Why Now Is No Time to Buy Gold

Posted On May 10, 2016 By Dave Gonigam

  • The rest of 2016: Weaker dollar means stronger gold
  • But Rickards says now is not the time to buy bullion — say what?!
  • Will the Supreme Court clear the way for an online sales tax?
  • New York City orders bars to serve pregnant women on demand
  • A risk-on day in the markets… negative interest rates reconsidered… another take on Obamacare and Americans abroad… and more!

The bid on gold this morning is $1,260 — a figure that gives it two major distinctions. The first you might know already. The second might well come as a surprise.

“Gold is the best-performing asset class of 2016,” says Jim Rickards, “and the best-performing asset class of the 21st century.”

It’s true. Gold was $282 on Jan. 1, 2000 — which means it’s notched a 348% increase.

The S&P 500, meanwhile, is up only 41%. (If you’re one of those take-it-literally folks who says the 21st century began in 2001 and not 2000, the results aren’t much different.)

The broader point: “Gold has shown both long-term and short-term outperformance,” says Jim.

“Obviously, gold declined 45% from the August 2011 high to the November 2015 interim low, but such large retracements are not unusual where volatile assets are concerned.

“All of this gold price movement is not really a gold story. It’s a dollar story,” Jim goes on.

“A strong dollar (2011–15) means a lower dollar price for gold, and a weak dollar (2016) means a higher dollar price for gold. To understand the dollar price of gold, you need to understand the dollar.”

This gets us back to Jim’s “Shanghai Accord” thesis — that a secret deal was struck during the G-20 meetings in Shanghai on Feb. 26.

The idea is to strengthen the euro and the yen and weaken the dollar. Because the Chinese yuan is loosely pegged to the dollar, the yuan will weaken as well. Weakening the yuan will pull Chinese leaders out of a jam, but doing it this way won’t tank the U.S. stock market, as happened when the Chinese devalued in August and again in January.

Yes, that’s a lot of moving parts. Just remember this: The Shanghai Accord “is very bullish for gold,” says Jim — “because the weaker dollar means a higher gold price.”

The Federal Reserve is on track to weaken the dollar further as the year goes on. That means no interest rate increase at the next Fed meeting, on June 14–15. How can the Fed possibly raise rates when U.S. GDP is slowing this dramatically?

“That’s ugly,” Jim says succinctly. “The U.S. is sliding into a recession. It makes no sense to raise rates into that kind of weakness. Also, a recession in an election year is a huge advantage for the nonincumbent party and would help elect Trump. Yellen is a liberal Democrat; there’s no way she wants to do that…

“If there is no rate hike in June — which I expect — the reaction would be bearish for the dollar and bullish for gold.”

That said, Jim implores you this morning not to buy any more gold.

You read that right. Don’t buy another ounce. Not right now. Not if you already have some in your portfolio.

“A rare window in the gold markets has just opened up,” Jim explains. “It gives you the chance to grow much richer… much faster… than you would by simply buying bullion.

“This window could rapidly close, so I’ve dropped everything to find a partner dedicated to helping you find the biggest opportunities in the coming gold bull market.”

Just what’s happening right now? How can you take advantage? And how big is the profit potential?

We’ll answer the last question first: Right now there’s the potential to take every $1 increase in the gold price… and transform that into $191 of pure profit.

Jim shows you the numbers… and answers those other questions… in a brand-new research report. There’s no long video to watch. Click here to get the goods.

The major U.S. stock indexes are rallying hard, for no obvious reason.

Well, crude is up about 2%, at $44.35… and stocks and crude seem to be moving in sympathy most of the time this year. Meanwhile, The Associated Press is reaching for “the prospect of new China stimulus” as a catalyst.

Whatever the case, the Dow is up nearly 1% as we write, at 17,872. Ditto the S&P 500, at 2,076. Curiously, it’s blue chips leading the way, small caps lagging.

Gold, as noted before, is around $1,260 — little changed from 24 hours ago.

Meanwhile on Main Street, small-business owners are feeling slightly sunnier, judging by the latest Optimism Index from the National Federation of Independent Business.

The index moved up one full point in April, to 93.6. But that masks a steady downtrend since the start of 2015 — when the number peaked just above 100.

The biggest contributor to the April increase is business owners who say they’re having trouble filling positions. “This suggests that not only are labor markets tightening,” says the NFIB, “but owners cannot find qualified workers to hire.”

But as usual, the “single most important problem” cited by small-business owners responding to the survey is either taxes or regulation.

Here’s a new burden facing small businesses in New York City: The Human Rights Commission now says it’s an act of discrimination if bartenders refuse to serve booze to pregnant women.

[We’ll allow a moment to let the absurdity sink in.]

Says the commission: “Judgments and stereotypes about how pregnant individuals should behave, their physical capabilities and what is or is not healthy for a fetus are pervasive in our society and cannot be used as pretext for unlawful discriminatory decisions.”

This isn’t a new rule, per se. It’s just one of many items in a 13-page document “clarifying” how the city’s existing anti-discrimination rules apply to pregnant women.

Hmmm… “Drinking alcohol during pregnancy makes your baby more likely to have premature birth, birth defects and fetal alcohol spectrum disorders,” says the March of Dimes website.

We fully expect the first lawsuit against a bar complying with the commission’s “clarified” rules in about nine months. Less in the case of a preemie…

Watch out for the online sales tax: It might be coming in through the back door.

In every Congress since 1999, someone’s floated a proposal to require online retailers to collect sales tax for rapacious state and local governments. We began chronicling these efforts when they started getting serious in 2011. By 2014, the idea passed the Senate before it was killed in the House.

Now comes word the tax might be imposed by way of the Supreme Court. “In a lawsuit that could have taxing consequences nationwide,” reports Governing magazine, “online retailers are suing South Dakota for trying to collect a sales tax from them.”

South Dakota lawmakers passed this measure a while back, knowing it would be challenged in court. They wanted a test case. (They also wanted to raise revenue while retaining South Dakota’s status as one of only seven states that don’t impose state income tax. Sneaky, huh?)

E-commerce lobbyists expect the U.S. Supreme Court to take up the case next year. The sponsor of the bill hopes it does. The result might overturn the 1992 case of Quill v. North Dakota. In those pre-Web days, the court ruled catalog retailers are exempt from collecting state sales tax unless they have a “nexus” — a brick-and-mortar store, a warehouse, etc. — in that state.

An ill omen: In an unrelated case last year, swing-vote Justice Anthony Kennedy said he’s ready to overturn that ruling: “A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.”

“I see this talk every day about negative interest rates,” writes one of our regulars, “and the premise is that people would pull their savings out of the bank and spend it. Or that is a central bank’s reasoning.

“Funny, I never thought that to be a true statement, as it doesn’t make any sense from any standpoint.

“The so-called money is savings for when a person needs it for whatever reason. Just because they pull it from the bank to avoid loss of saving by paying the bank for safekeeping — yeah, I know, ‘safe’ — wouldn’t mean they would spend it.

“It seems to me that this comment is just out of place overall in the discussion of negative interest rate policy in relation to central banks. It just seems evident that negative rates keep debt repayment at a sustainable level. And that would be the main emphasis and talking point when the Federal Reserve eventually goes that route and at the same time works to eliminate cash as well as put in currency controls to avoid a run globally on the dollar.

“I just don’t want to keep hearing that comment about the public pulling out their savings so they can spend it to stimulate the economy. It is not a valid thought or idea.”

The 5: And the proof is in Japan… where there’s been a run on safes so people can stash cash at home rather than lose money having it deposited at the bank. What they’re not doing is going out and spending it and “stimulating the economy.”

It’s dawning on some of the monetary eggheads who hold us all hostage that, yes, negative interest rates don’t achieve their stated purpose. Last we talked to Jim Rickards on the subject, he said that’s why the Fed was unlikely to adopt them. Some of our other editors, including Zach Scheidt and Michael Covel, aren’t as sure. To be continued…

“Re: the reader who mentioned an Obamacare tax penalty of $4,184 because of a spouse and children in Mexico,” says another email: “Per the IRS, the taxpayer, the taxpayer’s spouse and ‘each dependent child for whom the taxpayer may claim a personal exemption on [his] or her federal income tax return must have minimum essential insurance coverage or qualify for an exemption…

“‘Foreign nationals who live in the United States for a short enough period of time such that they do not become resident aliens for federal income tax purposes are exempt from the Individual Shared Responsibility Payment [tax penalty] even though they may have to file a U.S. income tax return… In addition, individuals who are not lawfully present in the United States and not U.S. citizens or U.S. nationals are exempt from the Individual Shared Responsibility Provision.’

“From Obamacarefacts.com: ‘The payment for 2015 is $325 per adult and $162.50 per child (up to $975 for a family); or 2% of the taxpayer’s household income above the tax return filing threshold for your filing status, whichever is greater.’ Suppose a taxpayer filed a joint return showing family income of $250,000. The shared payment would be 2% of $229,400 ($250,000 less $20,600), or $4,588. However, there is a ‘cap’ equal to the average cost of a Bronze plan, which in 2015 was $2,570 for one person (in this case, the spouse and children are exempt). Therefore, under any income scenario, the tax penalty should not be more than $2,570.

“It’s also good to remember that if a taxpayer owes a tax penalty and doesn’t make the payment, the only way for the IRS to collect the tax is for them to withhold the money from the taxpayer’s federal income tax refund. The IRS cannot enforce the Individual Shared Responsibility Provision with jail time, liens or any other typical methods of collection.”

The 5: Fascinating, and head-spinning. (And in some sections, a nice job of copying and pasting from the IRS and other websites — we have a crack team of proofreaders and fact-checkers here!)

As always, our guidance to readers in such matters is to contact a qualified tax professional…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. About Jim Rickards’ guidance above, not to buy any more gold at this time: “Because of the controversial nature of this information,” says Jim, “I’ve had to go to extreme measures.”

Click here to see what he means.


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