The key to reclaiming your financial freedom

Thursday, 17 August 2023 — South Melbourne

[7 min read]

Dear Reader,

Two days ago marked the 52nd anniversary of perhaps the most consequential event in modern financial history.

Faced with the pressures of losing more gold from their national reserves, then President Richard Nixon announced that he would temporarily close the exchange window between gold and the US dollar. It became too much after France’s President Charles de Gaulle demanded the return of its gold from safekeeping during the Second World War. Other nations could follow suit.

By halting this exchange window, the US dollar became the world’s de-facto reserve currency. Prior to this, the supply of the US dollar was loosely tied to that of gold and hence the price of gold was relatively stable. After 15 August 1971, the price of gold started to rise and even went parabolic from 1978–80:

Today, it’s worth just a little below US$1,900 an ounce — a far cry from US$35 an ounce in 1971.

To be precise though, gold never changed. It was the US dollar that decoupled, and its value fluctuated.

Knowing this fact could set your path to building real wealth and possibly change your life.

I’m going to unpack why this is so. I’ll also reveal what you can do to capitalise on it rather than be a victim of this silent robbery by those who know this secret.

A shocking discovery and a turning point

It was over a decade ago when gold fell sharply in April 2013. Consequentially, I came to the realisation of the financial system we have was an illusion that stole silently from us at every moment.

My primary school friend and I had lunch on the Sunday after gold first tumbled. He explained to me how the notes and coins in our wallet were fiat currencies that don’t store value. He showed me that gold is real money and fiat currencies were fake imposters.

In the ensuing months, I read widely on the topic and realised that not only were we living out an illusion and paying through our noses…there was also a better way to build my wealth than to invest wisely in the stock markets, pursuing macroeconomic trends that gave me mixed results. I needed to knuckle down and focus.

So, I focused on gold, but not bullion bars and coins. I took the bull by its horns, except during what might be the most savage bear market for gold in the last three decades.

I tipped in much of my savings and fortnightly pay into gold stocks from July 2013. They tumbled hard. By late-2014, my portfolio was down by around 75%.

There’s no denying I was in a bad state financially and mentally. Why didn’t I give up?

I developed an intuition into studying the markets and identifying the drivers of value for these mining companies. By a stroke of luck (probably more than just a stroke to be honest!), the gold mining industry received a reprieve when the price of oil tumbled into the second half of 2014.

With that, I doubled down and stuck to my plans.

My fortunes turned in 2015–16 as gold recovered and gold stocks staged a stunning recovery.

I cashed out some of my profits and bought my first silver bar and gold coin in mid-2015. And that was just the beginning.

So why gold and silver bullion and not bricks and mortar?

Let’s explore this too.

The silent robbery from the ordinary man and woman

Historically, gold was a stable proxy for prices. In previous centuries, an ounce of gold would buy a man his toga or business wear. In the 1930s, it’d buy a man a suit and even dinner for his family.

An average worker would be able to support their family with one ounce of gold a week.

How much is gold worth now? AU$2,900 an ounce. That’s around $150,000 a year if you had an ounce per week, give or take.

Let me show you how the average weekly income of a worker in Sydney fared in gold ounces since 1994:

This figure might hold to key to why the average Australian household needs to have more than one income. And it should also explain why the average mortgage and outstanding credit card debts have increased substantially.

Basically, we’ve all become poorer. The golden years were at the turn of the millennium when the average worker in Sydney earned around two ounces of gold a week. This is the equivalent of $300,000 each year. How many people are getting paid that amount?

And don’t take my word for it. In January 2022, Nine News ran a news piece ‘What it takes to feel rich: How much Aussies need to earn to “feel wealthy”’.

Guess how much they said the amount is?

Over $300,000!

In gold terms, Australians are falling behind. I believe that this isn’t just an Australian problem. It’s worldwide.

The fact is that the subprime crisis in 2007–09 — which led to central banks around the world cutting interest rates to near zero for several years — began the silent robbery of the ordinary household. It was a silent redistribution of wealth from the workers to the asset speculators. The Wuhan virus outbreak completed this when big businesses were allowed to stay open while many small businesses were forced to lock down.

While interest rates stayed at near zero, there was a flood of fiat currencies flowing into the economy through massive government spending and corporate borrowing. The ordinary households received a trickle from this largesse, insufficient for them to keep up.

But those who knew the secret of gold weren’t left behind.

A major rally for gold — a matter of ‘when’

Gold has almost tripled since the subprime crisis. This is despite sustaining a king hit in 2013 when US Federal Reserve Chair Ben Bernanke played with short and long-term bonds to manipulate the interest rates. You can see it in the figure below:

It seems to be setting up for another major run. That could happen real soon.

Recent developments geopolitically and financially could spark that move. It could come as early as next week when the BRICS nations hold their summit.

Or it could come from a US constitutional or economic crisis.

Or from the massive stimulus that the Chinese Government may need to unleash to prevent a severe economic decline.

It’s natural for people to say that they’ll climb on board a rally after it’s gained momentum. They hate catching a falling knife. Even a few months of inactivity is too long for them as they want to chase what’s hot and end up overstaying their welcome when the momentum breaks down.

If you’re looking for a place to park your wealth now, get into gold NOW.

I’ve recently revamped my precious metals newsletter service, The Australian Gold Report, to become a one-stop shop for all things gold (and silver too!). There you’ll find out how to allocate your wealth between bullion, gold and silver ETFs and mid to large-cap gold stocks.

I use a unique analytical approach and valuation techniques you won’t find anywhere else. I developed them over the past decade in my journey. It’s tried and tested.

So why not head over here to find out more? Consider signing up now as we’ve got a special offer for you.

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

When did China become an enemy? Why did it become an enemy?

These are questions for the future, along with ‘when did we become the bad guys?’

But since we aim to stay ahead of the news cycle, we will ask now:

Does China threaten to invade California? Does it hijack US ships…and crucify the crews in Tiananmen Square? What did it do that was so bad?

The answer is, of course, nothing. But it doesn’t need to do anything. It only has to exist — as a commercial rival…as a ‘strategic competitor’…as an alternative way of doing things. That’s enough to set the great US jaw against it.

Backtracking…

The latest boondoggle war — in the Ukraine — is not going so well.

Responsible Statecraft:

‘Now, two months into that offensive and with summer’s end nearing, that scenario looks increasingly unlikely. The Ukrainian offensive has by all accounts stalled, as often exhausted, inexperienced, and hastily trained troops are running headfirst into dug-in and heavily mined Russian defences, at [a] horrific human cost.

‘This is all being reported, too, in major [US] media, including CNN, The Washington Post and The New York Times. These and other outlets, which have been explicitly supportive of Ukraine’s war effort, have begun painting quite a bleak picture of the situation on the ground.

‘Ukrainian forces are expending material at an unsustainable rate, using up 90,000 shells a month when the Pentagon is only producing a third of that, while 20% of the NATO weaponry it deployed was damaged or destroyed in the first two weeks. In light of the limited gains made by the offensive, President Joe Biden is now asking Congress for US$20.6 billion more in aid for Ukraine, stressing that “the US is committed to maintaining strong global opposition to Russia’s illegal war.”’

But while the Biden Administration is keen to stay in its quagmire on the Eurasian steppes, US foreign policy experts are ‘pivoting’ towards a more dangerous boondoggle. The ‘neo-realists’ are urging the US to prepare for a showdown with a new enemy: China.

Counter to intelligence

China has sent the US about US$1 billion worth of goods per day for the last 10 years…and gotten only dollars in exchange. (That’s roughly the net trade deficit over that period).

What thanks does it get? The FBI:

‘The counterintelligence and economic espionage efforts emanating from the Government of China and the Chinese Communist Party are a grave threat to the economic well-being and democratic values of the US.’

The Washington Post elaborates, ‘China harvests masses of data on Western targets, documents show’:

‘These include a US$320,000 Chinese state media software program that mines Twitter and Facebook to create a database of foreign journalists and academics; a US$216,000 Beijing police intelligence program that analyses Western chatter on Hong Kong and Taiwan; and a cyber centre in Xinjiang, home to most of China’s Uyghur population, that catalogues the mainly Muslim minority group’s language content abroad.

‘“Now we can better understand the underground network of anti-China personnel,” said a Beijing-based analyst who works for a unit reporting to China’s Central Propaganda Department.’

Horrors! China is listening in. And here’s CNBC:

‘“China is a growing threat to national security, US companies and [US] workers,” US Commerce Secretary [Gina] Raimondo says.

‘“Over the past decade, China’s leaders have made clear that they do not plan to pursue political and economic reform and are instead pursuing an alternative vision of their country’s future,” Raimondo said in a speech at the Massachusetts Institute of Technology.

‘Raimondo said Chinese leaders have made it apparent over the last decade that “increasing the role of the state society and economy,” “constraining the free flow of capital”, and “decoupling in technology areas of the future” is more important than political and economic reform.’

What to make of it? Is this a real thing…is there a real threat buried somewhere in those words? Or is this like the ‘conspiracy’ charges against Donald Trump…with so much swirling bluff and bluster it’s hard to find evidence of a real crime.

Alternative visions

China is interfering with its own businesses. It is telling people where they can and can’t invest their money. It is not planning to ‘pursue political and economic reform.’ Instead, gasp! It has an ‘alternative vision.’

In other words, China is making mistakes. Surely it will suffer from its overbearing central planning. Surely it will lose market share and growth, because of its lack of ‘reform.’ No doubt, it will fall behind as it pursues its ‘alternative vision.’

More broadly, an economy run by communists is bound to be a disaster. After all, what do political hacks, whether they be in Beijing or Washington, know about capital allocation? When were their ‘investments’ ever not failures?

What luck! You’d think US experts would be delighted; they have found an enemy that is even more badly governed than we are. They should welcome China’s many weaknesses and errors. ‘Never interrupt an enemy when he is making a mistake,’ advised Napoleon.

Instead, they rant and rave…and rattle their sabers. The empire has found its next target.

Regards,

Bill Bonner,
For The Daily Reckoning Australia