I Bought Gold Bars - So Should You
Recession Prep #1
One of the first steps I took years ago in preparation for the incoming recession and probable stagflation was to preserve my capital. I wanted to avoid - at all costs - the vaporization of my accumulated capital’s worth, something that I had spent a lifetime building.
Gold is one of the main instruments I have leveraged as a preservation vehicle. So I took a look around at my existing assets, determined whether or not they were in a bubble, and if they were, liquidated them and converted them into Gold.
We are in a period of the “Everything Bubble,” which basically means that so much money has been printed out of thin air that now we have multiple bubbles in various asset classes including real estate, equity, and debt to name a few. I reduced my exposure in those assets and started converting them into Gold to the point where Gold now makes up about 35% of my net worth.
In this article, I’ll go over these four topics that articulate my personal perspectives which have led me to executing this strategy years ago. A strategy, that so far, has played out even better than I had anticipated.
History of Gold
Fundamentals Behind Gold
Physical, Not Paper Gold
How I Did It
Bear in mind that I am not selling Gold or any Gold Dealer services. I have no affiliation or ties of any kind to any Gold revenue generating business whatsoever. I am sharing my personal journey simply because while many talk about Gold, few if any actually reveal their own story.
History of Gold
Let’s cut to the chase right off the bat. The only reason why Gold has any monetary value is because people believe that it does. It is this belief that converts anything into money, and yes, that includes the currency of cigarettes used in prisons, the pieces of paper in your wallet you call “cash,” and the relatively new digital entrant called bitcoin. The single most important reason why they can function as money is because we, the people, believe in it. All the other characteristics such as divisibility, portability, scarcity, yada yada that people like to spew around when they talk about what money is are distant footnotes. If you think about it, the fact that we believe the US Dollar is money laughs in the face of the “money must be scarce” requirement because we’ve been printing it out of thin air, at will, for over 50 years now. But we still believe it’s money, right?
Well, Gold is just another one of those “things” like cigarettes or cash, but with a very special and unique characteristic: it is by far the oldest incarnation of money with a history of thousands of years functioning as a currency of exchange. It has survived the rise and fall of many civilizations, from Ancient Egypt to the Roman Empire. Many other forms of money have come and gone over these thousands of years, but humanity’s belief in Gold as money has never wavered.
That is why, Gold and not one of the other many rare precious metals like iridium, rhodium, or platinum is considered as money. Nothing else has withstood the test to time in terms of our belief in Gold as a form of money - not even close. It just happens to be this yellow metal but honestly, it could have been a whole bunch of other things.
The message here is that the “thing” doesn’t matter - what does matter is the longstanding belief in the “thing,” whatever it is. And that is why I am not a Gold bug, because I literally don’t care about the “thing” itself. I really don’t. I just care about humanity’s psychology over thousands of years. If you want to call me something, then call me a humanity bug.
Fundamentals of Gold
Now, I’m not newbie to Gold. In fact, it was one of the many ways I increased my net worth during the 2007/8 Great Recession and Housing Bubble burst (thankfully, I didn’t cave into the pressure of buying a house back then).
Let me make this clear: the fundamentals behind Gold are many times stronger now than it was back then.
We don’t need to get into complex econometrics to understand why.
Reason #1: We have printed a disgusting amount of money (and debt) out of thin air. Perhaps the greatest unintended consequence of Covid was the Fed and Treasury panicking and printing money, even directly into people’s pockets resulting in this:
I mean, this makes 3D Printers jealous! We can barely notice the spike from 2007/8 when they printed boatloads of money to save the Too Big To Fail banks, and once we did that, we never stopped because… well, who doesn’t want free monopoly money?
And they expected inflation to be “transitory” after this? A ton of more money chasing the same amount of goods and services. Hmmm, what could go wrong here. But hey, that’s why there are PhDs and we are just plebeians. What do we know. Also, if this is the recipe for prosperity as a society, why don’t we just print money into infinity all this time in the past? Why is this “New Monetary Theory”… new?
Reason #2: We have entered a deglobalization and geopolitcal bifurcation period as we barrel towards what could be a global conflict between the US and its allies versus Russia+China and their allies.
So what does that have anything to do with anything? Well…. this:
Central banks are the final backstop to money when all else fails - the final boss. When the final boss is buying gold, and when its the final bosses of China and Russia - the up and coming contenders - you must pay attention or ignore at your own peril. These central banks are not buying bitcoin, nor are they buying cigarettes. They are buying Gold, because they know only one thing has been proven to survive without any doubt whatsoever as money after civilizations end and world wars pass.
So what has all this translated to you ask? Well… this:
Without getting into technical analysis, just understand that this is an extremely bullish chart - there is no technical analyst out there who would dare to argue against the technical strength in price action we are witnessing. But all it’s doing in reflecting what is going on fundamentally in the world.
Keep in mind, Gold is not an investment - the goal is not to generate returns. The goal is to preserve your purchasing power. So comparing Gold to stock market gains or any other investment seeking returns is a failure in understanding what the whole point to begin with is. I’m not looking to make money out of Gold - I have other ways to make investment returns, and they perform much much better, albeit with greater risk profiles.
In fact, I expect there to be a discount window in the coming months because when a liquidity crisis explodes and margin calls come in, asset holders will have no choice but to sell things that have made them money to pay up and that will include Gold. We saw this happen in the 2007/8 Financial Crisis, and it turned out to be one of the best discount windows to accumulate even more Gold. One that I am waiting for.
Now, I do think Gold can become a speculative risk asset. We’ve seen it many times before, such as what happened in the 1970s - the last time we had a serious bout of stagflation and supply shocks which I think we shall have once more:
A 900% move in just four years. I’m not saying something similar will happen this time around. I’m just saying that if we do see something like this, that’s how you know Gold has become a speculative risk asset, and preparing an exit plan becomes critical. We’re nowhere there, but stranger things have happened so be on the lookout - n’est ce pas bitcoin?
Physical, Not Paper Gold
Paper Gold? What’s that?
It’s basically paper, or these days, digital representations of Gold. That includes ETFs such as GLD which you can easily buy on the stock exchanges. I didn’t buy them and the reason is simple: the goal here is to protect your capital. The moment you buy one of these representations - or derivatives - of Gold, you introduce something called counterparty risk.
All of a sudden, there is risk that if something blows up, you won’t be able to get your Gold, or the equivalent value in cash back. The “safety” factor of owning Gold is greatly diminished and as I said earlier, that’s the whole point. If you’re willing to take on counterparty risk, then you are making an investment, and there are many other investment instruments out there that will do a much better job at being an investment and generating returns than Gold.
So buying Paper Gold never made any sense to me. If you’re going to eat chocolate, eat the damn chocolate.
How I Did It
So how does one go about buying physical Gold? Well, it greatly depends on where you are domiciled interestingly.
Remember how I said I started buying Gold back during the 2007/8 Great Recession? Back then, I was living the US and that played a factor. Firstly, Uncle Sam will take 28% thank you because owning physical Gold is considered a collectible. Then there was always the risk of the US making it illegal to own physical bullion, which it has done in the past during the period of 1933-1974. That’s right, it was illegal for US Citizens to own physical Gold bullion.
One of Franklin D. Roosevelt's initial actions as president was to declare the withdrawal of gold and currency from the struggling banking system (sound familiar?) a "national emergency." To address this, he ordered all banks to close from March 6-9, 1933, to prevent the export, hoarding, or earmarking of gold, silver, or currency.
However, Roosevelt deemed this measure insufficient to stop bank runs and the consequent drain of gold. Thus, on April 5, 1933—just a month after assuming office—he issued Executive Order 6102, which prohibited Americans from owning gold coins or bars and imposed severe penalties for violations: up to ten years in prison and a fine equal to twice the value of the unreturned gold, which had to be surrendered to the Federal Reserve in exchange for paper money.
Dentists were exempted, allowed to retain up to 100 ounces of gold. Score!
Look, we’re not configured in a similar way today. For one, there is no Gold Standard anymore and we are operating on a pure fiat currency regime. But the point here is, we can’t underestimate what the government is willing and capable to do.
So back then, what I did was to use an online platform where physical gold can be traded and also stored in a vault of your choice. I chose to store my bars at a Swiss vault. In the worst case, I could fly to retrieve my bars and then figure out what to do from there. To be honest, this was somewhat risky as I would not be able to physically inspect the Gold in-person and had to rely on accreditation by third-party inspectors. But it was good enough for me back then given the options I had on the table. I just needed to be very, very, very careful and did a ton of research before deciding which platform I would use.
Fast forward to today, and I am based out of Singapore - a very Gold friendly nation. Its central bank has been one of the largest Gold buyers in recent years and it has updated legislation to completely remove any tax from the purchase or sales of Gold bullion. You can even pass through Changi airport without paying any import/export duty for Gold as it is completely exempted - you just have to declare if you are carrying more than $10,000, that’s it!
At the same time, I didn’t want to store my Gold bars at home - there’s overhead there I didn’t want to deal with regarding theft (although Singapore is an extremely safe nation) or fires. So I bought my bars from one of the most trusted dealers and stored them at a maximum-security vault in Singapore. The vault sits on top of a parcel of sovereign land that has no international jurisdiction when it comes to laws regarding asset ownership, and it is a vault that also stores very rare paintings and other valuable collectible items.
I made it a point for the dealer to show me the Gold bars in person, so that I could hold and inspect them physically before they was transported to the vault where I can track them down via serial numbers and video surveillance.
And so that is how I executed part of Recession Prep #1: Preserving Your Capital.
Do your own due diligence on Gold, and depending on where you reside, consider what method of ownership and associated risk/cost levels you are willing to assume.
Most importantly, always remember that Gold is not an investment and you shouldn’t treat it as one. Do that, and it will treat you just as kindly in return.
Watch my video on Gold over here for information:
I got into silver before covid (are their eyeballs scouring obscure comments?) but I think you're right on the monthly. gold chart. I'm holding long because of the White House clown show. I may be wrong, but that wold be a first.