Young's World Money Forecast

Since 1978 With a 32 Year Vacation

Archives for August 2024

What the Iran Situation Means for Gold

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UPDATE 8.22.24: Tensions are once again high in the Middle East, with a war between Israel and Hamas underway and the prospect of Iran and its allies taking a more active role against Israel. Iran has promised strikes against Israel in retaliation for Israel’s killing of Ismail Haniyeh, a top Hamas official, on Iranian soil. Rather than strike back right away, Iranian leaders suggest strikes will come at a time of their choosing. With the Middle East ready to boil over and many other parts of the globe in turmoil, is it any wonder gold is hitting all-time highs? Take a look at my chart below.

Geopolitical fear is only one component of gold’s rise. As you can see in the chart below, inflation is also playing a role. Despite gold reaching new highs in nominal terms, in real terms, gold’s price is elevated, but nowhere near its all-time highs of the 1980s.

Originally posted on January 9, 2020.

Since the end of 2019, gold prices have been on a breakout trajectory. Now, in response to rising tensions with Iran, things are getting very interesting.

The news that the United States had bombed Iranian Major General Qassem Soleimani increased the perception of risk in the Middle East and drove the price of gold even higher.

I have always suggested to investors that they maintain a gold component in their portfolios, not as a road to riches but as an insurance policy against inflation, disaster, and war. Typically, when every other asset’s price is falling, gold’s is rising.

Here’s how I explained it back in 1986:

Throughout history gold has been the money of last resort. Every central bank in the industrialized world holds gold as an international reserve asset. Countries like Switzerland maintain a high percentage of gold holdings in relation to total money supply.

What is the proper course to take in building a gold cornerstone for investment portfolios? Most individuals look to bullion coins, mining shares, and gold certificates from major banks. I like certificates when an individual has no interest whatsoever in gold and invests in gold strictly as a portfolio tool. Certificates also have appeal for institutional investors. Gold mining shares should not be used as a gold proxy for cornerstone positions.

Gold share mutual funds should be considered in the stock fund section of one’s portfolio, but not in the gold cornerstone section. Shares are subject to political and natural disruptions that invalidate their inclusion as gold cornerstone investments.

Since I wrote those words, a lot has changed in the way Americans can invest in gold. The creation of gold-backed ETFs was probably the most significant development. To learn more about how to invest in gold today, click here.

If you would like to understand how my family-run investment counsel firm uses precious metals to craft counterbalanced portfolios, sign up for Richard C. Young & Co., Ltd’s monthly client letter. The letter is free, even for non-clients. You don’t want to miss it.

The Reason the Fed Keeps Interest Rates Low

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On July 15, 2024, Chair Powell participated in a discussion at the Economic Club of Washington, D.C.

At the Ron Paul Institute for Peace and Prosperity, former congressman and presidential candidate Dr. Ron Paul explains that the “desire to monetize the federal debt is one reason, if not the main reason, why the central bank keeps interest rates low.” He writes:

Politicians favor an “easy money” policy because it creates an (illusionary) economic boom. The Fed-created boom helps the politicians remain in office. A reason politicians favor low interest rates is they facilitate government spending and debt, thus enabling politicians to aid powerful special interests via government spending. The desire to monetize the federal debt is one reason, if not the main reason, why the central bank keeps interest rates low.

The policy of perpetually low interest rates favored by politicians will hasten the inevitable collapse of the fiat money system.

He concludes:

Since Congress created the Fed in 1913, the US dollar has lost over 97 percent of its purchasing power. This proves Donald Trump is right about the need for drastic changes in monetary policy. However, he is wrong to think that he, or any politician, bureaucrat, or businessperson, is capable of knowing the “correct” interest rate. Instead of giving politicians greater ability to influence the Federal Reserve, the next president should work with Congress to pass legislation legalizing competing currencies, forbidding the Fed from purchasing federal debt, and auditing and ending the Federal Reserve.

You can see what Paul is referring to in the charts below. The first is the total marketable and non-marketable public debt of the United States.

The second chart is a visual of the plight of the American dollar since the creation of the Federal Reserve. As Paul said, you can see that the dollar has lost around 97% of its value. That calculation uses the generous, government-massaged inflation numbers of the CPI.

Read more from Paul here.

Richard C. Young & Co., Ltd.

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Disclaimer:

The information contained here is for informational and educational purposes only. It is not intended nor should it be considered investment advice or a recommendation of securities. Past performance is not a guarantee of future results. It is possible to lose money by investing. You should carefully consider your investment objectives and risk tolerance before investing.