Dear Reader,

While one can never be sure about such things, I suspect this will be one of the most important editions of the Daily Dispatch we’ll ever send.

I say that because I’ve just returned from our Casey’s Gold & Resource Summit, and my somewhat jetlagged brain is stuffed with information with the potential to change your world. A big claim, I know, but I sincerely believe it to be true.

First and foremost, I need to restate the purpose of the conference. Namely, given gold’s strong and long bull market, our primary mandate was to understand where we are in this gold bull market and how much higher gold could go. As importantly, we wanted to understand which fundamental factors would need to change in order to signal that the end of the bull market was nigh.

With those overarching goals in mind, the summit faculty also addressed the best ways to invest, including whether silver or gold had the most upside, and which of the resource companies possessed the largest growth potential.

There was much, much more that was addressed – including an excellent dinner presentation by Neil Howe on the major societal changes coming, due to generational transitions – but make no mistake, this conference was tightly focused on precious metals and the unfolding sovereign debt/currency crisis that is sending those metals higher still.

In today’s missive, I’ll try to provide you with some brief but important conclusions from the summit.

With that introduction, let me dive straight into the big-picture takeaways.

The Fiat Currencies Are Headed into Crisis

It’s important to recognize what’s actually going on with the price of gold, which has broken into new record territory again today – to $1,331 as I write. It is not that there has been a change in gold’s fundamentals, because there hasn’t. To recap those fundamentals:

  • Gold is still viewed as good money across every country and every culture on this planet.
  • It is still extremely difficult to locate a gold deposit and to scratch it out of the Earth’s crust.
  • Because of the difficulties in mining gold, the supply of gold has remained remarkably constant. In fact, despite higher prices the global production of gold continues to go down. That is an irrefutable confirmation that all of the easy deposits have been found and of the challenges of mining gold – which today includes not just the geological difficulties but large doses of environmental and governmental roadblocks.
  • It is the constant nature of new gold supplies that have helped make gold sound money. That would not be the case if you could gin the stuff up at will, as the governments can do with the paper currencies. Put another way, if gold could be created as easily as the paper currencies, no one would want to hold it as a store of value.

    (Some people refer derisively to gold owners as “gold bugs.” Turning that idea around, legendary investor Richard Russell, in a rare public appearance at the summit, used the term “dollar bug” to describe those who would foolishly prefer holding paper currency over gold. I think that’s a very good way of looking at the gold vs. dollar argument.)

And that, dear readers, brings us to what’s actually driving the price of gold up.

Namely, that there’s a global race to the bottom underway for the world’s fiat currencies. In their efforts to save their economies from the extraordinary levels of debt they and their predecessors have run up, the misguided politicians now believe that the best approach is to devalue their currencies against those of their trading partners. This in the hopes of gaining a competitive commercial advantage for their export products on global markets.

During the summit, Doug Casey explained exactly how wrongheaded this approach is, but the last time I checked, the world’s leaders were not listening to Doug (though they certainly should be).

This morning, it has been announced that the Japanese are again intervening in their currency markets, by pushing their already low interest rates lower still… just a tick off zero, despite two decades during which they had the opportunity to discover the flaw in this approach. That the Japanese are taking such extreme measures reinforces just how desperate they are becoming. (Vitaliy Katsenelson, in his eye-opening summit presentation, explains Japan’s fundamentals and why it’s on the verge of a financial Armageddon that everyone needs to prepare for.)

And it’s not just Japan intervening in their currencies. As Bud Conrad explained in his excellent opening presentation, there’s a long and growing list of countries that have either recently intervened or are currently trying to force their currencies lower. In fact, in addition to Japan, both South Korea and Brazil have just announced what are essentially exchange controls on money coming into the country from foreigners. By raising taxes on foreign investments in their bonds, they hope to reduce the inflow of foreign purchases, which otherwise help keep the local currency strong.

This race to the bottom cannot end well.

Inflation vs. Currency Depreciation

For those of you new to Casey Research, or to some of the concepts we’ve been warning our subscribers about for years now, let me take a brief detour to discuss the nuances between inflation and price appreciation.

It’s considered conventional wisdom that gold does best when prices are appreciating. And generally, that’s true. But price appreciation and inflation are not the same thing.

Inflation is an increase in the money supply. Price appreciation is a consequence of that increase.

What’s going on in the world right now is massive inflation. In the U.S., the Fed doubled its balance sheet during the crisis and is now preparing to buy up another $1 trillion in long-term Treasuries, essentially creating money out of thin air in order to support the U.S. government’s unprecedented level of deficit spending. In the world’s second largest economy, China, the government has boosted its money supply by 47% over the course of the last two years in an attempt to reinvigorate its economy. Faced with the Greek crisis, the European Central Bank announced it would essentially write a blank check to keep things afloat.

In the fiat monetary system that has been adopted by effectively all the world’s governments, the currency is literally backed by nothing – unless you consider political promises as being a “tangible.”

What the smart money is now beginning to understand is that the politicians are out of ideas and are quickly running out of time in dealing with the massive amounts of sovereign debt hanging over the global economy.

Governments around the world – large as well as small – are bankrupt, but yet remain committed to mind-boggling levels of current and future spending. In the latter category are the commitments made to programs such as Social Security and Medicare in the United States, multi-trillion-dollar programs that will ratchet today’s already unpayable debts to the point of default. And countries such as Japan, the world’s third largest economy, are in even worse shape.

Of course, even a whiff of a sovereign debt default sends a country’s interest rates soaring, causing the cost of servicing the national debt to spiral upwards and quickly taking matters from bad to acute – as was recently the case in Greece. Understandably, therefore, politicians go to every length to avoid any suggestion that a default might be possible. Yet the debt must be addressed and, as it is unpayable, the only remaining option is to depreciate the currency in which the debt is ultimately paid back.  

In his classic book about the German hyperinflation, When Money Dies, Adam Fergusson does an excellent job of communicating the devastating human consequences of inflation. While the scale of the German inflation was truly exceptional – and is unlikely to be repeated in the current circumstance – I’d like to share a couple of quotes from the book in an attempt to underscore the consequences that any serious inflation has on your net worth. And I quote…

    “Just before the first World War in 1913, the German mark, the British shilling, the French franc, and the Italian lira were all worth about the same, and four or five of any were worth about a dollar. At the end of 1923, it would have been possible to exchange a shilling, a franc or a lira for up to 1,000,000,000,000 marks, although in practice by then no one was willing to take marks in return for anything. The mark was dead, one million-millionth of its former self. It had taken almost ten years to die.”

And…

    “Dr. Schacht, Germany’s National Currency Commissioner, explained that at the end of the Great War one could in theory have bought 500,000,000,000 eggs for the same price as that for which, five years later, only a single egg could be procured.”

Though I doubt anyone reading this needs me to translate the implications of inflation, in the interest of being complete, I will. Imagine having the equivalent of a million dollars in a bank account denominated in German marks in 1913. Ten years later, your million dollars would literally not buy you a cup of coffee.

Today, if you have $1 million in pretty much any fiat currency and the inflation that is now underway continues and results in the currency debasement it must – as we expect it will – then 10 years from now, you will not have $1 million in your bank account, at least not in terms of purchasing power. What you will have is some amount that is far, far less than that. If net inflation averages just 10% over the next 10 years, which is very much within the realm of possibility given the scale of the debt that needs to be resolved, then your $1 million would be worth only $348,678 ten years hence. Consider that a best case.

Which brings us back to what’s going on right now with gold.

A lot of smart people, a number of whom are running what might be termed “big money” in institutional funds, can see the writing on the wall and are taking action ahead of John Q. Public. By the time John Q. catches on, it will be only after gold has doubled from here and the big money has been made.

Is gold at even $1,350 “too expensive”? Hardly. Not if you consider that, using the example I used a moment ago, if you had your $1 million in gold instead of dollars, 10 years from now you would have retained the full $1 million worth of purchasing power.

Now hold on, I can hear some of you thinking, how can I be so sure that gold will retain its purchasing power?

In order to answer that, we have to quickly look at what could derail gold…

What Could Derail Gold?

Acting in my role as master of ceremonies at the summit, I asked the faculty this question on more than one occasion. The answer is quite simple and has been discussed in previous editions of these daily musings.

Namely, real interest rates will need to become discernibly positive. In other words, interest rates will have to increase to a level that outstrips currency depreciation. At that point, an increasing number of investors will look to park their cash in “safe” instruments that pay them a real rate of return on their money.

In order for that to happen today, the world’s governments would have to be willing to raise short-term interest rates and encourage long-term rates to rise by changing course from loose money policies to tight money policies.

Stated so simply, current or prospective gold investors might worry that this could easily come to pass. But viewed through the lens of reality, tighter monetary policies and higher interest rates would turn the debt-soaked economies into the equivalent of large smoking holes in the ground.

Unless and until they are forced to it by circumstances beyond their control (think Greece without the eurozone to backstop them), the world’s deadbeat governments – of which Uncle Sam is by far the largest – will avoid higher interest rates and tight monetary policies like an Ebola ward. And by the time they are forced to it, gold will be selling for multiples of where it is today.

Of course, there is one more thing that could trip up gold. Namely that there’s no question that global governments are increasingly being discomfited by what might be termed a “gold problem.”

Basically, rising gold prices are revealing the insane fiscal and monetary policies of governments for the desperate shams they are. In the era of zero ethics and a “whatever it takes” attitude of governments, it is certainly conceivable that they may get together to do some dark deed to damage gold’s intrinsic value to buyers.

It could be a much higher tax regime, it could be by meddling in the commodities exchange rules, it could be through confiscation, or ultimately it could be by returning to something of a gold standard that effectively sets an artificially low price.

We get questions about the government’s possible intervention in gold markets all the time, and it was discussed at some length in the summit proceedings, but the reality of the situation is that it will be nowhere near as easy for any one government to effect a fundamental change in the gold market as it was back at the time of Roosevelt’s confiscation.

For one thing, central bankers are increasingly becoming net buyers of gold, a straw in the wind that they see the price moving higher, not lower. The failure of fiat currency systems is now obvious to anyone paying attention – it’s just how the transition to something else will unfold that is still uncertain. And in uncertain times, the trend will clearly be towards owning more, not less, gold.

That said, as governments grow more desperate, we can’t rule anything out – but neither can we dwell on the unforeseeable. Instead, we take the measures we must to protect ourselves today, while keeping one ear tightly to the ground in trying to monitor likely governmental actions as they evolve.

On that last front, Doug and I agree that we need to be very attuned to continuing moves by governments to push for a cashless society. Once they have done away with cash, it’s a simple turn of the knob to declare that the criminal classes are using gold instead of cash to transact their business, and to announce new controls.

Again, something to watch – but nothing to stop you from taking the steps you need to now to protect your wealth. 

Investment Implications

At the summit, there were in-depth discussions on the easy investment moves you can make to take advantage of what’s coming. And, as importantly, to protect yourself.

Though I can’t go into all the investment options here, I will say there was a strong consensus among the faculty that everyone should be holding at least some physical gold. (On that topic, the summit included a special seminar on Buying Physical Gold.)

And, for convenience, most were in favor of investing in some of the popular gold ETFs or other forms of “electronic gold,” though it’s worth pointing out that there are significant differences in these instruments, and some are better/safer than others. (That topic was covered in depth in a one-hour breakout session titled What You Need to Know About Electronic Gold.)

Silver looks quite interesting, one reason being that unlike gold, silver’s industrial applications effectively destroy the metal used, leaving only a miniscule amount of physical silver available to come back on the market. More specifically, while there is something on the order of $3.7 trillion worth of gold above ground, only about $20 billion worth of silver remains above ground. In addition, at this point new silver production is falling well behind demand.

John Hathaway, top-performing U.S. gold fund manager, explained the straightforward method he uses for outperforming his peers, revolving around paying close attention to the life cycle of a mine. This involves in investing in a strategic mix of well-managed junior resource explorers ahead of a discovery, and in companies that are on track to complete the building of a mine and go into production.

In an altogether excellent presentation, Vitaliy Katsenelson, whom we interview this month in The Casey Report, shared his view that the trade of the century will likely be shorting the Japanese yen.

And a truly blue-ribbon panel of experts in the resource exploration area – including Rick Rule, Louis James, Marin Katusa, Bob Bishop, Brent Cook, and Ben Johnson – all provided their top picks for exceptional returns from the well-financed and well-positioned junior explorers that are now on the edge of large discoveries.

In a separate panel, the serially successful members of the Explorers’ League and the Casey’s NexTen (up-and-coming resource professionals under 40 years old) discussed their favorite projects, and the projects that they are buying for their own portfolios.

And Eric Sprott, the highly respected Canadian fund manager, shared his insights into gold, the collapsing fiat currencies, and some of his favorite holdings.

The summit also addressed a number of other important investment sectors, including energy. On that topic, Jim Puplava gave an excellent update on the outlook for oil. There are big problems in the oil patch, and those translate into big opportunities for the attentive.

That’s just scratching the surface, but as I need to get on to the emails and other work that has piled up during my absence from the desk, I will leave it at that.

Summing It Up

While I like to think that all of our Casey Research Summits have been exceptional, based on my own observations and the feedback I’ve received from other participants, this latest summit topped them all.

The faculty helped confirm the validity of the work we’ve done here at Casey Research that has led us to conclude that the sovereign debt crisis will evolve into a devastating currency crisis. And I was personally reminded of some companies I should be paying very close attention to, and now am. I also woke up to the fact that I’m personally underinvested in silver and select silver companies.

The data points presented at the summit are irrefutable and make it clear that we are indeed going to live through a period of extraordinary change. This crisis is not going to go quietly into the night, and it’s not going to end well for anyone not paying attention to the fundamentals of what’s happening in the global economy.

There is, however, a very positive flipside to the situation.

Namely that if you take the time to fully fathom what’s about to happen, the upside opportunities can more than make up for the negative economic consequences. While the easy money may have been made, the big money is still ahead as an increasing number of investors begin to realize what’s going on. On that front, this conference had the largest institutional participation ever. Knocking around the event, I ran into a number of fund managers and even a couple of high-profile billionaires who are now taking an active interest in our research, but were sitting incognito in the audience taking notes like everyone else.

Before ending, I will warn you that I’m going to make a pitch. Feel free to skip to the next section, but do so at your own loss.

We’ve only just started recording the sessions at our summits and making them available in a set of audio CDs. The complete set of CDs, covering over 17 hours of presentations, is just $395, which is far less than it would’ve cost you to attend. While the CDs obviously can’t include the one-on-one conversations and interactions that are such an important part of the summits, they do include all of the presentations and breakout sessions, including all the specific investment recommendations made at the event. 

There is no question in my mind that what you’ll learn will pay you back the cost of the CDs many, many times over.

You can learn more and order your set by clicking the link just below – and I strongly urge you to do so. This is a truly unique opportunity to help you deeply and completely understand what’s coming next, and how to profit.

Details on the Casey’s Gold & Resource Summit complete audio set are available by clicking here now.

There’s no question we’re going to live through challenging times, but the fact that the current fiat system is set to implode should ultimately lead to a new era of limited government. But it’s going to be a painful transition, and it won’t happen overnight.

Be prepared.

Mania Watch

As I have referenced in the past, back in the last secular bull market it became standard practice for the networks to show the price of gold right along with the stock market indices. Correspondent Richard from the UK sent along the following screen snapshot showing that this is beginning to happen in the UK, but apparently not yet consistently.

The Tightening Noose

A minute ago I wrote, “Be prepared.”

In addition to paying close attention to economic developments, it is becoming more and more important to watch the actions of desperate governments on other matters as well.

For instance, while at the summit I heard from a couple of California-based participants that starting next year, all ammunition will have to be registered. In other words, if you want to buy some bullets to plink with at the local firing range, you will have to first fill out a registration form complete with all your particulars that then becomes a permanent record with the state.

Seems reasonable, many of you will think. But as is the case with all of these “tightening noose” regulations, it’s not a problem until it becomes a problem. For instance, knowing you buy ammunition puts the state on notice that you own a gun should it someday decide it’s in the national interest to confiscate all weapons. While most will think that’s a remote possibility, gun confiscation has been an early move of virtually every emerging totalitarian state.

In another disturbing move, at least for those not sufficiently fleet of foot to globalize their assets and lives, there is a rising tide of regulation that points to the increasing likelihood of the U.S. government placing restrictions on moving money out of the country. Here’s the latest on this front, from our own Kevin Brekke, writing from the safety of his residence in Switzerland.

Incrementalism and Money Movement

By Kevin Brekke

A news item warranting special mention went largely unremarked on in the media last week.

On Monday, Sept. 27, the Financial Crimes Enforcement Network (FinCEN) announced that it had “submitted for publication in the Federal Register a notice of proposed rulemaking (NPRM) that would require certain depository institutions and money services businesses (MSBs) to affirmatively provide records to FinCEN of certain cross-border electronic transmittals of funds (CBETF).”

In a statement released after the announcement, James Freis, Director of FinCEN, explained, “By establishing a centralized database, this regulatory plan will greatly assist law enforcement in detecting and ferreting out transnational organized crime, multinational drug cartels, terrorist financing, and international tax evasion.”

The new proposal would change the rules governing international electronic money transfers. Currently, money electronically sent cross-border triggers a reporting requirement if the transaction exceeds US$10,000, with banks required to maintain records on transfers greater than US$3,000. This proposal would essentially eliminate these thresholds and mandate the reporting of all money sent outside the U.S., with one exception: money services businesses like Western Union would be exempt from reporting transfers under US$1,000.

Yet the contention that the trio of boogeymen – drugs/terrorism/tax evasion – potentially lurks behind every movement of money is a false-flag. This latest move to expand reporting requirements looks to be another brick in the wall of foreign exchange controls.

The proposal would standardize the format used and the information contained for reporting. It would also consolidate the myriad systems (i.e., Fedwire, CHIPS, SWIFT, IBAN) used by U.S. financial institutions to process electronic funds transfers and establish a small number of channels where they enter and leave the United States.

However, FinCEN admits that cooperation from foreign governments is not assured and states,

    “Whereas the U.S. government can and has taken steps to require that certain information be included in electronic payment messages, foreign institutions may hesitate to provide detailed information in funds transfer instructions and are beyond the reach of U.S. law. To require that U.S. banks reject any funds transfer instruction that does not include the elements required under U.S. law could significantly disadvantage U.S. institutions in the international financial system.”

This admission seems to undermine half the undertaking if monitoring and reporting from all foreign governments on money being transferred into the U.S. is in doubt. It is refreshing to see that they also recognize that at some point added restrictions can and will hurt the U.S. banking system’s ability to compete globally.

So, if the proposed new system will likely fail in its ability to track all incoming money transfers, then the system would appear to be comprehensive in the monitoring of outgoing transfers only. And that could easily be seen as laying the groundwork for “case-by-case” exchange controls. Once the system is operational, it will be gathering information on, and monitoring, money transfers in real time, and authorities could allow or deny any and all requests at any time for any reason.

FinCEN has also issued a formal notice that “cross-border electronic transmittal of funds” contains an exemption for “any debit transmittals, POS [point of sale], transactions conducted through an ACH process, or ATM.” Whereas it is estimated that 350-500 million cross-border transfers take place in the U.S. per year, over 5,000 debit, POS, ACH, and ATM transactions happen per second on a typical business day. Including such transactions is a practical impossibility.

Lastly, I was unable to sleuth out when this new system of reporting might take effect. Once the proposal is printed in the Federal Register,it will be open to 90 days of public debate. And Mr. Freis has said that industry groups with concerns about the new requirements will be consulted as the rule moves forward. The new rules do not appear to be imminent, but they are coming. Sounding like a scratched record, if you intend to move some of your wealth outside the U.S., and want to do so with maximum ease, the sooner you do it the better.

A Closing Comment

As I sat in the summit audience listening to the excellent presentations, one thought kept recurring – how happy I am to now be building a house in Cafayate, Argentina. To some, the idea of diversifying their life between more than one country seems too “exotic” or even unpatriotic. To which I reply, in the first instance, it’s a beautiful and wonderful world out there. While the U.S. has a tremendous number of advantages, including smoothly working systems that take a lot of the hassles out of shopping and other little tasks of life, I always feel far more in tune with what might be called the “real world” when abroad.

In Cafayate, for instance, pretty much everything you eat or drink is produced locally. And in the absence of all the “noise” that exists in the first-world economies, my stress levels plummet.

As for the second charge, that it’s unpatriotic to contemplate moving outside of the country, it would take more time than I have to fully answer the point. I will say, however, that, speaking as the head of a family, taking steps to build a life in two (or more) countries provides me with a great peace of mind.

As long as things don’t get too far out of control here in the U.S., I’ll always spend a lot of time here. But should things start to go seriously off the rails – with punitive taxation, exchange controls, soaring inflation, rising social unrest, the imposition of a military draft, or similar unpleasantness, then I know I can seamlessly make the transition to my other life. That the cost of living in Argentina is a fraction of the cost that it is here is just icing on the cake.

In any event, if you’re interested in checking out Cafayate and what has been called Doug Casey’s vision of Galt’s Gulch, La Estancia de Cafayate, there’s no better way to do so than making plans today to attend during the fast-approaching Sights and Sounds Celebration, October 20 – 24.

While you’ll need to act fast to make your arrangements, I know you’ll be glad you did. In addition to a bunch of fun and interesting social events, we’re also hosting a half-day seminar featuring Doug Casey, Bud Conrad, Dr. David Eifrig, and Louis James who will be there to give you his best picks in the junior resource sector and help you make back all the costs of flying to the event and then some.

As time is limited, the best way to learn more is to contact Dave Norden by email, at [email protected]; please make the subject line “Interest in Sights and Sounds Event.”

Hope you can make it – it will be an unforgettable experience.

Until tomorrow, thanks for reading and for being a Casey Research subscriber!

David Galland
Managing Director
Casey Research