PDF Summary:Why Gold? Why Now?, by E.B. Tucker

In our modern economic landscape where dollars are prone to losing value, gold offers a reliable refuge for safeguarding wealth. In Why Gold? Why Now?, E.B. Tucker explores gold's timeless properties as a store of value and a medium of exchange—even through periods of instability.

This guide examines gold's enduring purchasing power and its role as a hedge against monetary debasement by governments. It also provides practical advice on strategies for acquiring physical gold and gold-based investments in preparation for a potential economic overhaul.

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The stability of the economic framework is greatly compromised by the escalating national debt along with the direct intervention of the Federal Reserve.

The existing economic framework resembles a delicately balanced house of cards, with every participant driven by the desire to preserve its steadiness, even as the foundational supports grow less stable. Tucker underscores the system's vulnerability, stressing that even a minor tightening of monetary policy could trigger significant economic upheaval.

The Federal Reserve's balance sheet has seen considerable growth, now possessing a considerable portion of the United States' debt obligations.

After each economic disturbance, the Federal Reserve has expanded its portfolio by acquiring debt obligations issued by the United States government. Tucker contends that such actions distort the natural mechanisms of the free market, typically characterized by the interaction of market participants determining the cost of credit. The central banking system of the United States, known as the Federal Reserve, has the authority to regulate interest rates and owns a vast portfolio of financial assets valued in the trillions. The economic framework's essential support is highlighted by its expansion, having ballooned to nine times its original size since the 2008 financial crisis.

The possibility of government appropriation of personal bank funds, akin to the Cyprus incident, combined with the imposition of negative interest rates, poses significant dangers for those accumulating personal savings.

The prevailing economic framework requires the adoption of policies that mandate negative interest rates to encourage spending. In certain countries, Tucker points out, individuals who save money effectively face a charge for the secure storage of their funds by the government. This, coupled with the risk of government seizure of bank assets as evidenced by the financial rescue strategy in Cyprus, erodes the core tenet of accumulating wealth for future use. In this context, it becomes crucial to possess assets that remain beyond the reach of governmental influence.

The potential rollout of a centralized digital currency such as FedCoin, coupled with the adoption of Modern Monetary Theory (MMT), signals a departure from the core principles of stable and dependable monetary value.

MMT and FedCoin signify the ultimate phase in the manipulation of fiat currency. Tucker suggests that such tactics are the government's strongest tools for asserting financial dominance and eliminating any trace of an unregulated market. The possibility of unlimited spending, influenced by the principles of Modern Monetary Theory, along with the complete transparency associated with a digital form of money, suggests a transition to an economic framework where government entities control the distribution of finances.

MMT supports the outright funding of government shortfalls, essentially discarding any semblance of budgetary restraint.

Tucker outlines a situation in which governments, following the principles of Modern Monetary Theory, possess the ability to create money to finance their expenditures, bypassing the traditional approach of acquiring funds through the sale of bonds. To address shortfalls in government financing, the United States' central banking system would effectively generate more currency. Hyperinflation could severely reduce the purchasing power of the dollar for goods and services.

The initiation of a digital currency by the authorities could pave the way for unprecedented surveillance of financial transactions, which might threaten individual privacy and freedom.

Tucker believes that FedCoin, a centralized digital currency, would give the government complete oversight of every financial transaction. It might supervise and regulate expenditures, limit the circulation of money, and ultimately remove the privacy associated with tangible currency. This transformation would result in a monetary framework characterized by heightened regulation and centralization, diminishing individual liberty and the privacy of fiscal transactions.

Context

• Modern Monetary Theory (MMT) is an economic theory that suggests governments that issue their own currency can finance their spending without the need to rely on taxes or borrowing. It argues that as long as a government controls its own currency, it can always create more money to pay off its debts. MMT challenges traditional beliefs about government budgeting and debt, emphasizing the importance of managing inflation instead of focusing solely on balancing the budget. Critics of MMT raise concerns about the potential risks of unchecked government spending leading to inflation and currency devaluation.
• The Cyprus incident in 2013 involved a financial rescue plan that included a controversial measure to seize a portion of bank deposits from individuals to stabilize the country's banking system. This move, known as a bail-in, was a departure from traditional bailouts funded by governments. It raised concerns about the safety of personal savings and highlighted the potential risks individuals face during financial crises. The incident sparked debates about the role of governments in managing financial stability and the implications for depositors' trust in the banking system.
• A centralized digital currency like FedCoin could give the government unprecedented oversight of financial transactions, potentially leading to increased surveillance and regulation. It may allow authorities to monitor and control spending more closely, impacting individual privacy and financial freedom. This shift towards digital currency could centralize financial control, altering the traditional dynamics of monetary exchange and reducing the anonymity associated with physical cash.
• The Federal Reserve's balance sheet represents its assets and liabilities. Assets include securities like Treasury bonds, while liabilities consist of currency in circulation and reserves held by banks. The balance sheet expansion through asset purchases influences interest rates and the overall economy. The Federal Reserve's actions, such as quantitative easing, impact financial markets and the availability of credit.
• Government actions, such as monetary policies set by institutions like the Federal Reserve, play a crucial role in shaping the economic framework. These policies influence factors like interest rates, money supply, and overall financial stability, impacting how businesses and individuals make economic decisions. The stability of the economic framework can be affected by government interventions that aim to manage inflation, employment levels, and overall economic growth. Understanding how these policies interact with market forces is essential in assessing the health and resilience of an economy.

The book offers advice on how to acquire and maintain possession of gold and similar valuable metals.

This section provides an understanding of the various strategies available for investors to handle and own their gold. The book explores a range of subjects, such as physical gold assets, collectible coins, and monetary tools that are supported by gold.

Holding actual gold is the foundation of a strong investment portfolio centered on this precious metal, guaranteeing personal control and management of the asset.

Tucker recommends that physical gold form the foundational element of a portfolio centered around gold investments. This section of the book emphasizes the importance of owning tangible gold and offers advice on acquiring reputable gold coins. Investors who hold physical gold maintain independent control of their assets, without depending on financial institutions.

Gold ingots, which come in various dimensions, offer a secure and condensed means of safeguarding assets.

Investors often opt for physical assets, with their choice ranging from a small gram to a hefty 400 ounces of gold. Choose a reputable refiner like PAMP or a company of similar standing to Johnson Matthey. Bars weighing less than a tenth of a pound present a more practical option for private investors. Understand the difference between the inherent value of gold and the additional cost that a broker applies, referred to as the spread, and confirm the authenticity of the refinery stamp on the bullion.

The American Eagle, made of 22-karat gold, is easily exchangeable for cash on a global scale.

Investing in one-ounce gold coins is a prudent choice, featuring well-known varieties such as South Africa's Krugerrands, Canada's Maple Leafs, and the American Eagles. Coins are globally recognized, easily tradable, and retain their value consistently. The Maple Leaf is celebrated for its outstanding purity, while the Krugerrand is distinguished for its durability, which arises from the inclusion of copper in its alloy. Investors in the United States place their trust in the American Eagle, assured by its government endorsement. Choose reputable dealers and avoid purchasing coins which may have exorbitantly high premiums because of their rarity.

Gold coins that are considered collectibles have intrinsic value, but they also come with extra risks and complexities.

Tucker advises caution when participating in the collectible coin market, which requires an advanced understanding of evaluating the value of unique and historic items. The value of these items is not solely determined by the quantity of gold they encompass, but also by their rarity and condition, elements that can affect their desirability and require a deeper understanding for evaluation.

Coins made of gold, especially those with notable historical value, frequently command significant premiums, though their value is often more conjectural.

The worth of collectible coins is not solely based on the amount of gold they contain. The rarity of the 1933 Saint-Gaudens Double Eagle has driven its value into the millions. However, Tucker makes clear that determining the value of a numismatic piece requires specialized expertise, which involves evaluating the coin's state and confirming its authenticity. The complex characteristics of collectible coins make them more suitable for seasoned collectors rather than investors seeking a straightforward approach to gold investment.

When engaging with the collectible coin market, one must exercise caution because of its vulnerability to deceptive practices and the proliferation of misinformation.

The commercial environment is filled with unscrupulous sellers taking advantage of inexperienced buyers. To ensure genuineness, it is crucial to engage reputable grading services like PCGS or NGC to assess the state of a coin. Exercise vigilance when buying from dealers with questionable credibility or those who offer coins at inflated prices, especially if they assure you of a guaranteed appreciation in value.

Investors have the opportunity to participate in the gold market by utilizing financial vehicles such as ETFs and royalty companies, enabling them to invest in gold without the need to hold the actual metal.

This section addresses the difficulties related to securely storing large amounts of gold. Tucker suggests considering investments in gold exchange-traded funds and businesses that concentrate on mining royalties, which offer distinct benefits and constraints, as alternatives to possessing physical gold.

Allocating funds to Gold Exchange-Traded Funds provides a convenient way to mirror the market price of gold, although it may not instill the same assurance as possessing the physical metal directly.

Investors have the option to engage with the gold sector through exchange-traded funds like GLD and IAU, which provide the convenience of not having to physically store the metal. However, these ETFs often participate in futures contracts rather than holding physical gold, and the investors do not have the right to claim ownership of the metal. Individuals looking for an ETF that provides the option to exchange their shares for actual gold bullion might find the Sprott Physical Gold and Silver Trust (CEF) or the VanEck Merk Gold Trust (OUNZ) to be suitable choices.

Individuals looking to delve into the gold market may find opportunities for increased earnings and diminished risk by allocating funds to businesses that focus on gold royalty agreements, like Franco-Nevada and other similar entities.

Royalty enterprises are described by Tucker as the pinnacle of global business profitability. They earn a portion of the revenue from gold production without participating in the extraction process and its related risks. They benefit from the increase in gold's worth while keeping operational expenses minimal. Tucker highlights the extraordinary achievement of a certain enterprise, showcasing the transformation of a small royalty investment of $2 million into a return worth billions of dollars. He advocates for Metalla Royalty & Streaming (MTA) because of its strategic approach to obtaining acquisitions and its prospects for growth under the current economic climate. Engaging with the gold market can be accomplished by purchasing stock in a reputable gold royalty company, which provides a steadier option compared to direct investment in mining company stocks.

Other Perspectives

• Physical gold does not generate income, such as dividends or interest, and may incur storage and insurance costs.
• Gold ingots, while secure, may not be as liquid as other forms of gold investments and can be difficult to sell quickly at market value.
• American Eagle gold coins, while easily exchangeable, may not always fetch the best price compared to other forms of gold due to premiums over the spot price of gold.
• One-ounce gold coins are a wise investment for some, but they may not be suitable for all investors, especially those looking for diversification or those with a low tolerance for volatility.
• Collectible gold coins may have intrinsic value, but their market is niche, and their prices can be highly subjective and volatile.
• The value of collectible coins being based on more than gold content introduces a level of speculation that may not be suitable for conservative investors.
• While caution is advised in the collectible coin market, it can also be said that any investment market is subject to deceptive practices and misinformation, not just collectibles.
• ETFs may not provide the same sense of ownership as physical gold and can come with their own set of fees and potential tracking errors.
• Gold royalty companies, while potentially offering increased earnings and reduced risk, are still subject to market fluctuations and the performance of the underlying mining operations.
• Investing in gold, whether through physical ownership, ETFs, or royalty companies, does not offer the diversification benefits of other asset classes and can be subject to the same economic forces that affect all commodities.

Approaches for pinpointing optimal moments to purchase and liquidate gold holdings.

This section of the book guides readers in pinpointing the optimal times to engage with and exit the gold trading market. Gold stands out among various assets due to its unique nature of being acquired and retained. Understanding market dynamics and utilizing specific indicators can significantly enhance returns and minimize losses.

By examining the performance of the Dow Jones Industrial Average relative to gold prices, we can gain an understanding of gold's value in comparison to stocks.

Tucker explores the metric that reflects how many ounces of gold can be bought with a single Dow Jones Industrial Average share. The historical ratio in question provides insight into how the worth of gold stacks up against that of stocks. Tucker suggests that extreme values of this ratio could signal substantial changes in the realm of gold transactions.

A high ratio might suggest gold's current market value is lower than it should be, setting the stage for a potential rise in its price.

Gold appears to be more affordable than stocks at present, indicating that this might be an opportune time to contemplate acquiring it. In 1999, the ratio peaked at 45, suggesting that the gold market's true worth was yet to be fully acknowledged, which led to a significant increase over the following decade. By analyzing the current ratio against historical standards, investors are able to identify periods that may indicate a significant rise in gold's worth.

The perceived worth of gold may be considered excessive when the Dow-to-gold ratio decreases, indicating a potential time to consider selling.

A low ratio indicates that the price of gold is high relative to stocks, which could be an indicator of a market peak. Should the ratio comparing the Dow Jones Industrial Average to the price of gold experience a substantial decrease, potentially to a point where one or two ounces of gold are equivalent to the Dow, it could indicate the peak of the precious metals market cycle, suggesting that investors consider reallocating their investments.

The gold-to-silver ratio can also be used as an indicator of market sentiment and future price movements.

The value comparison between gold and silver serves as a crucial barometer for market sentiment and potential changes in the valuation of these precious metals. Significant deviations in this ratio, as Tucker describes, may indicate looming major shifts in the trade of valuable metals.

When the gold-to-silver ratio hits notably extreme highs or lows, it frequently signals impending significant rises in the worth of precious metals.

When the ratio is exceptionally high, it typically indicates that silver's value is disproportionately low compared to gold, hinting at a possible significant increase in silver's market price, accompanied by a broad rise in the worth of precious metals. A significantly low ratio may suggest that silver prices have reached an unusually high level, possibly signaling a peak in the market and an opportune moment to contemplate profit-taking.

Monitoring the relationship between gold and silver prices can guide investors in identifying the most advantageous times to buy into or exit the precious metals market.

Investors can take advantage of recurring trends by monitoring the relative value of gold compared to silver, which helps them pinpoint the best times to buy when the disparity is significant and determine the optimal times to sell as the ratio nears its historical average.

Keeping an eye on market movements and the state of the economy can inform decisions on when to conduct transactions involving gold assets.

Understanding the broader market sentiment toward precious metals is crucial, including particular metrics like the correlation between the stock market, exemplified by the Dow Jones Industrial Average, and gold prices, along with the relative worth of gold compared to silver. Tucker emphasizes the need to stay alert to shifts in public sentiment and media attention to accurately identify the best times to acquire or sell gold holdings.

Enthusiasm and positive media coverage regarding gold may suggest that the market is approaching a potential decline.

Interest in gold is growing and as positive media coverage increases, it may indicate that the market is nearing its peak, with new investors often entering as the prices reach higher levels. This excitement could potentially lead to a zenith similar to that of 1980, followed by a significant decline.

Conversely, a lack of mainstream attention and negative sentiment towards gold could indicate that this precious commodity is undervalued and presents a buying opportunity.

During times when gold receives scant attention from the media and investors, who seem unconcerned, it may signal a prime opportunity to buy. Astute investors may seize the opportunity to expand their gold portfolios at favorable costs during times when gold is undervalued, before the broader market recognizes its value.

Other Perspectives

• The Dow-to-gold ratio might not always be a reliable indicator due to various external factors affecting stock and gold markets differently.
• A high Dow-to-gold ratio does not necessarily predict a rise in gold's price; correlation does not imply causation.
• A low Dow-to-gold ratio could be influenced by a stock market bubble rather than indicating a peak in gold value.
• The gold-to-silver ratio, while historically significant, may not account for current market complexities and industrial uses of these metals.
• Extreme values in the gold-to-silver ratio may not always lead to significant rises in precious metals' worth due to changing economic conditions and investment patterns.
• Relying solely on the gold-to-silver ratio for investment decisions could lead to oversimplification and potential misjudgment of market conditions.
• Market movements and economic conditions are complex, and their impact on gold prices can be unpredictable; other factors such as geopolitical events can also play a significant role.
• Enthusiasm and positive media coverage could reflect a growing market interest that sustains or even increases the price of gold rather than indicating an imminent decline.
• A lack of mainstream attention does not necessarily mean that gold is undervalued; it could also reflect a market consensus that gold is appropriately priced or not a favorable investment at the time.