In an effort to move away from the U.S. dollar, an Arizona-based company has reintroduced the Gold standard. In January, Monetary Metals issued a gold-denominated bond, the first of its kind to be issued in the United States in 87 years.
Although the bond did not attract much attention, it symbolizes the growing desire to get out of Federal Reserve-issued paper money and their subtle but confiscatory Inflation taxes. The central bank’s problems are becoming more and more apparent. In these times of “helicopter money”, how can they not do this? People are bound to look for alternatives, such as cryptocurrencies, barter currencies or precious metals.
The one-year bond has a 13% coupon and provides a loan to Shine Resources, a mining company in Western Australia, Australia. With no advertising, only private correspondence with qualified investors, Money Metals was able to oversubscribe the bond within a few weeks, hinting that more like it are on the horizon.
The company’s chief executive, Keith Weiner, is an economist of the Austrian school and a longtime fan of gold. He says his company offers products that challenge the dollar’s closed-loop system of “zero interest rate policy and currency devaluation” designed to provide easy credit to government officials and cronies.
His concern about low returns was by no means uncommon, even as Harvard professor N. Gregory Mankiw tried to solve the mystery of “the sharp and fairly steady decline in interest rates” in a New York Times opinion piece.
“In September 1981, the 10-year Treasury note yielded more than 15 percent. Today, however, it yields less than 1 percent.” He writes.
Making gold trading more realistic
Gold bonds also challenge the notion that the precious metal is a barren asset. They pay no dividends or interest themselves, and often incur storage costs, so Weiner found ways to lend them out for a pittance.
“Prior to 1933, bonds were paid in gold,” the company explained in a press release, “and in those days, gold financed production companies. Since then, however, gold has been relegated to gathering dust in underground vaults.”
One of the key reasons this bond works is that it is not convertible back and forth with the U.S. dollar. Current laws make gold laborious to use as a medium of exchange.
In a recent podcast, Weiner said, “You have a capital gains tax on gold, so if you sell a bit of gold to buy groceries, you have to do a ledger of every bit of gold you own – what day you bought it, how much you paid for it, what day you sold it, and so on – and the reporting requirements are onerous .”
That doesn’t mean gold bonds will win over institutional investors any Time soon, and even the Fed’s critics may remain silent.
Alexander Salter, author of Money and the Rule of Law, says, “Investors want stability in purchasing power, but bonds that pay principal and interest on volatile commodities can’t do that. (Investors) have other ways to get gold in their portfolios. Gold is volatile in part because it is used as a hedge against the shenanigans of central banks. As long as these tricks continue, it will be difficult for any gold-based instrument to carve out a niche in the market.”
Maurice Jackson, a precious metals broker and host of “the Proven and Probable” podcast, says, “Gold bonds could really have a place in the market.” As for concerns about gold’s price volatility, Jackson counters, “Gold is constant; currency is variable, and people who invest in gold bonds do so for financial insurance, not to get rich overnight. in 1971, an ounce of gold was $35; the same thing now sells for $1,900.”
Jackson attributed the chronic lack of gold bonds to “ignorance and dependence on government.
He said, “Academia has failed to educate citizens about what money is; the terms ‘money’ and ‘money’ as used by academia are interchangeable.”
Gold Standard 2.0?
Many Americans revel in the talk of ending the Federal Reserve and long for a return to the gold standard. However, such a change has yet to occur. The frustrating truth for proponents is that few (if any) private, bottom-up initiatives will challenge the dollar hegemony, at least not yet in the short term. On the other hand, the federal government will inevitably negate any policy proposed return, and history is replete with examples of this.
While this is a step in the right direction, gold-denominated bonds alone cannot overturn the monetary system. As Jackson explains, “interest (in gold bonds) is too low to pose a threat to central banks, just as holding physical precious metals does. The possibility that …… Fed money is partially backed is more like a gateway to a gold exchange standard, since it would have partial (though not full) backing from gold.”
There is also a positive side to this thought-provoking conclusion.
The likelihood of any legal problems with gold bonds is low enough that Monetary Metals doesn’t need to hide what it’s doing, but the same doesn’t necessarily apply to the many cryptocurrency activities that have raised a hornet’s nest of tax avoidance and noncompliance that the IRS (Internal Revenue Service) is still battling
the struggle.
Jackson does believe, however, that the likelihood of legal battles is higher under a Democratic president and that “very few people on the left are buyers of the metal, and they see fiat (legal tender) money as money, not currency.” Even if gold bonds do not revert to the gold standard, they are a welcome addition to the precious metals investment sector, where volumes are expected to grow. In the near future, the dollar will remain the reserve currency and medium of exchange, but gold bonds are another chink in the Fed’s armor.
Knowledgeable investors can (and have) taken this small step to reduce their (risk) exposure to the dollar.
The original article First Gold Bond in 87 Years Circumvents Federal Reserve appeared in the English-language Epoch Times.
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