The Great Reset & Precious Metals

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If you venture onto YouTube and search for “Great Reset solutions”, you’re likely to come across a handful of videos discussing the purchase of physical bullion and its storage in anticipation of an impending monetary reset. Over the decades, we’ve been rightfully advised that commodities, particularly precious metals, offer a historical safeguard against inflation. This reality has been especially prominent in the past century, from the alarming 96% devaluation of the dollar since the Federal Reserve’s establishment in 1913, to the hyperinflation of Weimar Germany, and gold’s remarkable price surge of 700% from 2000 to 2012.

Gold ($US/Oz) chart during the 2008 Recession

The concept of investing in precious metals derives from the impending Central Bank Digital Currency monetary reset. Historical examples, such as the Weimar Mark currency reform in 1923 or the Brazilian Real reset in the 1980s, enabled forward-thinking investors to exchange their stockpile of precious metals for the new currency at approximately market value. They did not hold the previous depreciating currency and instead smoothly transferred their wealth into a new fiat legal tender.

Nonetheless, this investment concept tends to overlook three pivotal factors. Firstly, there’s the well-documented manipulation of gold and silver prices through futures contracts. Secondly, we live in the world of increasing capital controls. And thirdly, the rigorous KYC verification procedures make it challenging to purchase untraceable gold and silver bars.

Let me elaborate. Many new investors may not realize that commodity markets are consistently manipulated by major players, such as bullion banks and institutional hedge funds. They do this through shorting futures contracts. In the futures markets, traders can engage in short selling without possessing sufficient amounts of the underlying asset, in this case, gold or silver. Large precious metals banks are often accused of assuming substantial short positions, which exert downward pressure on prices. If they can manipulate market sentiment or perceptions to create a bearish environment, they can profit from these short positions.

Due to these common market manipulation techniques, it becomes evident why precious metals have not kept pace with inflation, while other assets like stocks and real estate have. Whereas I, like many others, do believe that this artificial price suppression will at some point fail, do not buy bullion with the goal of short-term profits. Buy it as insurance against hyperinflation, or as a long-term store of value.

If you’ve chosen to stay-put and not relocate during an upcoming decade marked by war, lockdowns, and government overreach, then, by all means, invest in a robust safe and commence the accumulation of kilograms of bars and coins. Just remember to not tell anyone, even your mother, about the precious metal purchases and the place you store it. Also, it doesn’t hurt to install security cameras in and around your property and get a good guard dog. However, if you decide to move, you’ll encounter significant complications.

I genuinely hope that one day, dear reader, you will become a billionaire. But until you own your private jet or yacht, transporting kilos of bullion can be challenging due to capital controls in many countries. You would need to declare the gold or silver to customs officials. Almost all developed nations, such as the U.S. and most European countries, require you to report any precious metals exceeding $10,000 to border officials. This entails bureaucratic procedures, questioning, tracking and may result in paying import taxes. Furthermore, due to the weight limit of 500 grams for gold, there’s limited room for carrying larger quantities. Suddenly, a supposedly “liquid” investment becomes a cumbersome liability.

Finally, if you’ve recently acquired precious metals, you’re well aware of the significant KYC implications tied to the purchase. At best, the dealer requests an ID document, and just like that, your “anonymous” gold paper-cash purchase is linked to you. At worst, you’ll have to provide documentation on the source of funds. When selling, they’ll inquire about when and where you bought the bullion, how you funded the purchase, the source of income, along with the ever-present bureaucratic documentation recording your transaction.

So, what’s the solution?

The most effective current solution is investing in royalty and streaming mines, which provides low risk exposure to precious metals, primarily due to the small operating costs.

No depreciating equipment costs, licensing headaches or land leasing.

Regarding streaming, an investor provides funding to the mining company upfront. In return, the investor receives a continuous share of specific minerals produced by the mining operation, called the “stream.” This way, the investor avoids the day-to-day costs and risks of mining and gets a steady supply of minerals as a return on investment.

In the case of royalty mines, the concept is quite similar, except that instead of receiving a percentage of the metals mined, the investor gets a share of the revenues generated, referred to as the ‘royalty.’

The average investor has the option of buying shares in industry giants like Franco Nevada and Wheaton, but they miss out on actually receiving the essential benefit of this investment vehicle – obtaining physical gold or silver delivered to their chosen destination. This solution primarily targets wealthier individuals. One year you may reside in Mexico, the next in Indonesia, and the metal will be delivered from the source to your end location, provided it meets the minimum delivery requirements. A streaming mine has specific minimum delivery conditions and requirements, but when negotiated correctly, it’s an excellent way to obtain untampered commodities directly from the mining source.

As a more accessible investment option, the best alternative is to purchase high-grade, easily sellable numismatic coins. Most bullion dealers advise against buying rare gold and silver coins, as they tend to fluctuate in numismatic value and are deemed less liquid. I have many disagreements with this premise, so let’s break it down.

Firstly, it’s true that numismatic coins typically take longer to sell at their full price and don’t move as quickly as bullion. To sell them, you often need to go through an auction house, which charges a percentage as a listing fee. On the other hand, large volumes of bullion are not as liquid as some precious metal dealers may suggest. While you can easily find a buyer for an ounce of gold or a few silver Maple Leafs, selling substantial quantities can be considerably more challenging.

If you believe that you can offload $10,000 worth of silver overnight at your local dealer without incurring losses on the premium spread and seller fees, you might face some difficulties. So, ultimately, both investments are better suited for long-term holdings, where a 5-10% sale fee doesn’t result in a loss. However, unlike bullion, rare precious metal coins aren’t directly tied to commodity market manipulation. As a result, they have seen an increase in value over the past years in line with asset inflation.

A helpful article demonstrates this by presenting the author’s “Numindex” chart, which shows an average “numismatic” value increase of 9% over the past five years. It’s worth noting that this calculation specifically excludes the precious metal price in its assessment.

Additionally, the legal precedent of numismatic coins sheds light on potential outcomes in a future government confiscation of precious metals. Reflecting on the famous 1933 U.S. gold confiscation, Franklin Delano Roosevelt, soon after taking office, issued a less-publicized order that exempted certain gold coins, specifically those ‘having a recognized special value to collectors of rare and unusual coins.’ Later, in 1954, the Treasury Department expanded this definition to include all gold coins minted before 1933. This designation implies that gold coins predating 1933 have a legal standing as ‘rare and unusual.’ Why was such a loophole inserted? Because the wealthy donors bankrolling U.S. politicians often possess valuable numismatic coins themselves, and they surely didn’t intend their stash to be seized!

A common argument often put forth by bullion dealers is that, during a monetary reset, one can simply barter a silver ounce coin for food and supplies. Historically, this has rarely been the case. Ask the average farmer if they’d trade a silver coin for a gallon of milk, and their first reaction will likely be, “I have never seen a silver coin in my life- how do I trust that it’s silver? How do I value it? Can I eat it?”. While it’s true that you can’t dine on paper currency either, it will be readily accepted by the local store’s cashier. This observation is not meant to disparage the average worker or farmer; rather, it serves to highlight that many precious metals vendors incorrectly assume that the general population envisions a future based on precious metal trading and bartering.

Barter is a modern phenomenon. During the Soviet era, precious metals were not used for barter; instead, items like vodka, meats, Western technology, and services were exchanged in an unregulated underground economy. A more recent example includes Argentina, where people trade food supplies and even store bricks to combat inflation. Traditionally, the most common solution has been to adopt some form of credit system. After the collapse of the Roman and later the Carolingian Empires, people continued to keep accounts in the old imperial currency, even when they were no longer using coins, akin to an IOU system. History shows that populations do not typically use bullion for trade; they use it as a store of value and hoard it.

Suddenly, the debate shifts from liquidity to practicality. In this context, a well-preserved 1893 S Morgan dollar, one of the most recognized, popular, and liquid numismatic coins, becomes a superior choice to buying umpteen kilograms of Silver Eagles. $10,000 worth of silver bars would raise far more eyebrows with customs than carrying two or three Gothic Victorian Florins, another popular and liquid coin (particularly in former British colonies).

Consider investing in silver numismatic coins rather than gold ones. Border officials are more likely to recognize the high value of gold from movies and pop culture, while silver tends to fly under their radar. It’s less flashy and results in fewer hassles.

When it comes to selling older coins, you can employ the ‘I inherited the coin from my grandmother’ explanation instead of having to substantiate the initial purchase with extensive documentation. This tactic, for obvious reasons, is not effective when dealing with a bullion bar or a gold coin from 2022. However, it remains a highly plausible account for a 19th-century gold sovereign.

The most important factors when buying numismatic coins are as follows. Firstly, they must be uncirculated. The rarity of a coin means very little in this space; quality outweighs quantity. Secondly, the coin must be a desired and popular choice worldwide. While subjective, common traits include extremely low mintages (only 8,460 Victorian ‘Gothic’ type Crowns were minted, averaging a price of EUR 55,000 in the most recent online auction), appealing designs (like the Morgan dollar), or historical significance (the 1933 $20 coin is the most well-known example; FDR’s gold confiscation melted all but 20 of these coins, which are now worth millions for their historical context and scarcity).

This small, compact 1847 Crown was recently auctioned off for EUR 68,000

Thirdly, the coin must be graded by a reputable company, such as PCGS or NGC. Once the coin is “sealed” in a transparent case, with its details and grade labeled, this seemingly mundane process automatically elevates its value. A coin you purchase at a coin store or flea market may be uncirculated, but until an authoritative entity provides its stamp of approval, its value remains subjective.

Since you’ve reached this point in the article, I hope you’ll take away this crucial message: by all means, consider adding physical bullion to your wealth portfolio. After all, counterparty risk is currently at an all-time high. Many still have sour memories of last year’s FTX collapse, and who’s to say that payment platforms, crypto exchanges, or even banks won’t experience a similar fate? Remember, if you don’t hold it, you don’t truly own it. Buying royalty mining stock is only beneficial as long as the company continues to pay out dividends.

As a side note, buying physical precious metals and incorporating royalty or mining stocks into your portfolio doesn’t constitute true diversification since they all fall within the same industry. This, however, doesn’t hold true for purchasing numismatic coins. They are more closely linked to historic artifacts or even art than to precious metal prices. While gold prices have been artificially suppressed by bullion banks, rare collectible coins have generally increased in value in line with inflation. Therefore, considering a position in the precious metals markets alongside a few numismatic coins goes hand in hand.

To recap, investing in precious metals and numismatics is a proven strategy for wealth diversification and hedging against inflation. However, it has too many drawbacks in terms of flexibility to be considered a primary investment for the Great Reset. If your investment strategy is long-term, spanning several years, you might not be as emotionally affected by the volatility that comes with the territory. After all, during the demand-destroying event in March 2020, gold prices plummeted to $1,485, and silver fell even further, to just under $12. So, during the early stages of the pandemic, paper bills or cash in your bank account were far better than holding precious metals.

How can one capitalize on the pandemic market selloff to acquire assets at lower prices using their gold and silver coins? The next question to consider is whether you might be forced to sell your gold due to challenging financial obligations. It’s important to keep in mind that you can’t eat gold and silver, so maintaining adequate cash reserves, as well as supplies of food, water, and other essentials, is crucial. Do not become a forced seller. This way, you’ll have the option of deciding when to exchange your investments for their highest market value.

Let me conclude this article with a question, one that I hope to address in an upcoming post. With imploding bond prices wreaking havoc on bank, insurance and pension fund balance sheets, it’s evident that another financial collapse is on the horizon. The question is not if, but when. If such an event occurs, you won’t want to witness a 25-30% devaluation of your bullion. In these circumstances, cash remains the primary asset. The challenge is how to safeguard that liquid cash from inflation, the locking up of the financial system, potential bank bail-ins, and the inevitable Central Bank Digital Currency (CBDC) monetary reset?

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