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The Daily Reckoning | Tuesday, April 19, 2011
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Where to Bury Your Gold Discovering Gold’s Utility Behind America’s Triple-A Façade
Reporting from Laguna Beach, California...
Eric Fry
Yesterday's big news wasn't really news at all. Standard and Poor's finally found the nerve to state openly what the rest of the world already knew: the Emperor is naked.
The esteemed ratings service announced that America risks losing its triple-A credit rating. "We believe," said S&P, "there is at least a one-in-three likelihood that we could lower our long-term rating on the US within two years."
Officially, America remains the world's preeminent triple-A credit. Unofficially, America's triple-A credit is a financial Potemkin Village. It is all façade. The US lost its triple-A credentials years ago, but the rating keeps hanging around - a function of tradition, decorum, politics and complacency.
Behind America's triple-A façade, its creditworthiness steadily deteriorates.
The budget surpluses of the second Clinton Administration yielded to the $300 billion deficits of the Bush Administration, which gave way to the mind-blowing $1 trillion deficits of the Obama Administration. In the process, America has amassed debts that approach 100% of GDP, while also piling up future obligations that would amount to about 500% of GDP. Both of these debt numbers are only a rounding error away from Greece's debt-to-GDP levels.
Greece, as you may recall, is the non-triple-A rated country on the verge of declaring bankruptcy. S&P considers Greece a "junk" credit - branding the debt-strapped nation with a BB- rating. Greece, with a debt-to-GDP of about 150%, clearly deserves its BB- rating. But that's why the US, with debt-to-GDP approaching 100%, does not deserve its triple-A rating.
Why are the heavily indebted Greeks a junk credit while the heavily indebted Americans remain a triple-A credit?
Hard to say exactly. But one very important difference comes to mind. The Greeks cannot print the euros they need to repay their debts, but Americans can, and do, print the dollars they need to repay their debts. A second important difference also comes to mind: Standard & Poor's is not a Greek company; it is an American one.
As such, S&P's announcement yesterday began patriotically:
"Our ratings on the US rest on its high-income, highly diversified, and flexible economy, backed by a strong track record of prudent and credible monetary policy. The ratings also reflect our view of the unique advantages stemming from the dollar's preeminent place among world currencies."
After saluting the stars and stripes, however, S&P continued:
"Although we believe these strengths currently outweigh what we consider to be the US's meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the 'AAA' level."
Translation: America is broke.
But you don't have to rely on S&P's judgment to realize America's finances are on a slippery slope. The precious metals markets have been rendering this verdict for several years already. Gold touched another new all-time high yesterday. The dollar's feeble price trajectory has also been telling the world that America's finances are broken.
While the dollar remains the world's reserve currency, it is not acting like it. The dollar's value has been dropping against just about everything. Really. Everything. Would you believe that the top- performing currency of 2011 is the Paraguayan Guarani? And that's not all; the next best performing currencies are the Mauritian Rupee, Hungarian Florint, Czech Koruna, Russian Ruble and Colombian Peso.
This is not a joke. Not only are these currencies atop the leader board for 2011, but each of them has also appreciated at least 25% against the US dollar during the last two years. The Colombian peso is up 44%!
To be sure, the Colombian Peso is not about to become the world's reserve currency. But in a world in which the actual reserve currency has become as reliable as Scottish sunshine, even the Paraguayan Guarani becomes a plausible store of value. Nothing against the Guarani, but if the dollar's descent gathers steam, we'd rather be holding gold and silver.
In an earlier era, when a dollar bill still commanded respect around the globe, Warren Buffett scorned gold as an investment of "no utility."
"Gold," he said, "gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
The Martians are not scratching their heads any longer. Gold's utility becomes evident every time a government becomes profligate. Therefore, now that gold is rising briskly in value - and Berkshire Hathaway's stock isn't - deciding where to bury one's gold is becoming an increasingly important question.
The folks who are buying gold want to make darn sure that they truly possess what they paid for. The same desire pertains to silver investors. In the column below, guest columnist, Matt Insley, describes some the best ways to safeguard your silver investments...Mayer's Special Situations Presents...
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Check out this FREE presentation here for the details...The Daily Reckoning Presents How to Keep Your Silver Safe
Today I want to give you a street-smart playbook on how to buy and sell physical silver. This is the real stuff, for those of you who like to sleep at night knowing you've got the shiny metal in your possession.
Matt Insley
Without further ado, I give you the top 4 ways to hold your physical silver...
#No. 1 Safely Keep Your Silver Under Switzerland's Largest Airport
Gold Switzerland gives you the ability to buy and hold silver while safely storing your personal bullion under Zurich airport in Switzerland. But don't let the name fool you, these guys are experts in both gold and silver. In fact, their tagline says it best: "The safest way to buy and own gold and silver."
With an initial purchase of at least 6,000 ounces, you can buy silver and have Gold Switzerland keep an eye on it. Here's what their 1-2% management fee covers:
Everything is clear-cut with this dealer. You can purchase silver at competitive rates and store it in possibly the safest geographic and political region in the world. Plus, if you'd like to have your personal silver transferred closer to home, Gold Switzerland can organize a secure transport of your bullion.
It's a one-stop shop for holding silver.
#No. 2 Buy and Sell Coins and Bars with EverBank
EverBank has some of the most innovative accounts the banking world has to offer, and their physical silver options maintain the same high standard.
In an EverBank Metals Select Allocated Account you can buy and sell silver bars and coins. So you can even hold market-friendly, and potentially valuable, coins like American Silver Eagles.
In an allocated account you'll receive monthly statements describing your personal holdings. Plus, if you'd ever want to take physical delivery of your bars or coins, EverBank offers delivery services.
A key factor to this allocated account is the low opening balance, a mere $7,500. Compared to Gold Switzerland's 6,000-ounce buy, you're looking at quite a difference. So this may be the poor man's way to hold the poor man's gold.
The last factor that makes EverBank's offering even more special is that you can hold your silver in an IRA. This is one simple way to help protect and save your retirement nest egg.
Add it all up and EverBank has a very strong offering. You have the option of holding coins instead of plain bullion, you can have your silver delivered AND they offer the IRA option - all for a low initial outlay!
#No. 3 Local Storage in Your Bank's Safety Deposit Box
The third option I'm sure you've heard: simply storing your bullion in a safety deposit box at a bank.
This option has some distinct pros and cons, so let's take a look....
First, unlike the other two options I've mentioned, a local safety deposit box is, well, local. If proximity is a main factor for you in storing your silver then a safety deposit box may be the key.
Heck, I know that I'd like to look at my silver from time to time - maybe even bite a coin or two.
With a safety deposit box you can do that. You can check on your silver with a short trip to your bank - so instead of a monthly statement, you can simply stop in and take a gander. Plus, if you ever have an emergency where you'd need to get a hold of your bullion, it's as simple as a trip to the grocery store.
Clearly, safety deposit boxes have a few distinct advantages over other remote storage options, but there are also some drawbacks - the main one being that the bank will not insure your physical bullion. You'll need to have separate insurance on it, which could be pricey.
#No. 4 Making the Markets Work (And Hold Silver) for You
The final option that I'll share with you comes directly from the commodities market.
You've probably heard people say "take delivery" of your silver. This expression comes straight from the commodities markets, which are now run by the Chicago Mercantile Exchange (CME) Group.
The same commodities markets that offer gold and crude oil also offer silver - but this doesn't have to all be "paper trading." Instead, you could take delivery of the silver you purchase.
As I mentioned above, one silver bar is 1,000 troy ounces, and the standard CME silver futures contract controls five bars. (If you'd like to see the specs for yourself click here.)
Buying and taking delivery of CME futures contract has several advantages.
First, the contracts are extremely liquid, so you can rest assured that you're getting a fair price on the silver you're buying. And second they have storage options if you want to take physical delivery.
For example: you can go directly to the commodities market and buy a silver futures contract for, say, December 2011 (currently trading around $37.70 - a small premium to the current silver price). After purchasing the contract, which by the way would run you $188,500, you can take delivery in December 2011 and have a depository from the CME hold the bullion for you. This option comes with a small storage fee, ranging from $35-$42.50 a month, per contract.
Your personal silver can be held at a few different locations, two of which are HBSC Bank in New York and Delaware Depository Service Company in Delaware. Your bars have serial numbers and can easily be resold - incase you want to hold for a limited period of time.
Another benefit, depending on how you look at it, is that you can initially purchase your silver on margin. So instead of putting up the $200k to purchase your December silver you can put up closer to $10k now, and pay the rest come delivery. Think of it as "lay away" for metals!
Truly, the CME contract and storage may be the lowest percentage cost option for you. But, remember, it requires you to buy 5,000 ounces at a time - a $188,000 investment. I guess it all depends how much of the shiny stuff you want to buy.
So there you have it, four of the best ways to purchase physical silver without the risk of holding it at your house.
Regards,
Matt Insley,
for The Daily Reckoning
Joel's Note: Recently, Matt took charge over at our just-released Daily Resource Hunternewsletter. It's a free daily - so you know the drill there - focused specifically on resource-related investment themes and opportunities. Matt's got a great cast of contributors on board and the first few issues look pretty spiffy. If you'd like to add them to your list of daily investment insights, feel free to check 'em out here. We hope you enjoy it.Introducing The One Asset Insiders Are Calling...
Better Than Gold!
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In fact, I'm so sure of this, I won't charge you a penny to show you how. Download my exclusive research report, here.And finally... In addition to the Daily Resource Hunter site we mentioned above, there's another resource available for Agora Financial readers that you might not have heard about.
Our friend, Doug Hill, has been busy amassing an enviable library of freedom-centric titles over at our newly-acquired Laissez Faire Books. He's working hard to make it a one-stop shop for anyone interested in learning more about sound economics and personal liberty...and, judging by the extensive list of titles on hand there, he's doing a great job.
If you'd like to have a quick browse of the virtual shelves, feel free to cruise around the site, here. And remember, as a Daily Reckoning reader, you are entitled to an automatic 20% off your choice.
Regards,
Joel Bowman,
for The Daily Reckoning
Tuesday, 19 April 2011
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