Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MUX, PZG over the next 72 hours. (More...)
"I don't invest in gold because I'm cheering for the world to fall apart. I invest in gold and silver because I believe the policymakers are guaranteeing the world will fall apart." -Jay Taylor
Despite where gold goes from here, up or down, let's not fool ourselves. With irresponsible debt, reckless deficit spending and endless credit and currency creation, the lipstick is going to come off this multi trillion-dollar pig at some point and it's not going to be pretty.
The magnitude of sovereign debt is so great it cannot be paid down and "will have to be defaulted on," said Dr. Philippa Malmgren, President & Founder of Principalis Asset Management and former Special Assistant to the President of the United States for Economic Policy, in a recent SA article by Emmet Kodesh.
Imagine what might happen if U.S. sovereign debt is defaulted on. For starters the U.S. would lose the faith of the world, something that has made this country and its dollar very special for the last half-plus century. Defaulting could trigger the collapse of the bond market, the stock market and the dollar itself.
We could experience a type of chaos and despair the likes of which we've never seen. You're being tipped-off here to prepare for a possible worst-case scenario.
Those who think the U.S. or any western government can put Humpty Dumpty back together again for a return to the good old days are entertaining delusion.
I do not believe the Fed is going to taper. If it does try to slow its Q easing, it will soon feel the wheels wobbling off its wagon and have to whip the horse with additional stimulus to try and keep the wagon rolling, rolling, rolling. It's a damned if they do - damned if they don't situation.
When you think about how deep into this imaginary recovery process the Fed is, you have to ask yourself "how can they afford to stop QE?" And it's not just the U. S. A. The Federal Reserve and all its central bank counterparts around the world have erected a house of cards by creating and devaluing staggering amounts of currency.
Sure the U.S. stock market currently appears healthy and housing teases to recover, but they're both dosed with Fed-icine regularly, which unfortunately treats only the symptoms not the illness. It's hard to believe a healing is imminent, however an end to the monetary system as we know it, may be. And if and when that happens, it will happen suddenly catching many people off guard.
The purpose of this article is to recognize that reality and suggest how investors and everyday Joes might position themselves on the right side of a wealth transfer if or when the worst-case scenario happens.
I am not a professional financial advisor and my intention is not to tell you what will work for you. Only you know that. This article is to simply illustrate examples of why I think what I think and how I plan to prepare to survive economic collapse and to prosper despite of it.
I believe in the salvation of silver and gold
The metals aren't just precious, they're money. Real money. Gold and silver are even categorized by the International Standards Organization as currency designated by an ISO 4217 currency code. Google it.
Recently, Jay Taylor, radio show host of "Turning Hard Times Into Good Times," said this in an interview with the "Gold Report":
"Fed Chairman Ben Bernanke is in the process of destroying capitalism. Pushing interest rates to zero destroys savings and creates malinvestment… The middle class is being destroyed. That's why, if you are not on Wall Street or in government, you have to own gold and silver because the [fiat] currency is being used to reallocate wealth from most of us to those who rule us from Washington and Wall Street."
Gold is widely regarded as a store of wealth. Silver is historically the money of the people. And it will be silver I use in everyday life to barter for, or purchase the things my family will need such as bread, milk and gasoline when paper currency is no longer trusted. No longer accepted. No longer relevant.
You don't own gold or silver? Stop reading, bookmark this page and go get some. It's on sale! Consider acquiring as much as you can afford.
Not sure what to look for?
I avoid paper metals like a plague and purchase hold-in-hand physical gold and silver. This survivor prefers coins to bars and rounds, and specifically American Eagles, Canadian Maple Leafs and Austrian Philharmonic bullion coins. If you're on a tight budget you can bypass the gold and load up on these silver coin types.
There are reasons why these three government, minted bullion coins are preferred. And there are more reasons why to choose silver over gold (not just as noted above) and also prudent reasons why acquiring government minted bullion coins over privately minted bars and rounds are preferred. However these reasons are beyond the scope of this article today, as are numismatic coins.
So-called "junk silver" coins too, are important to own. Those U.S. dimes, quarters and halves minted prior to 1965 that contain 90% silver. These old coins are easily recognizable, they're fractional, which is important when buying everyday necessities like a bag of groceries (for instance, it will be difficult to make change for an ounce of gold) plus "junk silver" coins are real money with intrinsic value exceeding their denominations, unlike the modern coins in your pocket, which are made of base metals.
NOTE: Stay away from TV advertised coins commemorating, for instance, the World Trade Center or the Freedom Tower, etc., using language like clad in 24 karat gold, with certificate of authenticity, and being marketed by companies with names that sound like official mints. Don't be fooled here.
Ideally, purchase your gold and silver coins from a trusted, local dealer, though there are reputable vendors you can feel comfortable doing business with online. My online dealers of choice are www.providentmetals.com and www.apmex.com. I have never had a problem with either company, ever.
Only when a strong position in physical metals has been established is it time to push on to other precious metals investments. Let's look at some choices.
One paragraph here about ETFs, funds and trusts; they're off my list. Let it be said I am a risk taker, but I don't like asking for trouble. If you are bent on establishing metal positions using ETFs you must learn the risks by engaging in due diligence. A good start to learning about ETFs is to read insights provided in articles written by SA contributor Christopher F. Davis starting here.
Streaming companies are a good way to gain additional exposure to precious metals while avoiding risks associated with the wrong mining stocks. The streaming model is one where the streamer puts monies into a mining company securing the right to buy all, or a percentage of, the mined metals at a significantly low, discounted and fixed price.
Silver Wheaton (SLW) is the largest and best-known streaming company in the game and is selling at a discount at time of this writing. Based on its current agreements, SLW's 2013 forecast for attributable production is approximately 33.5 million silver equivalent ounces, including 145 thousand ounces of gold. By 2017, annual attributable production is anticipated to increase significantly to near 49 million silver equivalent ounces, including 180 thousand ounces of gold.
Another streamer, Sandstorm Gold (SAND), much smaller in scale than SLW also has impressive attributable production lined up. SAND was founded and is operated by CEO and president, Nolan Watson, an entrepreneur who got his start with Silver Wheaton. Helping launch Silver Wheaton, and manage it to success, Watson knows this business like few others.
Watson focuses on high-grade gold mines and is a determined visionary. It is also important to note the company has deep pockets and too, is trading at a bargain at this time with plenty of assets on its receivables ledger for 2014 and beyond.
SLW and SAND are worth your due diligence.
The very same holds true when investing directly in mining companies. As a good rule of thumb invest only in miners where you've done your homework, and those you trust. Here you're looking for good management, as well as good ore-grades, lots of reserves and resources, low-price-to-cash-flow ratios, the ability and strength to get the job done, and those with little to no country risk.
Top tier miners such as Newmont Mining (NEM) and Goldcorp (GG) are solid, low risk investments (though some mining detractors may argue the risk) with impressive resources, reserves and balance sheets. Both are currently priced lower than usual and are indeed where the silver and gold are.
Newmont Mining for instance, boasts proven and probable [P&P] gold reserves of 98.8 million attributable ounces (98.8M oz Au) as recently as December 31, 2011. Goldcorp's numbers as of December 31, 2010, show more than 60 million P&P contained gold ounces (60M oz Au), and 1,293,900 P&P contained silver ounces (1.2939M oz Ag).
I personally like strong junior or small-cap miners like McEwen Mining (MUX) and junior explorers such as Paramount Gold and Silver Corp. (PZG) as they have, in my opinion, greater upside value and growth potential, and these two have the right dynamic ingredients to break out large one day.
Paramount Gold and Silver with multi-million ounce gold and silver properties in Nevada and Mexico is an aggressive, fully funded junior exploration company that is focused on building resources and shareholder value while positioning itself for attractive take-over bids or joint-venture arrangements with top tier miners one day.
McEwen Mining with projects already in production in South and Central America and another project gearing up for production in North America in 2014 is a highly regarded company with great upside potential. Majority owner, Rob McEwen is a miner's miner. McEwen, founder and former CEO of Goldcorp, has a knack for positioning his projects near other successful miners, discovering high-grade resources, and building mines that produce.
McEwen Mining's current assets are 699,041 P&P gold ounces (699.04K oz Au) and 49,083,400 P&P silver ounces (49.083M oz Ag). MUX stock is down, but rising at the moment and Rob McEwen owns 25% of company shares. This is an important consideration when you can be comfortable knowing the company's goals are aligned with those of its shareholders.
Also in McEwen's back pocket is Lexam VG Gold, a micro-cap gold exploration company with five individual projects in the historic Timmins Gold Camp of Ontario, Canada realizing positive and significant drilling results with an ongoing exploration program. This under the radar company is 27% owned by Rob McEwen and it is anticipated here that McEwen will one day merge Lexam VG Gold with McEwen Mining in a move to create another top-tier miner. Owning shares of each of these companies is seen here as an intelligent play.
Also, in this opinion investing in PZG today might result in significant profits in the future. During a meltdown of the economic system where cash becomes trash, (which is the focus of this article) the sky may become the limit for this company's stock. And, like McEwen, Paramount Gold and Silver CEO, Christopher Crupi also has his own skin in the game.
Each of the aforementioned mining and exploration companies have the six important "rule of thumb" qualities mentioned above, and are all good buys at their current prices, and it is believed those companies mentioned here would be powerful assets to own in a crisis.
They too, are worth your due diligence.
Conclusion: In this author's opinion, being on the correct side of a wealth transfer when economic failure occurs is imperative. Preparing one's self for a worst-case scenario by stacking physical silver and gold, and holding metal mining investments that could soar in a crisis, along with securing other obvious necessities, makes clear sense not just for survival but, also for creating wealth.
Good advice is to stay informed.
As NY Times Best Selling Author of, "The Real Crash: America's Coming Bankruptcy - How To Save Yourself and Your Country," Peter Schiff says:
"…when the Fed is forced to make this concession, [increasing QE] it should be obvious to a critical mass that the recovery is a sham. Investors will realize that years of QE have only exacerbated the problems it was meant to solve. When the grim reality of QE infinity sets in, the dollar will drop, gold [and silver] will climb, and the real crash will finally be upon us. Buckle up."
And this, one more piece of powerful opinion I feel compelled to share from Robert Fitzwilson, founder of The Portola Group, who recently said about a financial meltdown for King World News:
"There are no examples in history of any paper currency not culminating in a violent collapse. None. It has been tried by all of our ancestors throughout human history. All examples resulted in failure. The lesson never learned is that humans cannot be trusted with the ability to create money out of thin air. The list of those who have come before us [is extensive]. It is not about a particular culture or a period in time. It just does not work. If the carnage in the bond market continues… we could finally be at that moment where the system reacts chaotically and violently. It is sad, but it is the predictable end to the financial path that was chosen in the mid-1960s."
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