Russians who didn’t protect their money with hard assets such as gold have lost 50% of their savings and buying power
Gold may or may not make you money, and it doesn’t pay dividends. But when there’s a currency crisis, gold has proven to protect your savings against losses. Such is the case right now in Russia, where the ruble has lost about half of its value. In this edition of the Market Report, Will Hart and Jake Kennedy explain exactly why gold is such a critical component of your portfolio for just this reason.
Mark Alyn: This is The Market Report from the Birch Gold Group. Hi, I’m Mark Alyn along with Will Hart and Jake Kennedy of the Birch Gold Group. Gentlemen, welcome.
Will Hart: Thank you Mark.
Jake Kennedy: Good morning Mark.
Mark Alyn: And good morning to you guys. Let’s talk about gold’s value during currency crises. There’s some crises going on right now throughout the world. Will, do you want to start?
Will Hart: Yeah. Obviously you can’t turn the Internet on without reading about Russia’s issues with their rubles, Venezuela, our own currency – $18 trillion, which we broke just a week and a half ago.
Jake Kennedy: You’re talking about debt?
Will Hart: I’m talking about debt. We’re, yeah there’s between debt and devaluation. Both fiat currencies across the globe are being hit really hard.
Mark Alyn: Got it. And Jake what about you?
Jake Kennedy: Yeah, it, it seems to be the season for it. I think it’s been culminating for many years. The world as we know it and every government and country seems to have been printing money for the last 10 or 12 years, well really the last 30 years. And I think this is the time over the next year or two we are going to see the results of this action start playing out in the markets and in the currency markets starting with the, I think we’ve accelerated the ruble’s decline because of what they did in the Ukraine, and what America is doing and what the world is doing in terms of sanctions and it’s really starting to kick in with them right now. But other countries like Venezuela are having real problems, Argentina are having real problems. And other currencies are really suffering around the world as they keep printing money and their currencies become worth less and less.
Mark Alyn: Let me read this, if I may. It says, “Russians who trusted their government and kept their savings in say, a bank account, are losing their shirts. But those who own ‘boring, doesn’t-pay-interest-in-a-bear-market gold,’ have seen their capital appreciate in local currency terms by about 60% in just the past month. And they are not making money – they’re preserving wealth.”
Will Hart: Yeah, well you’re going to again Mark, 100% this is, gold’s been around as we’ve talked about in the past 4,000 years. It’s a store of wealth. It’s a safe haven. I mean, Alan Greenspan two weeks ago came out telling people the printing of the dollar here in the United States was a disaster, and you should buy gold. So I mean this is something that we’ve seen throughout history. We’ve seen paper currencies disappear. And what’s always standing there shining brightly is gold.
Jake Kennedy: And that’s right. And this article is interesting. “Gold doesn’t make money. It doesn’t pay dividends. But when there’s a crisis with a currency or devaluation of a currency, gold counterbalances those losses by going up.” I ran some numbers this morning, and they’re changing all the time, but as of about an hour ago, in the last year we’ve seen since the crisis with Ukraine – Russia’s gone in and taken land and everything started then – but in the last year, we’ve seen the ruble lose 50% of its value. And really most of that has happened in the last three months, but we’ve seen their currency lose 50% of its value and gold is up over 100% as of today. Again, most of that’s in the last three months. So what that means, I ran some, I read an article on Russia Times at RT.com, this morning. One of the analysts states that the Russian people have over 18 trillion rubles, which is about $350 billion, in savings in the bank. Now unfortunately what that means for them is that they’ve lost 50% of their buying power and the value of their money just in the last, well, let’s say the last year, but it’s been accelerating in the last three months, inflation figures for November alone were 9.1% in Russia.
Mark Alyn: Holy moly.
Jake Kennedy: Yeah. And that means accumulatively, across the year, that could be 100% inflation, yeah.
Mark Alyn: Over yeah, could be 120%. Now let’s bring it down to the average consumer, so that we can relate to it here in America. Person at the beginning of the year, a Russian goes to the market, buys a piece of fish or a loaf of bread and let’s say they pay, I don’t know, five rubles. What you are saying now is that that’s double or more for the same loaf of bread?
Jake Kennedy: Yeah what that means is that, yeah. That loaf of bread is now doubled so people who have had money in the bank go to buy that loaf of bread with their money today, it costs them twice as much. That means their $100,000 or their 100,000 rubles or their $10 or whatever, has lost 50% of its buying power. But if people had converted their assets to gold at this first sign of trouble a year ago, that gold has doubled in value, so what that means is that even though some fish or bread has doubled in value, you take your gold and you trade it in for local currency on that day, that gold has doubled in value so you’re going to be able to buy those fish and those loaves of bread pretty much with the same amount of money that you had a year ago in your bank accounts that you converted to gold. So what that means is gold has kept ahead of inflation and currency devaluation in these circumstances and has protected and preserved people’s money and wealth so they are not losing buying power on money.
Will Hart: It’s done that throughout history. We’ve talked about that in the past where you know a one-ounce gold coin a hundred years ago was $20 and a suit was $20 a hundred years ago. Today, a finely-tailored suit is $1,300 and an ounce of gold is $1300. So gold maintains its value, it’s like a fishing bobber floating on the top of the water. It will maintain its value against goods and services. Mark, you shouldn’t be surprised hearing that from Jake, I mean yeah, what’s happening in Russia is like a pot of boiling water and trying to throw a frog in it. Everybody’s like “Wow, look what’s happening.” But this has been happening to us for the last 10 years, I mean our dollar has devalued by over 40%. So if you had $100,000, what could have bought $100,000 in goods and services ten years ago, can only buy $60,000 worth of goods and services today. So the same thing is happening to us, it’s just that it’s happening over a slower period of time because of the size and power that America is. And we are the world’s reserve currency.
Jake Kennedy: And if you go back even further, it’s been happening for the last hundred years. Ever since that example of the $20 gold piece and the suit. If you look back to about a hundred years ago, funnily enough when the Federal Reserve was brought into creation, the dollar has lost about 98% of its buying power from that day. And since we came off the gold standard in 1971, we’ve lost over 78% of the value of the dollar. So the trend is down, down, down and of course as we print more money, money, money, we’re going to see that trend keep going down. Just short term, we’re seeing the dollar strengthen right now because everything else is looking so bad. But if we keep going down the path that we’re on of money creation, debt creation, we’re going to see the dollar follow suit very, very shortly as well.
Mark Alyn: So these problems that we’re seeing in other countries, the Ukraine, Russia, Venezuela, you mentioned Argentina, can it happen here in the U.S.? Or is it happening here in the U.S.?
Will Hart: It is happening. It’s just happening at a slower pace. Because again, we’re able to manipulate the market more, being the world’s reserve currency. And the United States is the most powerful country on the planet. So we’re able to kind of hold it off to a degree, but still, the cracks in the dam are happening. You know we’re just able to you know, to patch them up somewhat. But overall, like again, when you hear Alan Greenspan telling you that the printing of the dollar has been nothing but disastrous for the country and telling you to buy gold, that to mean screams volumes. That’s like the captain of the cruise ship that you’re on telling you get to a lifeboat. And, and you’re going to ignore him? You’re going to go, “No, no I’m going to go to the lido deck, I’m going to hang out there?” And I mean you don’t do that.
Jake Kennedy: And he said, and he went further than that, he actually, if you carried on listening to the interview he actually says, “Inflation will have to rise because of all the debt that we’ve created and gold will rise measurably in the coming years.” And, and he goes even on to say that gold is a currency, and no fiat currency, even the U.S. dollar, can match it because gold is a supreme currency.
Will Hart: Mark, we’re actually in a, in an ideal situation if you were to say, “Will, you’re the president of the United States, what would you do?” I hate to say this, but I would revalue our dollar. Because our $18 trillion debt, our children – and they’ve done, mathematicians have done reports on this – our children’s children’s children will never pay this debt off. And it’s only going to continue to keep growing because it’s compounding. If we were to revalue the dollar, like Germany did at the end of World War II, and we wiped out 90% of the value of the paper, sure that would be devastating to everybody who has paper – of course not the people who have gold, because gold is outside of paper –but we would turn that $18 trillion into $1.8 trillion, which is much more manageable than $18 trillion that’s only growing.
Mark Alyn: But wouldn’t we be spending truckloads of dollars to buy goods and services that we use?
Will Hart: Of, of course. Well the idea is this: You would revalue, you wouldn’t necessarily need to go to grocery stores and it cost you $1,000 for a head of lettuce. What would happen is just like what Germany did, they said, “Hey, the Reichsmark – that’s gone. Turn that into the bank. We’re going to give you the new Deutsche Mark.” And the people went in and they brought in 100 Reichsmark and they walked out with 10 Deutsche Mark. They lost 90% of the value.
Mark Alyn: And that’s what you would do here?
Will Hart: Absolutely. That would, absolutely. And then again, your grocery prices would revalue so the head of lettuce, let’s say is $2 now, would all of a sudden be 20 cents. So there would be a revaluation but guess what: Gold is completely outside that market.
Mark Alyn: And that would shoot up?
Will Hart: That would go like a rocket.
Mark Alyn: What about things like wages, cars, household goods, homes themselves? Wouldn’t everything…?
Will Hart: Everything would have to revalue based on the new currency. And I always give the example to my clients, instead of it being a green dollar, it’s a blue dollar. And that would basically mean, and the government and everybody in the world would have to be like, okay. And I don’t know, I still think, I still like gold for it.
Jake Kennedy: And this article from a year ago when Venezuela revalued its currency by 50% overnight, snap, it was like that. This, this kind of explains what you’re saying in modern terms. The headline is “Venezuela devalues almost 47%. Too late for many. Just like that, boom, devaluation happens. The snap decision of a desperate government with socialist desires to give and give and give. But first it must take.” Sound familiar? “Venezuela just devalued its currency, the Bolivar by 46.69%. If you as a Venezuelan had $10,000 held in bolivars earlier today, it is too late to buy gold and silver to protect you from this loss. You now have less than $5,400 in purchasing power this afternoon. If you stored or saved your hard-earned wealth in silver or gold, congratulations, you have preserved 100% of your wealth and it could even be said that your wealth went up by 46% in bolivar terms.” Now that situation is happening in Russia over the last year. So Russians have lost that purchasing power through inflation, devaluation.
Mark Alyn: But if they had had hard metals?
Jake Kennedy: It’s up over 100%. So people then trade that gold in today and they’ll get double the rubles which will buy them the same as what their gold or the cash would have bought them a year ago.
Will Hart: Which Mark, the phone calls that we’re getting here at the Birch Gold Group are people concerned exactly about that: Sure that happened in Venezuela, but we don’t seem like we’re doing so hot over here, either. I mean $18 trillion, the unemployment, the economy. So people are calling us up saying, “Hey I want, I have these dollars, they’re sitting there collecting dust, they’re losing value, how do I protect it?” And then they purchase precious metals.
Jake Kennedy: Yeah and a lot of my clients – I’m sure the same for you, Will – really see a very limited timeframe for the U.S. dollar here. No fiat currency has lasted, and I think it’s a graveyard of fiat currencies out there. So a lot of people are really concerned that the path we’re on is going to lead to the devaluation or even the destruction of the U.S. dollar. And that has most people I’m talking to concerned. Which is why physical gold is selling, and silver, is selling like crazy right now. Not just through us, but through the Mint and through other companies as well. Because people want to make sure that if anything happens to the U.S. dollar – and history proves it’s already happening – that their money is safe and protected.
Mark Alyn: And so we’re talking about the “Vote for Will Hart Party”, “The Blue Buck Party” and buy gold. And you buy gold to preserve wealth.
Will Hart: That’s correct.
Mark Alyn: And to hedge inflation. To beat inflation. Can it beat the skyrocketing inflation numbers, the double digit inflation that we see?
Jake Kennedy: Oh well, let’s just go back to the German example. Back in 1918, I think four marks could buy an ounce of gold and by the end of 1923, the hyperinflation period before they revalued and went to a gold standard, something like a trillion marks could by an ounce of gold. So you know, crazy numbers but gold rose in terms of the paper currency and the inflation to keep up with inflation.
Will Hart: And also, to talk about that teeter-totter, remember in 2008 when the market crashed, people lost 40% of their portfolio. Gold shot up 58%. So it’s that teeter-totter, when paper goes down, gold goes up. It reacts opposite. So I always tell people, “If you think that the dollar and the market and everything is fine, don’t buy gold. But if you think that the market and the dollar are possibly in trouble, you want to protect a portion of your portfolio.”
Jake Kennedy: And I read this this morning. This was from New York Times Best Selling Author Robert Ringer. He gives some advice and he’s very negative unfortunately about the state of the U.S. dollar, where our currency’s heading and he believes we will have a collapse of the dollar. But he said this, “The dollar is being” – and this kind of sums of what we’ve been talking about, and he says it quite nicely – “The dollar is being destroyed daily, hourly, by the minute. There’s no question about that. But when it will totally collapse, no one knows. Buy gold. Buy as much as you can possibly buy because gold is money.” Which is what Alan Greenspan says. “Those pieces of paper in your pocket are not money and you don’t measure the price of gold by dollars. You measure the value of dollars by gold. Gold doesn’t change its value.” Which again is what we were talking about. “When it goes up, it reflects how much less the dollar is worth. My advice to people would be buy gold. I don’t believe 10 or 15%. I think at least 50% of your portfolio should be in gold.” And he’s very bullish. He says, “Don’t touch it. That is money. I like to own physical everything. I like to know it’s in my hand.”
Mark Alyn: Wow.
Will Hart: And then Mark if you ever need, you know, I have people call me up and you know an emergency comes up where they need their currency, they just sell the gold back and now they’re back in paper. It’s not like you’re going to take your gold and you’re going to go buy something with it, you’re just going to turn around and sell the gold back and now you’ve hopefully offset, like Russia, I wouldn’t be surprised the way they’re heading, they may have to start selling their own gold just to be able to run their country!
Mark Alyn: Wow. Gentlemen we’re out of time. Thank you very much. Very informative session today. Listen if you would like information about buying gold and silver and other precious metals, give the people at the Birch Gold Group a call. The number is (800) 355-2116. And you will speak to a Gold Specialist. Check out the website. There’s a lot of information on that, that’s www.birchgold.com. And of course we love your emails. Just email us at [email protected] I’m Mark Alyn. Thank you very much for listening. We’ll see you on the next episode. Bye, bye for now.
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