Gold is More Than Just a Hedge

Written By Luke Burgess

Posted July 28, 2016

It’s often said that gold has been traditionally used as a defensive hedge against inflation and fiat currency devaluation. But that’s really only a half-truth.

In the bigger picture, gold has been used as a store of labor and exchange far longer than fiat currencies have even been around. Fiat currencies are relatively new.

It’s believed that fiat currency originated in China during the 11th century. When Marco Polo went to China in the 13th century, he described the fiat money he found in The Travels of Marco Polo:

All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver… and indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold.

In America, gold’s role as a hedge against inflation and fiat currency devaluation obviously has a much shorter history than in the rest of the world. But most Americans are surprised to learn how brief of a history that has been.

In fact, most Americans reading this letter were not even legally allowed to own gold bullion until 1975!

The Gold Reserve Act of 1934 forbade “the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States.” And it wasn’t until President Gerald Ford repealed the limitation on gold ownership in the U.S., which went into effect December 31, 1974, that this changed. So for over 40 years, Americans’ access to gold bullion was extremely limited.

Other forms of gold, such as jewelry and collectible coins, have always been legal to own, but not gold bullion. And there were other ways to invest in gold, such as stocks, that didn’t involve owning the physical metal. But the official U.S. government gold bullion coin — the American Gold Eagle — wasn’t produced until 1986.

And it was only produced as a capital control. The government simply wanted to stop U.S. dollars going to Canada and South Africa by way of Gold Maple Leaf and Krugerrand sales. They were not trying to do the public any favors by issuing these coins.

So it’s really only been since the 1970s and 1980s that Americans have been able to use physical gold bullion as a hedge against inflation and fiat currency devaluation.

Still, gold ownership is nevertheless viewed as a defensive investment strategy. But while I do personally own gold as a defensive strategy, I also view it as an offensive position as well. Consider this for a moment…

What are the spoils of war?

Printing press for fiat currency? Or gold?

The bottom line is that gold is power (although many would prefer not to accept this fact). And power offers offensive positions.

Specifically, I’m talking about offensive (profit-driven) gold positions in your investment portfolio.

Here in Energy and Capital, we’ve logged four +100% gains for about an 80% overall return from the gold and precious metal stocks I’ve recommended you to buy in the past nine months.

Company Ticker Market Cap Recommendation Price (Date) 7/22/16 Price Change
Avino Silver & Gold Mines TSX-V: ASM  $98M $0.80 (12/23/15) $2.52  +215%
Barrick Gold NYSE: ABX  $22.0B $13.61 (03/28/16)
 $20.41  +50%
Endeavor Silver NYSE: EXK  $441M $1.55 (03/02/16)  $4.44  +344%
First Majestic Silver NYSE: AG  $2.5B $3.42 (12/23/15) $15.89  +365%
Goldcorp NYSE: GG  $14.2B $12.05 (11/16/15)
 $18.14  +51%
McEwen Mining NYSE: MUX  $935M $2.21 (05/29/16)  $3.96  +79%
New Gold NYSE: NGD  $2.1B $3.73 (05/29/16)  $4.41  +18%
Royal Gold NASDAQ: RGLD  $4.9B $36.58 (11/16/15)
 $78.88  +116%
Sandspring Resources TSX-V: SSP  $81M CAD$0.44 (05/29/16) CAD$0.80  +82%
Sandstorm Gold NYSE: SAND  $721M $3.49 (05/29/16)
$5.15  +48%
Silver Wheaton NYSE: SLW  $11.1B $18.20 (05/29/16) $26.13  +44%
Stillwater Mining NYSE: SWC  $1.6B $9.77 (05/29/16)  $13.22  +35%
Tahoe Resources NYSE: TAHO
 $4.6B $9.50 (03/09/16)
 $15.28  +61%
Overall Return    +82%

Perhaps we need to generally redefine our conceptions about gold. Although gold is largely viewed as a defensive investment strategy, perhaps we also need to consider it at large as an offensive (profit-driven) strategy as well.

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Luke Burgess
Energy and Capital

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