As most of you know I am a proponent of holding gold and silver in your portfolios. I have always looked at gold in particular as a way to preserve wealth. I have done research on some of the wealthiest families and how they have either passed on their legacy of wealth or had it squandered by future generations. The one common theme is that the “rich” pass down legacy wealth with ASSETS. This could include almost anything that is not someone else’s liability (their promise to repay) but has historically been real estate, art, and gold. I am sure those passing gold from generation to generation would also have silver and other hard assets also. Many ask me if they should buy real estate at this time. Personally, I think waiting will allow you to get a better price soon but there are exceptions to every rule. I also believe that if you are going into debt to buy it that would be a mistake at this time. I am sure that most real estate passed from generation to generation is unencumbered (no debt).
Of course, those families that are successful in maintaining generational wealth are also those that train the next generation well. That is a discussion for another time.
Today I wanted to discuss the fact that central banks are buying record amounts of gold- that is on record but what is not being discussed is that massive amounts of silver are disappearing from the exchanges and ETFs. In an interesting move- to me anyway- is that Blackrock, who owns the ETF SLV has become the largest shareholder of PSLV. Other major shareholders include Jupiter Asset Management, Truist Financial, Polar Asset Management Partners, Morgan Stanley, Royal Bank of Canada, Money Concepts Capital, Capital Wealth Alliance, Advisor Group Holdings and Central Trust. None of these others matter to me besides Blackrock. I have heard many opinions on this, but I have not heard the one that hit me as soon as I read this. As soon as I heard this news, I thought to myself that they may also be having a supply problem and may want to take physical delivery- which PSLV would allow them to do. I have heard reports of large distributions from gold and silver ETFs that are being done in a manner that keeps the entities making the withdrawals anonymous. My guess is that this would likely be the major banks and central banks- the same characters that are actively hoarding gold also but since the entities are anonymous, we can’t know for sure. Keep in mind that silver is in almost all modern appliances as it is one of the best- if not the best conductor of energy. It is also used extensively in Electric vehicles and solar panels. This has led to surging demand and with the low prices there is a supply deficit as we speak.
It appears to me that the price suppression schemes still need physical metals in hand to pull off the massive leverage that they use to keep prices low even as the value rises with each fiat bill created. I started to realize this around 2014 when the USA took possession of Ukraine’s gold. If I remember correctly, it was around 40 tons. Gold had been rising prior to this and after a short time the price suppression scheme was back in full force.
Contrary to Ben Bernanke’s stating that central banks hold gold because of tradition I will give the reasons they are buying at record levels right now.
#1 They know that they, and most- if not all, other central banks are debasing their currencies at a record pace. This will likely not stop anytime soon because just in the first quarter of 2023 global debt soared by $8.3 TRILLION and has reached $305 TRILLION or 335% of world GDP. There is no way to raise taxes enough even to pay the interest on that debt burden. As governments struggle with rising interest rates and inflation at the same time, I believe we can expect the central banks to continue to make the currencies worth less and less so that the promises to pay can be kept. You will get the price you were promised but the value will be far less than you were anticipating.
#2 Gold is an asset that is considered “riskless” on the central bank’s balance sheet- known as a tier 1 asset. There is no counterparty risk as there would be with most other assets. When we look at the massive debts the fact that they don’t have to count on someone else’s promises is possibly the largest reason to hold ASSETS rather than someone else’s liability.
#3 The gold that the central banks are buying is theirs and is not subject to confiscation like the Russian assets that were basically just stolen from them by decree.
#4 They are all aware that CBDCs are coming in 2025. Prior to that there is likely to be a major economic crisis to usher that in. I believe that the major crisis will be in the collapse of currencies and liquidity so a new system will be begged for by the masses. I have said many times that they will likely cause as much pain as they feel necessary to pull this off. Gold has HELD ITS VALUE for over 5000 years. To my knowledge this is the only asset that has been used as money that has a track record of 5000 years.
The two assets that central banks can hold and are deemed “riskless” are US Treasuries and gold. Let’s look at what would have happened if we bought a 30-year US Treasury bond or gold in the year 2000.
This assumes a $100,000.00 Purchase. The 30-year bond has a yield of 6.2% or a yearly payment of $6,200.00. Gold has NO YIELD but was trading at $280.00 per ounce in 2000. 2023 price is $1975.00 per ounce. Assumed date of purchase is January 3, 2000
ASSET GOLD 30 Year Treasury
Amount (2000) 357 Ounces $100,000.00
Value 2023 $706,860.00 $142,600.00 (Interest) $100,000.00 Principal $242,600.00
- The price of the bond can fluctuate with interest rates. As rates are lower now you could sell your bond for a higher amount right now. However, if you hold to maturity the return on the Treasury would be $186,000.00 of interest and your $100,000.00 investment returned in 2030.
As you can clearly see with this calculation, while gold is suppressed by those “in charge” as they buy it all gold has kept up with inflation better than bonds even though the bonds have been artificially propped up and the gold has been kept artificially down.
While central banks and major banks are using price fluctuations induced by paper selling (not real gold or silver) to give the illusion of volatility or risk- they are buying record amounts and can list it on their balance sheet as “riskless”.
I can’t think of a better reason to hold gold and silver than the fact that those “in charge” are going so far to scare people away from these ASSETS as they amass them.
I believe that gold will preserve your wealth so that you only have to get rich once. I also believe that there is likely setting up to be a supply crunch with silver because of the massive use and demand and the artificially low price which stifles production. In the short term I believe that silver could see an explosive rise soon. As Rick Rule says: The cure for low prices is low prices. (Low price= lack of R&D and production). The cure for high prices is high prices. (High prices = overproduction as all want in on the profits).
Timing is important, but in this case, I would rather be VERY early than a minute late.
Be Prepared!
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
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