can't counteract it.

Rick,
We discuss government seizure of gold on pages 208-210 of Aftershock 2nd Edition. We think it's unlikely.

Good question, Brett. We've been putting together an FAQ and this is one of the questions we address. Abbreviated answer below:

Yes, the US's debt situation after World War II was on a similar level as ours today. However, there are three major advantages the country had at that time: 1) There was huge pent-up demand after 15 years of depression and war, 2) the post-war period was one of great economic growth and increased productivity, and 3) the economy was not resting on a whole series of bubbles.

If the only problem the US had today was a debt crisis, we wouldn't be in such bad shape. But with deflating stock and real estate bubbles and a dollar bubble ready to burst, it's much more complicated. And with a stalling economy, deficit reduction is nearly impossible. Conversely, after World War II, with the economy growing and consumers spending, there was no need for deficit spending to boost the economy (and payments on war bonds were going into American pockets anyway).

Ron,
While World War III might be a stretch, even a conflict with Iran would likely have a major effect on the economy, raising the price of oil and possibly hurting the markets substantially.

Aftershock Team,

What of Frday's announcement of the drop in unemployment to 8.3%

Isn't this going to push people out of the gold market and into stocks, if the unemployment numbers are indicating that the economy is improving?

Aftershock predicts double digit unemployment figures, but the numer has decreased in December and January.

Chris, In my opinion and probably the facts, the UE numbers coming from the BLS are BS.

They are pretty much not counting the folks in tent cities and pretty much anyone not participating in a job search.

This gives an illusion that the unemployment rate is declining. I measure the U6 numbers which include discouraged workers or those flipping burgers but want to work full time in a better paying job.

Gold will probably tank for a while due to investors dumping European assets and buying American bonds plus the suckers that think yesterday's numbers are real.

Eventually they will see what some of us see that it's all lies and they will jump ship and dump their dollar denominated assets.

Sadly there is NO recovery. Just lies.

Chris,
While Larry is right that unemployment figures can be misleading, the more important issue is that, for the next 2 to 4 years, we will likely see plenty of upswings and downswings in the economy. It's only when inflation rises to significant levels and interest rates follow that we'll be on the verge of the Aftershock. Until then, we might see improvements in the jobs market, rising stock prices, and claims of a recovery. But reinflating the bubbles will not stop them from bursting eventually.

Does the Aftershock Team agree that we can look at what is happening to Greece right now, to see a miniature version of the coming Aftershock?

If they leave the Euro, it's very clear that they will devalue their currency to make their debt payments, and they're already experiencing the massive unemployment and tax increases as a result of their debt situation. It seems to me that what is happening to Greece now, mimics the scenario detailed by Aftershock, very closely.

The only difference with Greece seems to be that their economy is small enough to allow for the possibility for them to be bailed out by Germany and other European countries, which lessens the impact of their situation on the overall global economy. Would you agree with this, in some respects?

I know this blog is not about short-term gold price movements, but I have an observation related to a lot of bullish short-term sentiment:

I just see gold as being in a down trend since its ~1900 early September high. Since then, charts to me look like lower highs and lower lows. I am not a charts expert, but that is what it looks like to me. Unless gold can break out of this, it seems to me gold will flounder.

Gold stocks seem to be trailing well behind the price of gold, although now in 2012 that seems to so far be improving. But my GDX and GDXJ are sure down a lot percentage wise - fortunately I did not throw a lot of money into those. Hopefully these will soon stop getting dragged down when the stock markets have a bad day.

Just some thoughts - thanks

Even though i hate debts, dosent anyone realize that part of our debt problem is that no money is EVER created to cover interest costs. Because of that, there will never be enough money to pay off all debts. Its just a big ponzi scheme!! Wayne

To the AS team: I retired several years ago and do not owe much debt. in addition to buying gold do you recommend stocking up on foodstuffs? what will life look like after the aftershock? will we be having riots and folks running amuck in the streets or will it be a lot like the depression my parents went through? what would the monitary exchange be...barter system?how long til recovery? Thanks larry

Chris,
Greece's problems are definitely similar, and are part of the big picture, but it's more limited than what we can expect in the Aftershock. The major trigger will be inflation of the dollar, which will raise interest rates and send foreign investors out of US assets. The effect will be global and more comprehensive than what we're seeing in Greece at the moment. (Though you're right: the ability to be bailed out is a key difference.)

Derek,
We view gold as a long-term investment, and expect plenty of volatility in the next couple years. Keep in mind that — aside from some indicators of manipulation — the recent downswing took place during a liquidity crisis in Europe, and was pretty small compared to the downswing during the 2008 crisis. Nonetheless, if you had bought gold in 2008, the returns since then would have been pretty impressive.

We're not particularly alarmed by short-term downswings in gold price. But tolerance for short-term volatility is a major factor for an investor in determining allocation.

Larry,
There will still be plenty of real wealth in the US post-Aftershock. It will be difficult, but life will go on. For more on life after the Aftershock, you can download our bonus chapter on the book's Amazon page:

http://www.amazon.com/Aftershock-Protect-Yourself-Financial-Meltdown/dp/0470918144/ref=sr_1_1?ie=UTF8&qid=1320436153&sr=8-1

Aftershock Team,

Love the book. I was hoping for more clarification from you in the book about TIPS. In retirement accounts, we don't have many ways to invest in precious metals directly and like you said precious metal mutual funds will go down with the overall market. Since options are limited what do you think of TIPS funds? A good way to hedge?

Steve,
We like TIPS for now, and they will do well in an inflationary environment. There is still some credit risk in the long term, and we'd be careful about allocating too much in them. They should be fine for the next couple years or so, but we'll repeat our mantra: active management is a must.

Aftershock team,

Thanks for the follow up to my original question posted on Feb 20th above. One follow up question for you....

So with these retirement accounts with limited options (basically equity mutual funds or bond funds) where buying an ETF like GLD is not an option it seems to me we are sitting ducks??

Equities funds will under perform if not get crushed in the coming crash. A money market will lose it's value to money heaven via inflation. Which leaves us with just bonds as our only option. Any bond fund types we should consider other than TIPS?

Or are we basically out of luck unless we want to cash out, take the penalty and go with better alternatives.

I'm hoping in general terms we have some way to protect ourselves in these restricted accounts which most of us have a majority of our wealth in.

Thanks again for your site, your book and your follow ups. Love this place!

Steve

AT,

I think most who would read your book would pray that you are wrong in your outlook for the future of the global economy. While the evidence you present is very compelling I try to play devil’s advocate in my own mind and think of a scenario where the US and global economies can be bailed out of this mess through economic revolution.The only thing that I can think of remotely in that realm is the new technology and discoveries in the US shales being explored across America.

(contind.)

Combine this with the breakthroughs in "fraking" technology and the multiplier effect of such massive energy production in the US, is it possible that the Aftershock scenario you predict in the book can be avoided or at least lessened by this potential energy revolution? Or is it a drop in the bucket at this point? Admittedly, I don& 39;t know too much about the energy developments other than what is being touted by the proponents about it being America& 39;s savior. But since you have a position that seems to be counter to the thought that the US can be fixed without bubbles bursting, I thought you might have a better understanding of the current potential energy boom and how it relates to the bubble economies that we are in. Thanks for your 2 cents.

Brett

Thanks for your book. I have made significant moves over the last year into gold funds and out of the mutual fund market because I think you are correct. I have two questions. Why will GLD and IAU funds go down? I thought they would function as sort of an inverse mutual fund. I am not a stock market player and have used the set it and forget it strategy. Are GLD and IAU really only short term strategies and not much help in the Aftershock? Question 2. China has increased it's gold reserves a lot over the past year. I assume they are preparing or at least hedging their bets that the US will not actually be able to pay this debt or that we'll try to pay it with deflated money (money printing). Any thoughts on how much gold they would need to aquire before they decide that buying American debt just isn't worth it anymore? I look forward to your new book when is it coming out?

Steve,

I am in the process of transferring a portion of one of my Traditional IRAs into a new Precious Metals IRA. You don't need to cash out an existing one as you can transfer part or all of it if you choose.

Be sure to do your research on Precious Metal Depositories and the IRA Administrators so you know what to look for and then can choose ones that are reputable. You can then pick the mint that you want to purchase the gold or silver from and direct the administrator to purchase it with your transferred IRA funds and direct it to be shipped to the depository you have chosen. You will then have real metal to sell when the time is right or take possession of if you choose to cash out and pay the taxes.

hi. great book. nice to see soemone can see the big picture as it is.

i wanted some guidance on what you think would be the impact in india as the book does not mention this in detail.
i presume the Information technology outsourcing might just take a hit?

also gold prices in India as well as interest rates an inflation in india wouldgo up as well. what is your take. please .

Dear After Shock Team,

Are you willing to speculate about how probable or improbable it is that when the Dollar/Debt Bubbles crises get serious The U.S.Government (regardless of which party is or is not in a controlling position) will take measures regarding gold like was done under FDR in the 1930s?

Brett,
The problem is that fracking technology has actually been around for a while, and most of the talk about it seems to amount to little more than cheerleading. There are certainly changes in productivity that could (and will) help pull us out of this mess, but there's no political incentive for them right now. The silver lining of the Aftershock is that it will provide that incentive.

Eric,
GLD and IAU track gold, and thus we expect them to do very well in the long term. The issue is that some investors worry about the liquidity of ETFs when gold is in very high demand and short supply. We don't see this as a problem at the moment, but will let readers know if that changes. (This is why we always say active management is important: buy and hold is increasingly a thing of the past.)

China buys US debt to prop up the dollar, which its economy is highly dependent on. Of course, the dollar is looking more and more like a bad bet, so hedging makes sense. When do they give up on the dollar? It could happen at any time, but it's a very big psychological leap to make for them.

Shiv,
A crashing US dollar and slowing global economy will greatly reduce demand for exports, which will hurt an export-driven economy like India. Information technology outsourcing will certainly take a hit for a long time, but should recover and ultimately do well in the long term. So India certainly won't avoid the Aftershock but will do better than a lot of other economies around the world.

Gold prices will go up everywhere as a safe haven investment, while interest rates in India will likely go up due to its own money printing to weather the storm.

Paul,
The government will almost certainly take some measures regarding gold, but we don't expect confiscation or anything like we saw during the Depression. We go into this in more detail in Aftershock 2nd Edition on pages 209-210.

In my opinion they will only confiscate gold if we (private citizens)use gold to buy things.

In the 30's there wasn't enough gold to go around so it was exchanged for the federal reserve notes (used toilet paper) that we have been using since.

These days they won't take gold since they know no one will give it to them.

They will however raise taxes on gold investors through the roof. :(

Greece has experienced a technical default and the issuers of credit-default swaps on Greek sovereign debt are on the hook for billions. Portugal and Spain appear to be next in line to go throug this same process. Fiscally strong members of the EU like Germany and the Netherlands appear reaady to exit the Euro. Is there any other way to prevent a massive destabilization of the credit markets when these default swaps are triggered than to print massive amounts of money to shore up the banks who hold these swaps? This EU debt crisis seems like it should ignite some significant inflation, should it not?

When it comes to inflation, I don't hear much talk about the decreased quality of goods as a real measure of inflation, although it would make sense to me. A close friend of mine, who is in her 90's recently pointed out to me that she has a 50-year old refrigerator in her basement that still runs great after decades of use. Her more modern refrigerator, a few years old, recently required a repair. The cost of the fix was so high that the service technician suggested she buy a whole new refrigerator. Isn't the fact that high-dollar items like refrigerators, washer/dryers, and flatscreens don't last very long and require expensive repairs another way that inflation erodes the value of our money? If so, I'm surprised more effort isn't made to work this metric into the inflation discussion.

Any thoughts as to if Fed will overtly print money again? Unless they do, gold and silver have gone as far as they can go. Seems to me that with good economic news (some of it phony, albeit), Fed will not print more. They implied as much today, and gold tanked again. Really think many experts are missing this fact and the fact that gold is in a downtrend since the 1900 high in Sept. How low will it go - will the 1520 late Dec hold? Getting killed with my gold stocks investments. Wish I had listened to my own beliefs. Any different perspective on if Fed will overtly print again is greatly appreciated.

Is there a safe way to get gold out of the country-----and a safe, affordable place to take it to?
Thanks.

In the book, you frequently talk about money essentially dying and going to "money heaven." And after the most recent financial crisis a lot of money went to money heaven. Wouldn't that mean that the money creation done by the Fed since then is not going to be terribly inflationary as it can be considered replacing the money that went to money heaven. In other words, after a lot of money and wealth is destroyed by the recession, can't the economy readily absorb the money printing?

Ilene,
What you could do is take a trip to Hong Kong or Singapore and buy the metals over there by having your funds wired over from the states. The premiums on metals in HK are supposed to be much less than in the states, so you would save there, maybe even enough to cover the trip. But then you have to find a storage facility over there that you feel comfortable with. I cannot really help you with that. But personally I would prefer Singapore over HK.

Thanks for your reply, Julian.

Chris,
Money printing is by far the most politically acceptable way to deal with debt crises, and it's what we're seeing in Europe now. This will certainly cause inflation, and we're likely to see inflation more or less across the board as we get closer to the crash. The big difference between the US and everywhere else is the huge capital outflow that will follow and the devastating effect that will have.

Regarding inflation, the value of goods is something that's taken into account when measuring inflation. It's generally referred to as hedonic quality adjustment, though it usually refers more to increase rather than decrease in quality.

Derek,
Gold is not tied so much to money printing as to the inflation that follows. In the short term, quantitative easing is good for the stock market and bad for gold. It's only when inflation catches up that people turn to gold as a safe haven.

There's always a lag between money printing and inflation, and it's likely to be much longer than usual in this case for various reasons. So regardless of whether we see any more quantitative easing, we predict inflation to come and gold to rise.

That being said, there's every reason to believe that the Fed is not nearly finished with money printing. When the economy fails to get going under its own steam, and interest rates begin to rise, the Fed will have little choice but to open the spigot to keep everything afloat.

To Derek (cont.),
In the meantime, there will be some volatility in gold. The recent dips aren't even the biggest we've seen in recent history (see late 2008), and it continues to be up every year. Even without everything we say is going to happen, it would still likely be a pretty sound investment.

For those who are doubtful, or who have little tolerance for volatility, maintaining a small percentage in gold and increasing gradually over the next few years as the picture becomes clearer is perfectly fine. Doing so also minimizes the effects of volatility, as the highs and lows balance out over time.

Brett,
Money heaven is not really related to inflation, because it's not about money actually being destroyed.

Say you have a stock portfolio that's worth $10,000, and the next day it's only worth $1,000. Theoretically, you lost $9,000, but that's not actually what happened. You had an ownership stake in a company (or various companies) that you could have traded for more yesterday than you can today. But you didn't actually lose anything. What you have is just worth less than it used to be. Whatever money you paid for the stocks in the first place is still in circulation somewhere.

To Brett (cont.),
As another example, you might have $10,000 worth of bonds from a particular company. If that company goes bankrupt and can't pay its debt, the effect to you is that you lost $10,000, but again, that's not what actually happened. You have certificates that are worth less today than they were yesterday. The money you paid for the bonds is still in circulation: it went wherever the company spent it. They just can't pay it back to you.

So you see, asset values may go down, but the money supply doesn't. Money isn't actually destroyed by bankruptcies and write-offs. And money heaven really only refers to money that was never really there in the first place. But the money being pumped into the economy is real, and makes the money supply grow. When the money supply grows faster than the economy, it will always cause inflation.

To the Aftershock team:

"Money isn't actually destroyed by bankruptcies and write-offs"

Are you sure about this statement? I respectfully disagree only because ours and the world's currency is currently all derived from debt.

ALL money (or currency is it's real name) is loaned into existence.

First the fed loans the treasury currency, then the treasury parks it in the banking system which through fractional reserve banking expands the money supply by making loans to consumers and business.

Once there's a default, bankruptcy, foreclosure, write down etc., one would think the money has been destroyed.

I do however understand what you are saying with "money heaven". Money heaven is simply far less demand for an asset today vs. yesterday.

I also agree when it all hits the fan the demand will go mostly to gold, probably silver and leave traditional assets such as real estate, stocks & bonds.

Loved the book!

We are looking into transferring our current Roth IRA into a precious metals Roth IRA with a qualified administrator. If the government is far more likely to raise taxes on gold rather than confiscate it, isn't a Roth a safe alternative since gold is purchased with income earned at today's tax rate while distributions at retirement are not taxed at all? You don't mention holding gold in IRA's in the book, so I don't know if I'm missing something. Naturally, it would be good to have gold as a hedge against inflation while also being a hedge against a major tax increase.

Larry,
It's true that money is loaned into existence, bt once it ends up in a deposit account, a bankruptcy or write-off will not destroy it. If I lend you $100 and you use it to buy books, you may not ever get $100 to pay me back. But the $100 I lent you is still in circulation. It went into the deposit account of the seller who sold you the books, and then wherever the seller spent it and so on. The status of your debt has nothing to do with the status of the money. The same would be true even if I were a bank who loaned you the money.

Thanks for the compliment, Cheri. You're right, gold IRAs look like a pretty solid option. The only caveat is that it's difficult to predict changes to tax laws down the road. But in any event it probably wouldn't be any worse than holding gold in any other way. It's a good point that we haven't addressed this. We plan on discussing it in our next book due out this summer. Thanks.

Just finished reading the epilogue to this thought provoking book, and had a very painful thought. It made me consider selling my beautiful Mercedes I bought as a treat to myself. I'm thinking the 17mpg city it gets will be prohibitively expensive for me when gas goes to $10 or more per gallon. Painful, because I love it so, but I need money to buy gold. I've been watching inflation for the past few years in the form of soap bars being reconfigured in shape, resulting in smaller amounts of actual soap for the same price, etc. The same day I received my Aftershock copy one of the news headlines read: "Fed plans on easing money supply again." That was on 3-29-12. I need to hit the lotto or buy gold. Rich

I am an unsophisticated novice investor with extremely modest means, and I am sort of retired, because I just began receiving my Social Security benefits, but am also self employed. I found PNG in my search On-Line as supposedly a reference for finding reputable rare coins dealers. Is that sufficient protection in qualifying a dealer for me to buy gold from without getting ripped-off?
Thank you for your excellent book. Rich

You might try Ganiesville Coins online.
Excellent outfit. They are as cheap (low premium) as I have found and deliver pretty quickly (not a given in the industry). You will have to make a bank wire the day you order.

Hi Rich,
We don't know enough about PNG to recommend it (or against it). But checking out a company with the Better Business Bureau is always a good idea, as well as sticking to the most recognizable gold bullion coins (American Eagles, South African Krugerrands, Canadian Maple Leafs, etc.).

I checked with the Better Business Bureau and found this rare coin dealer isn't a member. I spoke with this rare coin dealer advising her that my motivation for buying gold coins isn't for the collector's value, but purely for the hedge against inflation they provide. The dealer is pushing the $20 gold coin over the American Eagle. She told me the $20 gold piece is .965 gold compared to .999 for the American Eagle, but that the $20 gold piece commands a premium collector's value over the American Eagle.

What is your opinion regarding investing in $20 gold pieces as opposed to buying American Eagles, and why? I wish I wasn't so ignorant about this subject.

Aftershock Team question: I'm an NRA Life member and my monthly magazine has an advertisement on the back cover promoting a Better Business Bureau accredited business since 1995 called Universal Coin & Bullion in Texas, being referred to as the "Official Bullion & Rare Coin Dealer of the NRA." A tout not to be taken lightly. The ad shows the "JUST RELEASED 2012 $50 American Buffalo Gold Coin." This "Buffalo" is 1 full oz. of investment-grade 24K .9999 fine gold bullion modeled on the famous 1913 Type Buffalo Nickel. This is supposedly, "The first ever pure gold, legal tender series in U.S. history." This is an exclusive NRA member introductory offer.

How would this investment compare to the PNG Dealer (not BBB accredited) that is pushing the old $20 gold piece on me that I wrote about earlier or purchasing an American Eagle gold coin as you have recommended?

Thanks, Rich

To answer Ilene's question about buying/storing gold/silver offshore, there are a number of places overseas where you can buy/store gold and silver. That said, I highly recommend researching and learning about these different companies and the different types of storage options. You might also want to review the underlying concerns leading to your desire to keep PM offshore, for emergency purposes, tax purposes, etc. It is my understanding that you must report all off shore account holdings to the IRS, but I am pursuing tax advice to see about setting up trusts, LLC's, etc., to make sure I gain maximum tax advantage within the current law.

I heard on the news that India has paid for Iranian oil with gold and that China and Russia might pay for oil using gold or local currency. This is expected to raise the value of gold and devalue the dollar. What is your view on this?
This is the link:
http://www.goldyinternational.com/videos/india-pays-for-oil-with-gold/

Regarding countries sidestepping the dollar in trade with each other, you might be interested in James Rickard's perspective on currency use between countries.

http://www.currencywarsbook.com/

I'm halfway through the book, and am understanding more about how the global currency system works and/or can be used to promote national interests. Rickards also just submitted testimony before congress on the topic of retirees and current Federal Reserve policy...

http://www.currencywarsbook.com/2012/03/rickards-testimony-before-senate-banking-committees-subcommittee-on-economic-policy/

Also very interesting, and congruent with what the Aftershock Team has been describing about our current situation and predicting about future scenarios.

I am wondering about self directed gold IRA& 39;s I would much rather have possession of it but don& 39;t have that available to me now at age 50. I know uncle Sam took it under Roosevelt. Am I better leaving it diversified in my 401K or now that I am switching companies should I direct 10% of that into a Gold IRA?

Dear Aftershock Team,

I found in the CIA's World Fact Book that as of 12/31/2011:
China has the world's largest gold reserve at $3.236 Trillion, and the USA is at #19 with only $ 132 Billion. Does this make the "Yuan" a decent place to park resources?

I am not a coin collector and only want to purchase the most pure gold possible as a hedge against possible inflation. I explained this to two gold dealers so far, but both still tried to 'push' the $20 "Liberty" gold coin with .9965 gold on me because they say it will sell at a premium to the American Eagle or even the new $50 "Buffalo" gold coin that has a .9999 24K rating. I want gold whose value isn't dependent on a collector's desiring it. I just want the purest gold coin available that would be valued by everyone. Am I way off base in my thinking? I'm asking, because I want feedback from unbiased people who don't stand to profit from me purchasing a $20 Liberty and who are knowledgeable. Thanks.

Good question rich. I often wonder the same thing. I looked into buying some gold coins of the same purity and could not get an answer as to why there is a price difference between the eagle, krugerrand and panda. Like you I just want something to hedge against the dollar. I don't care about coin collector demand or jewelry design.

Brad,
The difference in price between a 1 oz. American Eagle and a 1 oz. Kruggerand is miniscule (Kruggerands are a bit cheaper.). Chinese Pandas oftentimes have some collectible value and so may be more expensive than both aforementioned coins. But if you just want to hold gold, my choice would be the American Eagle. It is very recognizable, yet has a low premium over spot gold. The name of the game is to buy as many ounces as you can, so why pay a collectibles premium if can use that extra premium to buy more gold?

I just buy Perth mint 1oz gold bars. Available at most coin shops. Cheapest way to own physical gold.

Aftershock team- Great book, a real eye opener for me. Question about future inflation; I sometimes quote work out for longer than a 2-4 year range, currently I assume 5% inflation per year in the price, should I be using a higher number? If so what would you suggest? Thank you!

Aftershock team......why has the the price of gold been down(1650+or-) any thoughts?? Larry

Rich,
As you said, the value of gold bullion (to us, anyway) isn't its collector's value, so a collector's premium isn't going to mean much in the long term. In fact, collector's items in general will lose much of their value in a downturn. We prefer to stick with the most recognizable (and therefore most tradable) gold bullion. This would include 1 oz. American Buffalo coins, as well as American Eagles, Canadian Maple Leafs, etc.

Ron,
We don't see this making much of a difference in the short term. The real problem is when inflation rises and interest rates along with it.

Randy,
We can't offer specific investment advice in this forum. There are advantages to self-directed IRAs (as long as active management is employed), but there are also factors that can make holding on to a 401(k) worth it for the time being, like employer matching contributions, higher contribution limits, etc. The choice varies from individual to individual. You may be interested in our services listed at the top of the page for more personal assistance.

Paul,
The yuan is heavily manipulated and not our favorite place for foreign currency investment. A small portion of a portfolio in currencies such as the Swedish or Norwegian krone, the Canadian dollar, or Swiss franc can be a good hedge against a crashing dollar, but keep in mind that these currencies may all suffer some inflation in their own right.

Alison,
Thanks! Currently CPI is around 3 percent. We think it could get close to 10 percent in the next few years. But of course it depends on what your clients are willing to accept. The current market environment isn't necessarily conducive to big price/wage increases.

Larry,
Gold is a long-term investment and can be very difficult to time, so we don't necessarily worry about short-term price dips. That being said, there have been signs of price manipulation, particularly on the last day of February when a huge sell order sent the price dropping precipitously after it had been gaining over the previous couple months. Price manipulation can work in the short term to slow gold's rise, but it can't change the fundamentals in the long term.

Aftershock Team, thanks for your feedback on the question I asked about purchasing just plain pure gold as opposed to collectable gold, and your book. Will you please advise me when your next book becomes available? I'm going to jump into the scary gold market with my limited funds.

Aftershock Team, I've been keeping up with financial news much more than I ever have before, and noticed a lot of regional Fed Chairmen saying there will be no more "easing." If in fact they keep their word and there is not a QE3 how will that effect the forecast made in your book "Aftershock" of a further meltdown with the commensurate rise in interest rates, and therefore gold?

The reason I asked the above question is because I noticed the spot price of gold this morning was $1602.00 and I finally plunged into the 'gold market' buying two 1oz. gold coins at $1635.00 not including the associated purchasing fees tacked on top of the spot price. Given the recent European election outcomes I would have anticipated gold going up?!?

Rich: Don& 39;t make yourself crazy by putting expectations on the day to day fluctuations of gold or silver. Sometimes it moves like you think it will and other times it does the opposite or nothing at all. Coupling, decoupling, who knows? You have to decide for yourself if you believe, fundamentally, that the value of the dollar will go down as interest rates go up and more money is printed. Put your point of view 5+ years down the road, buy some precious metal, and watch as the inevitable occurs. Think of those coins as little acorns, that with time and our continued bassackward monetary policy, will grow and grow, because, realistically, what else can happen? France and Greece want more magic money to appear at no cost and do you really think the USA is doing anything significant to ward off the pending destruction of the dollar? Nobody wants this to happen, so the government is trying to put it off as long as possible, but show me somebody who has a handle on things and sees a different future.

Ted: Thanks for the reminder to take the long view. As for someone who has a handle on this I saw Tom Coburn, M.D. a U.S. Senator (R) from Oklahoma tonight on the News Hour. He's written a book titled "The Debt Bomb" that discusses all the problems we're headed towards. One of the many recommendations he makes is to eliminate career politicians by mandating term limits. He has chosen not to run again himself to enact a self imposed term limit. On another thought, I notice all the Fed Chiefs in the news saying, "no more stimulative funding of the economy due to inflation fears," and wonder if that means there will be no future inflation that the Aftershock Team is predicting or has too much money been printed already, making inflation inevitable?

@Rich. as Ted said, quit worrying about short term fluctuations, unless you're day trading, which if that's the case, then fluctuations is what you want.
Term limits for legislators will only help minimally. This is evident w/ all the freshmen in Congress who have already been corrupted and now seeking their own interests. My solution is to outlaw special interests groups and lobbyists from being able to set foot in the Capitol. I know this isn't a cure all, but maybe w/ term limits, it'll help get more statesmen elected and less politicians. We know more people like Gov. Fallin of Okla., not the clowns we now have. Also, America needs to have way more citizens of voting age to care and be proactive in ensuring our representatives are doing just that- representing us! Now, back to our regularly scheduled programming.

That should have been "We need more people like Gov. Fallin of Okla...."

Aftershock Team,

I recently read the Aftershock book, and found it extremely interesting and persuasive. But I live in the UK, and our economy is not really discussed in it.

I am wondering whether it makes sense for UK investors to sell GBP denominated assets to buy gold bullion.

The UK QE programme has only been GBP 325 billion, which as far as I know represents a much smaller percentage increase in money supply than the US QE programme. That being the case, it seems the UK should suffer much less than the US from inflation and currency devaluation over the next few years (I would be interested to hear your views on that).

If the GBP is not going to suffer much inflation, that suggests that gold bullion may be less good as an investment for UK investors compared to US investors. Or do you think that the gold bullion price will increase dramatically against all currencies?

Rich, I have noticed that gold climbs mostly when the dollar tanks. Right now European investors are buying some dollar denominated assets such as bonds because they are afraid of the Euro imploding.

It took me a while to get it, but after reading Aftershock 1 and 2 editions I have a very clear picture with my "dollar bubble glasses" on.

America's bubble economy and other good books go into detail too on how our currency is a huge bubble that will burst sooner or later and you will be thankful for your gold purchases today and any future purchases you make.

Most of the world's debts and currency are held internally. The US's debts and currencies are held widely outside of US borders.

This won't last once they see our recovery is not a recovery and our debts make Greece look like a picnic.

All the best!

Thanks Larry,
Your statement, "our debts make Greece look like a picnic" almost exactly echos what James Baker, III said on the Charlie Rose PBS TV program a few months ago. Baker was Ronald Reagan's Chief of Staff and then served as past Secretary of the Treasury in the mid to late 80's and then Secretary of State into the early 90's under the first Bush. Baker is a man whose thoughts I respect, and I appreciate your feedback too Larry. Thanks, Rich