Hey There Income Hunters,
The first golden domino has fallen.
Basel III regulations are now in effect for European banks.
The rule enactment, however, was never expected to immediately transform the global monetary landscape.
But what happens in the days, weeks and months ahead, will.
A quick review of how Basel III resets the board for precious metal demand and prices:
- Physical (or “allocated”) gold, like bars and coins, have moved from the riskiest asset class (Tier 3) to a zero-risk class (Tier 1).
- This major upgrade in risk rating places gold right alongside cash and currencies and will expand the universe of investor classes that can hold gold in their portfolios …
- Now that unallocated paper gold is considered riskier than physical coins and bars, paper and physical gold will trade at different prices and break away from a peg. That will free up physical gold to trade as real money.
These rule changes on their own are not necessarily bullish for gold. Bank dealing desks will pull back on their business and this could hurt volume initially.
There is an extremely bullish side disconnecting the two markets — especially in terms of the timing of the rule change.
The End of the Fiat Currency Debt Cycle
All fiat currencies in history not backed by silver and gold have failed.
Every. Single. One.
The cycle can last as long as 100 years, but due to the natural evolution of a reserve currency cycle they are all doomed to failure …
- A reserve currency, by definition, is the dominant currency used in exchange for goods and services.
- The US’s global trading partners needed massive amounts of newly printed dollars so they could pay for their goods and services traded abroad.
- This forced dollars to flow out of the US all around the world and eventually turned the US into a debtor nation in order to supply foreign nations with dollars.
The End Game
Debt built up until it became a debt burden that the US couldn’t grow out of.
The Fed chose to keep printing money under the theory that an ever-increasing amount of money can pay off a fixed amount of debt.
The problem was that it required devaluing our currency, which destroyed the wealth of your very own citizens.
So, this inflation game only works until Americans realize the Fed’s intentions and they spend all their dollars to buy “real money” — silver and gold.
The Gold Story
So, this is why the Basel III rule change is so important …
With gold now elevated to a risk-free asset, it becomes extremely valuable to every investment sector in the world.
Instead of buying US Treasury bonds classified as risk-free return assets — which have now become no-return risk assets — investors can hold true portfolio protection in the form of gold and silver.
The major home run for holders of gold is this:
The transition to a new monetary system has begun, and the burgeoning proliferation of digital currencies will completely change how monetary policy is run by central banks.
A massive bond market that aided countries holding huge dollar reserves by paying them interest is no longer needed. Reserve currencies will be backed by gold, which will strengthen and expand global trade.
Gold and silver will regain their legendary status as real money and facilitate global growth for decades.
Central Banks will digitally send currency anywhere in the world. It will simply be a credit to their counterparts and a deposit on the balance sheet in terms of a loan.
This will export inflation around the world, further enhancing gold’s value as an inflation hedge.
Timing Is Everything
I have frequently stated my belief that the
timing for a change in the price of gold and silver would be after the June 28 deadline.
China holds the cards to force that change …
I don’t know precisely when they will reveal their plans, although I think their 100th anniversary of Communist Party in China and their starring role as 2022 Winter Olympics hosts are milestones that demand major announcements.
I currently own a 50% position in precious metals and miners and am adding another 25% at current levels:
- VanEck Vectors Gold Miners ETF (Ticker: GDX), $33.70
- Global X Silver Miners ETF (Ticker; SIL), $42
Bring It Home
Timing major cycles and investors’ psychological shifts is a tricky business.
It’s crucial to understand the timeframes you are trading and adjust your approach accordingly so that you have staying power.
This is exactly how this trade needs to be managed.
I have allocated $10,000 of capital to investing in commodities, precious metals and miners for a 3-to-5 year bull market.
We are in the first couple of innings of a nine-inning (or possible extra-inning) game.
A dollar cost average method is prudent for long-term investment strategies like this.
Whether it’s two weeks or every 2% drop, it allows you to build a portfolio with a cost basis that sets you up for tremendous upside.
Stay tuned to Power Income for various strategies to deploy in the coming weeks and months. And, of course, keep your comments and questions coming below.
Live and Trade With Passion My Friends,