Friday, January 26, 2007

RBC Fiat Slap Down

I know this is a little late but since no actually reads these posts I won't apologize. There has been a lot of non silver things worth reading and blogging over so I've been lax in reporting on a few interesting articles I've seen in the last week or two.

On Jan 18 Anthony S. Fell, Chairman of RBC Capital Markets was a speaker at an RBC client appreciation dinner, this segment is from that speech.

Now I've stated before that metals are a store of wealth, metals are a hedge against undue monetary inflation but many scoff because after all, who am I? So I was very glad to see the Chairman from one of Canada's largest international corporate investment banks come out and tell the truth about gold and fiat currency.

.... "I would not want to close off the evening without tabling one opportunity for all of us to make money, safeguard our wealth, and protect ourselves from the ravages of inflation over the next many years -- and that is gold bullion."

"Is gold a currency, a commodity, or a store of value?

The answer is all three, but gold bullion is primarily a currency and a store of value and is a hedge against fiat paper money and inflation. "

What have I said all along? Now it is true he is talking gold and not silver but the theory is the same, a rare non forgeable commodity which has been historically accepted as money and will act as a hedge against the mismanagement and inflation of fiat currency.

Fell, obviously a very bright man further supports my rantings that gold is real money.

"Gold bullion is the only currency worldwide which is freely tradable and which is unencumbered by vast quantities of sovereign debt and prior obligations.

Gold bullion is the one investment and long-term store of value which cannot be adversely impacted by corrupt corporate management or incompetent politicians -- each of which are in ample supply on a
global basis."

He supports my view that inflation is the death of fiat money and the destroyer of real wealth

"Since the U.S. moved to fiat paper money in 1971, the dollar has lost 80 percent of its purchasing power."

"Since the Federal Reserve was established 93 years ago, the dollar has lost 98 percent of its purchasing power."

And that gold is a good investment

"To some extent, I regret to say, all paper currencies are becoming somewhat suspect, and accordingly it is my view that gold bullion, rather than being the barbarous relic described by John Maynard Keynes, may well become the asset of choice for many investors over the coming decade."

"I have always been told to buy quality assets that are vastly undervalued and that have been ignored by the marketplace for a prolonged period.

Notwithstanding the modest rise in gold prices over the past few years, that is where gold bullion is today, and it represents a great opportunity. "

Am I gloating that someone rich believes me? No, for one he's never heard of me, second it's common sense. Gold's supply is fixed and only grows by about 1.5% each year, monetary inflation is 10%+. Supply and demand supports that more dollars chasing less gold = higher prices and less value to each dollar unit. Fell supports that high inflation is real and can be seen in the appreciation of real estate and other assets. Inflation mixed with government debt and trade deficits can and likely will eventually lead to a monetary crisis. I wish he had shown the balls to admit that the Government have been lying about the true inflation rate for a long time, too much to hope for I guess.

Silver is gold light, it's still a store of value, still a currency, still a hedge but with several advantages.

1 It's cheaper so us peasant folk can afford some.

2. It's market cap is smaller allowing smaller investments to more quickly raise the price.

3. Industrial demand keeps destroying it at or over the rate of production, making it rarer each day.

4. In a metals bull market like 1980, the hyperinflation of 1920s Germany, and the last 5 years, silver always out performs gold, giving that little extra for your buck.

I'll say it again, gold good, buy some, Silver better, buy lots. Paper money, and paper assets bad, convert at least 5 if not 10% of your portfolio to real, physical metals. Personaly I'm aiming for 10% net worth rather than 10% portfolio. Take the time to read the full text of Fell's Fiat Slap Down and tell me what you think.