Seven Anchors for Gold

There are seven good reasons to own and buy gold now.  Byron King, Agora Financial provides a good insight with his article of 4/27/18 “The Seven Pillars of Gold; The Golden Dam is About to Break”.  I agree with him and will cover his points

One can view anchors as means for holding a ship in place.  Alternatively, if the anchor is pulled up, the ship will move. I believe that some of these anchors are now moving.

Anchor 1 – Oil Prices are Rising – about four years ago, Jim Rickard revealed that the sheets of Saudi Arabia and decided to keep the price of gold between $40 and $70 for their care feature.  The rationale was simply to bankrupt the American& drillers. They felt that the cost of a barrel of oil is costing them about $40-$70.  Therefore, a price in that range should drive many of them to bankruptcy…   It did, but a few survived and learned how to make money at $40 per barrel.   I believe the Saudis are now putting constraints of their oil, which will bring the oil to about $100 a barrel.   This will mean higher energy costs for manufacturers and higher costs for merchandise, which in turn will cause inflation.

Anchor two – interest rates are rising – the Federal Reserve has an interest rate target of about 4%.   They need this much interest rate so they can politically drop the rate by two or 3% when the economy goes into a deep recession. In that, way they become heroes by dropping the interest rates to save the economy.   They are not there yet.  Accordingly, I expect them to follow through with their 2 to 3 more interest rate increases this year.   As interest rates go up gold will go up.

Anchor 3 – Petro-Juan China wants oil producers to take Juan for Oil whereas the world standard is to take dollars for oil.  Richard Nixon who convinced the Saudis to trade only in dollars established this world standard in 1973. In return, the United States would provide protection for the Saudi government and the Saudi sheiks.   This process created a world market for dollars that was called the Petro-dollar.   It has allowed the United States to work with a virtual unlimited checkbook creating dollars because they will always be in demand.   China wants to reverse this.   They have set up a Petro Juan trade, which is interesting.  First, the yuan is backed to hundred percent by gold.   The oil trade is made in Yuan and then the seller or the oil can use the Yuan’s to convert into gold bullion.  China has set up exchanges throughout the world to do this process.   I suspicion that the Saudi’s are considering this transaction.    It is a good deal if they can find a backer such as China to provide them personal and national protection.

Anchor 4- Currency wars – there is a currency war between China and the United States.  The China – Yuan and the dollar, evidences this.   China has backed its will Yuan with gold. This means that they can buy oil with Yuan and the oil trader can then trade the Yuan for gold since China backs its Yuan with 100% gold.  They are using this play with Russia with their multibillion-dollar oil pipeline.  As a result, China will need fewer dollars and more Yuan that they can print themselves.

Anchor 5 – Tariffs – virtually all consumer goods have tariffs.   The average tariff on automobiles is 51%. The average across the country is 16.5%.  The press has not noted this and thus has given a disservice to our current Trump government.   If we just matched with the Chinese are currently asking other terrorists, we would gain billions of dollars in revenue. Tariffs cause consumer goods and prices to rise, which is inflation.   Protection against inflation is holding gold.

Anchor 6– war – there are a number of global geopolitical conflicts today…   Each conflict has the potential for war.   In times of war, gold always rises. Major conflicts today are in South China Sea, in the Mideast in Syria, Iraq and Iran.   I do not see war in the near future.  However, the tensions, because people believe war is possible, will drive people to buy gold, which represents stability and safety to them.

Anchor 7 – peak gold – as tensions rise, the demand for gold goes up.   However, it is a matter of record that large companies are not expanding their inventories nor increasing their outputs.   The lack of exploration and development makes it appear that gold output globally has plateaued.   This means that is the demand for gold goes up the price of gold will go up since no more gold is available.

The message in the above seven anchors is that the world for gold has changed or is changing.  It is a time to buy gold for security and growth.