LESSONS FROM RUSSIA AS GOLD HITS 18 MONTH HIGH
Tensions are running high in Ukraine and inflation is getting out of control. Gold topped $2,000 an ounce in early trading today before short term traders started taking profits. For the last 3 months gold has been making higher highs before backing off in price only to come back even stronger and higher. If this trend continues, we may top the all time high of $2,067 in the near future.
Inflation figures are also due out this week, and I am expecting continued high numbers. Cryptos are under selling pressure as traders consider them to be very high risk currently. Precious metals are certainly reaffirming their dominance as real money especially in crisis. Gold has shown it truly is the safe-haven asset the world turns to. Most of last year gold was lackluster. Inflation was showing up and the debate was whether it was temporary or not.
Finally, around Thanksgiving it became obvious that inflation was here to stay for a while. It was not transitory as we were told. Since then, the general move in gold has been mostly higher highs and higher lows. Exactly what we would hope to see in a rising market.
If you were unlucky enough to be in Russia you would be waiting in line to get a little cash, the stock market is closed - so no liquidity there and besides that its down 70%. Even if you had some cash the ruble is down 40%.
Putin never counted on losing his reserves. I am sure he was counting on using his foreign reserves to prop up the ruble. None of this is good for us either. We have a weak government. We are cowering because Putin used the “nuclear” word. We don’t dare get aggressive.
Oil and gas prices have been going up steadily before the Ukraine crisis, but this will all be blamed on Russia. Certainly, oil will go higher because of the war but the fact that we are importing from Russia in the first place should raise a lot of questions. Today I heard we are looking to import oil from IRAN and VENEZUELA of all places. Is there no common sense anywhere in this administration? Does it really make sense to deplete the oil reserves and limit domestic oil production when war may be around the corner?
Oil hit a high of $130 a barrel overnight and some experts are predicting oil as high as $200 a barrel. This bakes more inflation into our economy. It is amazing the administration has realized that increasing domestic supply of many goods would keep prices down but refuses to do the same with oil.
If we were producing oil and gas like we were just 2 years ago, WE could supply Europe and ourselves. We are being told we will have to sacrifice for Ukraine. So exactly what will that entail? Can we end up just like Russia? Be denied getting our own money out of the bank? Pay double today’s prices for gas? What happens if things get much worse?
Biden is reducing the Strategic Oil Reserves to try to pacify people. Here in Phoenix gasoline has nearly doubled already. Can it double again? More inflation will be the result. I question how much the Fed can do to slow it down. This is far worse than just having excess money floating around. Necessities are going through the roof. Energy costs are not going to go down because the Fed raises interest rates. And energy costs affect EVERYTHING else. The Fed cannot raise rates high enough to stop inflation without bankrupting the government.
These problems - inflation, Russia, oil shortages-are not going away anytime soon.
Its no wonder I have so many people calling to get their money out of the bank and put into gold. They want something they can hold and control. Some clients have sold houses or stocks or have inheritances and just don’t feel warm and fuzzy about putting it in a bank or the stock market. Cryptos have sunk so I guess maybe they are not the new gold. Clients want to hold gold and silver to see them through, even if the plan is to turn it back into cash at a later time.
I can’t say I blame them. The government has shown they can’t or won’t do anything to help us out. I, like many of my clients, feel its time to take care of ourselves. For many that means putting their money into metals until the dust settles. As I write this gold is less than $100 away from the all-time high reached in August 2020. If we blow through that who knows where it could go.
One word of caution:
Don’t panic and let anyone talk you into buying overpriced collectables. In times of crisis bullion or bullion coins are the very best thing to own. How many Ukrainians do you think are collecting coins right now? They are worried about survival.
Bullion or Bullion Coins VS Rare coins
Gold has averaged over 10% return since 2000. Historically it's the best hedge against inflation and crisis. Plus, the mark up on bullion is typically 3-5%. Rare coins that are hawked with fancy signatures etc are often sold for 2 -3 times what they can be resold for. That is NOT a hedge. Bullion is the ultimate liquid asset. It can be turned into cash in most US cities and every country in the world. Its easy to find the daily spot prices online or in a newspaper.
If you end up leaving your bullion to an heir or heirs, it is easy to split up and liquidate if need be. No fighting over what collectable coins are worth or agonizing over what they are worth.
- Nick Grovich