Doug Casey on Nuts & Bolts: Handling Bullion
Interviewed by Louis James, Editor, International Speculator
Recently: Doug Casey on Protecting Your Cash
L: Doug, we get a lot of questions about how to handle significant amounts of bullion. So let's talk about physical gold, and what to do with the stuff. First off, do you really think that people should put as much as one-third of their asset portfolios into physical gold?
Doug: Yes, I do, and at considerable risk of repeating myself, I'll tell you why:
First and foremost, precious metals bullion is the only financial asset class you can own that is not simultaneously someone else's liability. When you own an ounce of gold, you own an ounce of gold. It's not just a piece of paper that conveys a right to it from parties that may or may not even exist if and when you want to turn their liability into an actual, unencumbered asset in your pocket.
With today's markets suffering from volatility and disruptions of truly historic proportions, that sort of solidity is worth a lot — as you can see from gold's continuing strength. The dollar is in huge trouble and is on its way to reaching its intrinsic value, which is very bullish for gold.
Second, gold is natural money. It's uniquely well suited for use as money. Aristotle explained why, over 2,000 years ago, but in brief, it's because it's convenient, consistent, durable, divisible, and has intrinsic value (or, in Austrian economic terms, it has high inter-subjective value).
So, if things get really bad and push comes to shove, you'll always find someone willing to take your gold in exchange for things you need. Come hell or high water — actually, especially in cases of unleashed hell and high water — your bullion will still be an acceptable form of payment… long after people stop bothering to pick up paper money blowing along the cracked streets of dying cities.
Third, gold offers excellent speculative upside at this time, precisely because the markets are so turbulent, with relatively little downside risk — again for the same reason; the fear factor will keep gold prices strong for the foreseeable future and could drive them to the moon with little notice. That's not a ride you want to miss.
L: What about people for whom one-third of their portfolio constitutes a substantial sum — much more than you can stuff under a mattress? Do you use Perth Mint Certificates?
Doug: You're right. Carrying a significant amount of value in gold coins is bulky — and forget about silver, which gets extremely bulky for larger dollar amounts. That's an important consideration given how critical it is to diversify your assets internationally, so you're not totally controlled by your own government.
It's still legal to carry gold coins across borders. Gold isn't currently considered a "monetary instrument," so you can still arguably carry, say, 100 Krugerrands (worth about $100,000) across a border legally, even though you're supposed to declare "monetary instruments" in excess of $10,000 in most places these days. But a large amount of gold could get you referred to a TSA supervisor, and I'd rather see a dentist who doesn't believe in anesthesia than that. The rules and their interpretation are quite Kafkaesque. Although I promise that none of the TSA's 50,000 employees will have ever heard of Kafka.
Vehicles like the Perth Mint Certificate are excellent choices for securing larger amounts of gold. They basically boil down to outsourcing your storage and security needs to a highly respected and secure vault, and in the case of PMCs, they are backed by the government of Western Australia. You own the gold, not just a paper or electronic promise representing gold, and can take delivery via FedEx any time you want. And the certificates are transferable, so there's some liquidity to owning gold in this way, without having to take delivery. (Click here for more information on the PMC programs' with our friend's at Kitco or Asset Strategies.)
But that's for after you've set yourself up with all the physical gold you want in your possession. Because as good as PMCs are, it's still only a piece of paper you have in your actual physical possession. It's only one step removed from physical gold, but a step removed, just the same.
If you are worth many millions, it's obviously problematic to go around with several million in gold bullion on you, but you should have at least a few hundred thousand dollars of gold in your personal possession. The rest can be held in things like PMCs or GoldMoney.com, another good alternative. GoldMoney.com stores your gold in London and Zurich and allows you to transfer it electronically, which is quite convenient. I've known Jim Turk, who runs it, for many years and have a great deal of confidence in him. The last alternative is a safe deposit box in a foreign country.
Be careful with that, however. I was just in Switzerland last week, and they have gone from simply discouraging Americans to unilaterally closing accounts held by Americans (unless you also live in Switzerland and are a resident of the country). They're sending checks to last known addresses, so you can't have a dormant account anymore, like in the old days. And it's even worse; if you're an American with a safe deposit box in Switzerland, watch out, because they are closing those as well. If they can't find you, some of the banks are opening the boxes and removing the contents. They set the stuff aside somewhere, not in a safe deposit box anymore.
L: What — they just dump the stuff in a cardboard box and shove it into a corner of the basement until you come and get it?
Doug: Well, not cardboard, but it's serious. You can't have a safe deposit box in Switzerland anymore, certainly not with a major bank (though there are private companies in Switzerland that still offer the service). And it'll happen in other countries too.
L: Switzerland isn't even Switzerland anymore.
Doug: I know. Switzerland was an idea, and like America, it doesn't exist anymore.
L: So, are safe deposit boxes anywhere safe any longer? The long arm of the law is long indeed when it comes to the U.S. IRS.
Doug: That's right. These agencies can do pretty much anything they want, and it's become very problematical. You could establish a safe deposit box in Russia, and they wouldn't be likely to cooperate with the U.S. tax authorities, but you'd be at risk from their own bureaucrats with guns. I'd forget about Europe — wouldn't trust any of those governments.
Of the remaining possibilities, I favor Uruguay. Hong Kong might not be bad, since the Chinese aren't going to roll over for U.S. officials, and Thailand has always been very neutral. Panama is a reasonable possibility. Canada is a possibility. With the exception of Canada, these places have the advantage of not getting a lot of American traffic, so it's less likely that U.S. authorities will bother with the time and expense it takes to bully a foreign power into submission. Switzerland was well known and frequently used as a financial shelter, and that's why it became the focus of so much arm-twisting by various tax authorities.
L: What about skipping the safe deposit boxes then, and going private? Would it make sense to leave smaller caches in various countries with people you trust?
Doug: Yes, it would, but you have to watch out for the mistake W.C. Fields made, of opening a new bank account in every new town he went to. After a while, he had hundreds of bank accounts and forgot where they all were. You don't want all your eggs in one basket — but you also don't want so many baskets you can't watch them all.
You've got to be thoughtful and innovative. The governments are changing the rules, and you have to think of ways to keep ahead in the game. Think for yourself and be independent.
And this doesn't just apply to Americans. The U.S. government is the big problem in the world today, but there are certainly other problems. The French and the Germans, for example, are pressuring the Swiss in the same way that Americans are.
L: Anything people should think of stashing, besides gold?
Doug: Well, they keep raising the taxes on cigarettes — a pack now costs $10 in some places in the U.S., that's 50 cents per individual cigarette. If you're American and are going to be storing things, you probably can't go wrong building a stash of cigarettes. Even if you don't smoke — or perhaps especially if you don't smoke — every time you return to the U.S., you should buy the maximum amount of duty-free cigarettes allowed and store them.
The other thing Americans should do is buy a lot of shotgun shells, 9mm, .45, .223, and .308 ammo. Even if you don't shoot, you can set those aside and store them too, because they're going to be taxed and regulated to the nth degree. And properly stored, they keep for a very long time.
In fact, anything regulated by the Bureau of Alcohol, Tobacco, and Firearms — one of the most corrupt, dangerous, and useless of all federal bureaucracies — is likely to go up considerably in both price and value. It's perverse that the U.S. has a bureaucracy to regulate the three things you need for a hunting trip or a good party. Maybe their next trick will be to convert the DEA into the Bureau of Sex, Drugs, and Rock ‘n' Roll.
L: I used to write about the wisdom of stashing the "3 Gs": gold, guns, and generators. All three are useful in and of themselves and have high resale values.
Doug: Yes, exactly. I hate to sound like an alarmist, but I really do think things are going to get scary — and if they don't, you can still sell these commodities in the future.
L: What about diamonds?
Doug: I wouldn't do diamonds. That's a really specialist market, and diamonds have long seemed to me to be subject to artificial pricing. There are at least two separate technologies now that create totally flawless, real diamonds. They are indistinguishable from natural diamonds, except that they don't have any flaws. But people will figure out how to introduce some flaws into those too, so I think the diamond market is in for a collapse at some time in the future. I could go on — let's just say that for many reasons, diamonds are the one gemstone I wouldn't touch.
L: Besides, they are less liquid. Relatively few individuals are trained to evaluate the color, clarity, cut, etc. of diamonds, whereas it's easy to identify a gold Eagle and know how much it's worth.
Doug: That's right. And they are not divisible —I just wouldn't touch them at all.
L: Okay. Is there anything else you would put in your safe deposit box today? Cash?
Doug: I wouldn't put any significant amount of currency in one; that's a guaranteed depreciating asset. I used to collect stamps, but no longer. I have no opinion on them as investment vehicles, but I came to realize that they are all relics of government monopolies, and I just didn't want them anymore.
Rare coins are tricky too, though I've always enjoyed collecting ancient Greek and Roman coins, which are actually a form of genuine artwork. But I've never seen the fascination with collecting slugs turned out by the U.S. Mint.
In general, I focus on gold bullion coins.
L: Okay, Doug, thanks for another interesting conversation.
Doug: You're very welcome — I hope this helps some of our readers protect their wealth in the tumultuous times ahead. That's a primary focus of our new Casey Gold & Resource Report, and, of course, of the International Speculator, both of which I highly recommend for more information on the subjects we've covered.
October 26, 2009
Copyright © 2009 Casey and Associates