(The Burning Platform)—This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: The surprising motives behind inflation, unpacking central bank gold buying figures for 2023, and Turkey is becoming the world’s top consumer of gold out of necessity.
If inflation is bad, why do we have an inflation goal?
Egon von Greyerz recently analyzed the state of economic affairs. From gold to climate, a lot of the points he raises are striking, yet not likely to be covered by any mainstream outlet. His discussion of inflation, or rather its source, caught my eye.
We know the Federal Reserve has an inflation target of 2% annually. In recent years, they’ve missed that target consistently (from 390% over to today’s mere 60% over target). Inflation has been so high for so long that even getting back to 2% feels like victory.
von Greyerz addresses the elephant in the room: Why is the inflation rate not 0%? We should also address the most frightening of boogeymen, too… Why is deflation so terrifying?
First, you must understand that a 2% inflation target is a recipe for deliberate, sustained wealth destruction. So you’d think there would be a very compelling reason behind it! Yet when asked this very question recently in a Senate hearing, Fed Chair Jerome Powell said:
The 2% is globally agreed between all major central banks as a target.
When asked how that is beneficial to the people, Powell went on to reveal the true depths of the Federal Reserve’s policy:
I will tell you how it does, I guess it is obviously not obvious how that is… To have people believe that it will go back to 2% anchors inflation there.
Let me translate the Chairman’s responses into English:
- 2% inflation is our target because it’s everyone else’s target
- There’s no actual benefit to 2% inflation beyond expectations
If this doesn’t make you question the competence of those involved in managing your money, then nothing will.
Since understanding the alleged benefits of 2% inflation is “obviously not obvious,” here’s a brief Q&A:
What causes inflation?
An increase in the supply of currency – which, by itself, decreases the currency’s purchasing power. Rising prices are a symptom of inflation rather than inflation itself.
Is inflation going down?
No, but recently inflation is going up less quickly. Remember, inflation is cumulative. After a year of 9% inflation, your currency has lost 9% of its purchasing power permanently. Even if inflation drops to 0%, that lost 9% is gone forever.
How does raising interest rates help inflation?
Higher interest rates make borrowing more expensive and encourage saving rather than spending. Less credit and more saving decreases overall economic activity by reducing the amount of currency chasing goods and services. Higher interest rates don’t, by themselves, reduce the overall supply of currency, but they do discourage spending.
Why is deflation bad?
Deflation is literally a reduction in the circulating currency supply – which increases the purchasing power of the currency. That may not sound bad to you (unless you have a lot of debt). Deflation encourages saving money, which lowers overall economic activity. Worse, though, deflation forces debtors to use more valuable currency to repay their creditors. The more you owe, the worse deflation is for you – and if you owe, say, $32 trillion, it’s a recipe for disaster… Just as inflation encourages borrowing and spending, deflation encourages the opposite.
To continue: von Greyerz believes the world is turning away from IOU-based currencies. The reason for this is straightforward: the debt is simply becoming unsustainable, and it gets worse the higher up we go from the average citizen to governments themselves. One might say that the world’s credit score is becoming insufficient to support the current, debt-based global economy.
This is a key reason BRICS nations are interested in creating a commodity-backed currency. A commodity has intrinsic value – it’s desirable because of the thing itself, rather than because of a promise from a government. In this way, von Greyerz also inadvertently explains why BRICS economies want to rule the world all of a sudden. In a shift away from unbacked paper money and towards tangible assets, these global commodities exporters are real economic powerhouses.
The transition away from unbacked, debt-based liability currency to commodities-backed money won’t be easy. Expect a decade of high inflation, high interest rates, geopolitical turbulence and economic volatility. To navigate this “new normal,” von Greyerz recommends physical gold and silver (as well as a few industrial commodities) as the only assets likely to endure the chaotic decade ahead.
Central bank gold buying still up (if we exclude profit-taking)
Central bank gold demand down 39% vs. last year? Such a claim merits scrutiny.
On the heels of a record year (central banks bought 1,136 tons of gold in 2022), why the sudden about-face?
As IMF data reveals, three countries are responsible for the sell-off: Turkey, Kazakhstan and Uzbekistan.
Turkey was the largest gold buyer last year with over 125 tons, but has reportedly sold 59 tons in the first five months of this year. Turkey’s case has already been covered in full. The nation is selling gold bullion to prop up its currency. The results, so far, have been mixed.
Kazakhstan and Uzbekistan’s cases are less clear, with the former having sold 35 tons and the later 27 tons of gold. Notably, unlike Turkey, they were also net sellers last year. Both nations have large gold reserves (#15 and #17 largest) in relation to their economies. I suspect the motive is simply profit-taking.
Who are the buyers, then? Singapore bought 69 tons and China 68 tons during the period. We’ve covered in reasonable depth how China’s gold-buying reports appear to be a message to the world. It has been suspected for the longest time that China’s real holdings far exceed the reported figure, and that the country isn’t particularly concerned with reporting its gold purchases to the public.
Coffee the Christian way: Promised Grounds
This narrative is especially strengthened when one takes into account that most of the 1,136 tons were from countries unrevealed, with China being one of the few willing to disclose its central bank policy. Singapore has retained a similar air of secrecy – any attempt to get an explanation from its central bank was met with vague or secretive responses.
Not the case with Poland, this year’s third-largest gold buyer (and world’s #22 largest gold reserve). Sharing borders with Ukraine and Belarus, I’m personally not at all surprised to see Poland adding more gold to its reserves.
In times of geopolitical uncertainty, gold as always serves as the ultimate form of payment or collateral. Let’s hope the Ukraine conflict doesn’t spread to Poland – but if it does, the nation will, at least, have taken steps to diversify its savings with a heavy allocation to gold as insurance against crisis.
The collapse of the lira and Turkey’s massive consumer gold demand
It feels like any story of Turkish gold selling should be accompanied by the full economic picture. For example, the 165 tons of gold sold by the country within three months were actually sold to Turkish citizens. This was necessary to meet local demand as the country banned gold imports amid trade disagreements with the European Union.
Surprising, isn’t it? The biggest central bank gold seller this year has sold its gold reserves to its own citizens!
But there’s quite a bit more to the story of Turkey’s economic weirdness. Erdogan seems determined to play Russian roulette with Turkey’s economy. Instead of raising interest rates to fight rising prices, he has instead lowered them. Turkey currently misses the technical definition of hyperinflation by a whisker, after enduring 50% or higher monthly price increases for all of 2022. The most recent report puts inflation at a blistering 48% monthly.
Economic insanity aside, the earthquake in Turkey reminded us of something that doesn’t get mentioned often enough in the gold market: Gold and real estate are both tangible assets, but they aren’t the same. The latter comes with so much risk, including counterparty and environmental, that it can’t be classified with gold. Both are tangible assets with intrinsic value – beyond that, they’re completely different.
Unsurprisingly, Turkish citizens loaded up on gold bars and gold coins. (Unlike gold jewelry, these are classified as “gold for investment.”) In fact, the world’s 19th largest economy accounted for 1/3 of global demand for investment gold in the second quarter of the year.
The Turkish people are suffering economically – but fortunately, they’re spending their money as quickly as they can to secure a lasting store of value with gold.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
