Turning Paper Into Gold

Turning Paper Into Gold

The time has come for us to practice a bit of modern-day alchemy — in this case, turning anything you can find into gold.

I’ve been doing that for most of the year so far. I’ve sold out of various stocks except those in industries in which I have strong faith for the future (energy, pharma, health care, gold mining) to buy physical gold. I have been selling items on eBay I no longer want — high-end photo gear and such, for instance, and using that cash to buy physical gold.

Let me stop here for a moment to assure you that I am not a “gold bug.”

I’m just an observer who uses his observations as a road map to the future. I pay no attention to what passes as immediate analysis in the popular press, because the immediacy is gone the moment an event happens — thus, whatever the press has to say about it is already outdated, which means you cannot act on it.

But what a given event means down the line … that’s what I care about.

And that’s why I’ve been practicing alchemy.


See, we’ve got a problem. It’s a big problem — the kind of problem that changes the course of history, or at least the history we thought we were living.

That problem is Western central bankers. They’ve lost control of the apple cart.

They won’t tell you that — good lord, no! What a mess that would make. People the world over would stampede out of every major currency if the Fed or the Bank of England or the European Central Bank conceded that “Yep, we kinda ain’t got a freakin’ clue what we’re doing at this point, and, well, really, people, we’re just throwin’ ‘sketti at the wall, hopin’ sumin’ sticks.”

Make no mistake — that is exactly what’s going on. Central bankers are so desperate to revive comatose economies that they have resorted to more than six years’ worth of untested, unconventional monetary policies, none of which have worked up to this point.

The suck-ups say that quantitative easing and zero-interest rates worked their magic because they saved the economy from collapse. That’s like a doctor telling you that Aunt Hortense is healthy because she’s been on life support this whole time … though the minute the power fails, Hortense won’t last an hour.

Despite six years of reckless monetary policy, we are left with:

If central-banking policy had been successful, then those bullet points would not exist. More important, we wouldn’t have negative interest rates in Europe and Japan, and the Federal Reserve here at home would not be demanding that U.S. banks build negative rates into their latest stress tests.

Negative interest rates are the end of the rope. They are “cross your fingers” monetary policy that has reached its conclusion.

We are in a world never before seen. This is the world where unknown monsters lurk — but it’s all the worse because we don’t even know what the monsters in this world look like. No one — no one! — has ever charted this landscape.

And, so, I’ve become an alchemist.

Protection Against the Dark Unknown

As I was writing this, a message from eBay popped onto my phone. A Nikon telephoto camera lens I haven’t used in eons sold for more than $500. I will pair that cash with more that has arrived from other sales … and I will pair that with recent stock sales to buy gold coins.

They’re early- to mid-20th century bullion coins. I’ve been buying all denominations, from one-ounce Austrian Coronas and near-half-ounce Mexican pesos to quarter-ounce Uruguayan pesos, Swiss Helvetias in the one-twentieth of an ounce range and old Dutch guilders slightly more than a tenth of an ounce.

I want gold that is spendable and transportable.

And I want gold that the government likely won’t confiscate. Who knows if a desperate government will make a grab for traditional bullion? But chances are it won’t grab collectible, numismatic coins such as those I’m buying.

I pay a little more than the daily price of gold to buy these — 5% or 6% — but it’s a price I’m willing to pay for the benefits of gold that is spendable, transportable and probably protected against confiscation.

Like I said, I am not a gold bug. At this stage of central-banker maleficence, I am better described as a worrywart.

I see the natural conclusion of the policies that central banks are using. Worse, I understand why bankers are having to rely on those policies. Things out there are not good — not good at all.

Central banking — left in its current lurch by the fiscal policies of ignoramuses who run Western governments — has done all it can. At this point, it’s a guessing game among bankers who have no clue what will work — and it’s a waiting game for us.

Something has to change.

Bankers and politicians have proven they are incapable of shepherding that change. So, the system will foist chance on the politicians and bankers at some point … that’s the great thing about the laws of economics — man (bankers) can manipulate the system for a while, but the system, like nature, always self-corrects.

Gold, I assure you, will play a role in that correction. Paper assets will not.

Until next time, good trading…
Turning Paper Into Gold
Jeff D. Opdyke
Editor, Frontline Investor