The S&A

Gold Investors Manual

Stansberry & Associates Investment Research

Foreword
By Porter Stansberry, founder, Stansberry & Associates Investment Research Our politicians propensity to spend money they dont have goes back a long, long time... In 1690, the colonial government of Massachusetts faced a fiscal crisis. Its soldiers were returning, defeated, from a raiding expedition to Quebec. It had no funds to pay the soldiers, as the colony expected the campaign to be profitable: The soldiers were to loot the French. Angry and hungry soldiers are dangerous. The Massachusetts politicians had promised to pay them, despite the fact that the Treasury had no money. (Similar to our federal governments current schemes, that all of the money had already been spent didnt worry them.) Unfortunately, the colonys credit was tapped out. No one would lend the government the funds it required 7,000 British pounds. So, pioneering a tradition in U.S. politics, the leaders of the colony simply printed up 7,000 paper notes. On behalf of these notes, the politicians made two solemn promises: The notes would be redeemed in gold or silver from tax revenue in a few years... and absolutely no more paper notes would be put into circulation. Trust us, the politicians explained, gold is only a barbaric relic. You can guess what happened to these promises. Less than six months later, the colonys leaders decided the first issue of paper money had gone so well and had such a positive impact on the local economy that they issued an

By:

Porter Stansberry, Dr. Steve Sjuggerud, Jeff Clark, Matt Badiali, Dr. David Eifrig, Brian Hunt, Van Simmons, Tom Dyson, and Michael Checkhan

Edited by: Amber Mason, Sia Georgandis, and Lisa Dorland Design: Cadie Bridges-Palmer Published by Stansberry & Associates Investment Research Visit our website: www.stansberryresearch.com Printed in the United States of America

additional 40,000 notes. Once again, they promised the notes would be redeemed in gold or silver and that no further notes would be put into circulation. As this second, much larger wave of paper hit the market, merchants began to significantly devalue the paper versus genuine bullion, leaving the paper with only about 60% of its previous purchasing power. When the market began to reject the fiat paper as a fraud, the colony moved to buttress its value by force a tactic copied later by such illustrious leaders as Zimbabwes president Robert Mugabe. The government decreed its paper was legal tender at par for all debts and granted a 5% premium on the notes for all tax payments. Such tactics worked... for a time. But as always happens when one currency is artificially propped up over its intrinsic value, the bad money forced out the good. Spanish silver coins, which had circulated widely in the colonies, began to disappear. (The same thing would later occur in the 1960s, as the U.S. dollar declined to well below the value of a silver dollar.) Meanwhile, the politicians treated each of the following crises with more of the same money medicine. In 1716, they issued another 100,000 notes these backed by a land bank. Then in the 1740s, they more or less turned on the printing presses for good. Paper money in circulation soared from around 300,000 notes to more than 2.5 million. All this money sloshing around the world helped power one of the greatest speculative manias in history the South Sea Bubble. It also caused the price of precious metals to soar. The free market price of silver, which had once stood at par with the notes, ended up 10 times higher. In about 60 years, the Massachusetts colony had turned its promise to repay in specie

(gold and silver coins) into a farce: Its notes were now worth 90% less than face value. Fed up with the constant economic booms and busts of a paper standard (always followed by yet another, still-larger issue of paper money), the King of England in 1751 outlawed the issue of any currency not backed by gold or silver. Given our exit from the gold standard roughly 40 years ago, the constantly increasing money supplies in the United States, and the relative financial standing of our government (about $50 trillion in debts and obligations) not to mention the private sectors immense piles of bad debts (perhaps $1 trillion in subprime mortgages) a decline in the purchasing power of the dollar is a sure thing. Higher precious metals prices are a lock. In the Gold Investors Manual, youll find several unique strategies to profit off this trend... and protect your wealth and your family in the years ahead. Youll get tips on anything and everything you need to know to profitably buy, hold, and sell gold. If you already own gold, congratulations. I encourage you to continue to put a portion of your savings into the only money that isnt someone elses liability. If you havent yet bought gold, I urge you to get started now. Today. In the following pages, youll find the simplest, safest ways to own and hold gold. There are no more excuses. Good investing,

Porter Stansberry

Special Thanks
Before we get started, wed like to offer special thanks to the guys at Casey Research. They do some of the best natural resource research you can find anywhere... and theyre always plugged into whats happening with gold. In the following pages, youll find commentary from their own Jeff Clark, senior editor of Big Gold. If youre interested in profiting off the move in gold with high-quality precious metals stocks, we highly recommend you check out Jeffs work. To learn more, visit http://www.caseyresearch.com/premiumpublications/big-gold. Wed also like to thank our friend Van Simmons... If youre looking to preserve your wealth and even make a few hundred percent in gold coins, Van Simmons is someone you need to know. And hes always glad to talk with Stansberry & Associates readers to help them with the right collectible investments. Weve found that his coin advice is excellent... and his advice on most other things is just as good. You can reach Van directly at (800) 759-7575 or (949) 567-1325, or e-mail him at [email protected]. Finally, thanks to Michael Checkan, head of Asset Strategies International. ASI is one of the largest private gold bullion dealers in the world, and Michael has been helping investors use precious metals and foreign currencies for 30 years. Hes extremely knowledgeable and has offered to answer any questions for Stansberry & Associates readers. Visit his website at www.assetstrategies.com or call (800) 831-0007.

Table of Contents
Part I: What Everyone Should Know About Gold The Ultimate Form of Real Money ............................................................3 What You Dont Know About Gold ............................................................5 Part II: Where Gold Prices Are Headed A Rational Reason to Own Gold ..............................................................13 Exactly Where We Are in This Gold Bull Market......................................16 Part III: The Best Ways to Buy and Own Gold The Right Amount of Gold Investors Should Own ..................................21 The Gold Investors Biggest Risk ............................................................23 The Best One-Click Ways to Own Gold....................................................27 Get Paid to Protect Your Savings ............................................................30 You Can Hold Gold in Your Bank Account ..............................................33 How to Keep the Governments Hands Off Your Gold Profits..................36 How to Buy and Store Physical Gold ......................................................39 What My Most Trusted Gold Insider Is Buying........................................45 My Favorite Way to Own Gold Bullion Today ..........................................51 How to Buy Bullion with No Markup ......................................................55 How to Legally (and Easily) Hold Gold Offshore ....................................59 How to Legally Smuggle Gold ................................................................62 What You Need to Know About Counterfeit Gold ....................................65 Part IV: How to Know When to Sell Your Gold The Ultimate Gold Bubble Test ................................................................71 Watch for This Signal to Sell Your Gold ..................................................74 BONUS: Chinas Influence in the Gold Market How the Chinese Will Establish a New Financial Order ..........................79 The Largest Gold-Accumulation Plan of All Time ....................................84 How and Why China Came to Dominate the Market for Gold..................89 How China Plans to Change the Way Gold Is Traded ..............................95

PART I
What Everyone Should Know About Gold

The Ultimate Form of Real Money

By Brian Hunt, editor in chief, Stansberry & Associates Investment Research For the past few thousand years, gold has seen a lot of competitors try to become the ultimate form of real money. Folks have used everything from cigarettes to butter, stones, livestock, salt, and seashells to store their wealth and trade for goods. But when crisis hits... when wars break out... when bank runs grip a nation... when its really time to just grab the money and run, humans keep coming back to gold as the ultimate form of money. Gold beats the competition so easily for six reasons... Gold is easily transported. Land is a good store of wealth, but you cant take it with you if you have to get out of Dodge. Gold is divisible. If I owe both Peter and Paul and I have just one piece of gold, I can split it in half. Gold does not rust or crumble. Folks have used cattle as money, but cows dont survive long in a locked vault. Gold is consistent all over the world. Ill accept the pure gold you mined in China just as easily as Ill accept the pure gold you mined in South Africa. Gold has intrinsic value. Gold has wonderful conductivity, its super malleable, and it doesnt break down... so it has lots of industrial uses. Seashells lose big on this one.

 Gold cannot be created by the government. People who saw their wealth disappear in the great inflation of the 1970s know that holding lots of paper money can be disastrous. Most of the requirements of money were laid down by Aristotle over 2,000 years ago. The great investor Doug Casey is the worlds best at reminding us why gold is still the ultimate form of real money. And now that America is inflating its money supply in an attempt to pay for all kinds of wars, mortgage bailouts, social programs, infrastructure buildouts, and green-energy boondoggles, its vital to own a chunk of real wealth.

What You Dont Know About Gold: The Biggest Myths on the Gold Market
A Daily Crux interview with Brian Hunt, editor in chief, Stansberry & Associates Investment Research The Daily Crux: Brian, as you know, we probably get more questions and reader feedback on gold than on any other subject here at The Crux... And weve noticed there are quite a few myths and misconceptions about gold out there. Can you go over some of the big ones for us? Brian Hunt: Sure. Probably the biggest misconception investors have toward gold is they see it as an investment. Theyll listen to the folks on CNBC pick apart and analyze every $30 move in the metal, just as a move in crude oil or stocks or bonds would be analyzed. Theyll check the price quote every day... to see how their investment in gold is performing. This just isnt the way to view gold. Gold isnt an investment. A thousand shares of health care company Johnson & Johnson is an investment. J&J pays a dividend. Its a business thats going to grow its cash flows and pay a portion of those cash flows out to its shareholders. An income producing rental property is an investment. Bought at the right price, a rental property will return all of your original capital in the form of rent checks... and the rest is gravy. Gold isnt like those two examples at all. Gold is money.

Its been used for money for thousands of years because its easily divisible, its easily transportable, it has intrinsic value, its durable, and its form is consistent around the world. And as Doug Casey reminds us, its a good form of money because governments cant print it up on a whim. You cant Bernanke your way to wealth with gold. Gold doesnt pay interest or a dividend. It doesnt have profit margins. Your gold holdings amount to lumps of metal held in storage. The sooner the investor realizes that gold is money... and not a conventional investment, the better off hell be. Its just a timeless form of money. Thats it. Crux: People can also view it as insurance, right? Hunt: Right. Since gold is real wealth that you can hold in your hand, its also crisis insurance... or wealth insurance. Like regular insurance, you buy gold and hope you dont have to use it. Gold is insurance against governments doing foolish things with their finances. Its going to hold its value if governments do crazy things that lower the value of their paper money, like the United States is doing with the dollar. A currency is sort of like the share price of a country. Over time, if a country manages its finances well... if it produces more than it consumes, saves plenty of money, and maintains a modest amount of debt, its currency will rise. If a country consumes more than it produces... if it spends lots of money, and borrows a lot in order to do all of that spending, its currency will fall in value. While currencies fluctuate for

all sorts of reasons in the short term, over the long term, countries that manage their checkbooks will enjoy strong currencies. Countries that mismanage their checkbooks see their currencies plummet. The U.S. dollar lost around 33% of its value between 2000 and 2012. This decline is because the world is waking up to the awful situation America has borrowed and spent its way into. During the same time, gold climbed from below $300 per ounce to over $1,790 an ounce. It fell by that amount because our chief central banker basically told the world that hed print lots of money in order to allow our current political regime to spend lots of money... and to bail out every American who cant balance a checkbook or show up for work. My friend Porter Stansberry calls our current dollar situation a full-blown crisis. Hes probably right. And gold is demonstrating its value as crisis insurance. I wish I lived in a country that produces more than it consumes... that values personal responsibility and saving money. That has a government that believes in fiscal responsibility. But I dont. About half this country is on the government dole in some form or another. Over 40 million people are on food stamps. People are being paid by the government not to work. The people employed by the government enjoy huge, outsized salaries for what they do. This situation is a crisis. Thats why I own gold... and recommend people keep at least 5% or 10% of their wealth in gold.

But heres where I differ from the average gold owner: Id love to see gold fall down to $300 or $400 per ounce. Id love it if the value of my crisis insurance would fall, rather than skyrocket... just like I dont want my familys house to burn down... or why I dont want someone to T-bone my car in an intersection. But I look at the gang of clueless college professors, career politicians, and other types who have never held real world jobs occupying the White House and Congress... And when I consider that half of this country is on some form of government dole, I know there is no political will to rein in spending and borrowing. Crux: Yes... we all need insurance from that. Do you think at least large institutional investors, like mutual fund companies, understand gold? Hunt: Absolutely not. They are just as ignorant about gold as the average Joe on the street. They might even be worse. From the early 1980s to 2000, nobody worried about insurance. Stocks and the economy boomed for nearly 20 years. Gold languished for a long time. Its importance as real money as a crisis hedge was forgotten by most people... even by the supposedly smart folks who run big investment funds. They learned their trade during a period of rising stock prices and falling gold prices, so they think gold is something rightwing nuts stockpile alongside canned food in a bomb shelter. Its amazing how a few decades of smooth sailing will make folks forget golds importance as insurance against disasters. Ive heard lots of supposedly smart institutional investors pooh-pooh gold because it didnt perform well during the 1980s

and 1990s. Theyll post charts showing how it lagged behind stocks and real estate. Its a silly comparison, because gold isnt an investment like stocks and real estate can be. Gold is just gold. Like I said, you own it and hope to never have to use it. You dont get it confused with a stock like Johnson & Johnson. Crux: We think youve made your point. Any parting shots? Hunt: Just one more. It involves another myth about gold... The belief that anyone knows where the heck its going over the coming years. Every day, you hear some guru claiming gold is going to $2,000 or $4,000... or even $10,000. Those kinds of price projections are just hot air. Nobody not Warren Buffett or Ben Bernanke or George Soros knows how high gold will go in the coming years. Its tempting to make comparisons to other wild periods like the 1970s or the 1930s. But those historical comparisons arent worth anything. And Im going to catch hell for saying this, but they arent worth anything because this time is different. I know this time is different is a dirty phrase in the investment business but given the U.S. debt situation, our runaway entitlement spending, Europes massive debt problems, and the emergence of Asia as a wealthy gold accumulator this is a different gold market than any market weve ever seen. I dont place any value on any past price action here... or any price projections... or any attempts to value it. You cant value gold like a stock... where youd say Ill pay 10 times earnings for gold. You cant value it like a rental prop-

erty and say Ill pay eight times annual rent for gold. The important thing for investors is to forget about the noise you hear on the Internet and television, and just steadily accumulate ounces of gold. Try to buy a little more each quarter or each year. Dont see it as an investment. See it as money... as real wealth you can hold in your hand. Thats how its been seen for thousands of years. It will eventually be re-discovered by the general public in the coming years. Crux: Thanks for your time. Hunt: My pleasure.

PART II
Where Gold Prices Are Headed

10

11

A Rational Reason to Own Gold

By Dr. Steve Sjuggerud, editor, True Wealth Gold rises in times of fear... the old saying goes. And it is true. But how exactly do you measure fear? Its tough, because fear is not rational. However, right now there is an outstanding and very rational reason for the price of gold to continue rising for a long period of time. It has nothing to do with fear. Its simple. It could lead to extraordinary profits. And Ill share it with you today.

No Chicken Little Here

Most gold writers push the fear buttons... The world is going to hell in a handbasket youd better own some gold, they say. I try to stay out of the fear crowd. Im agnostic when it comes to investments... I dont love gold or love stocks. I just want a good buy. And right now, there is an excellent, rational reason to buy gold. You can leave fear out of it. Gold is attractive now because its attractive... fear or no fear. Let me explain...

Money Flows Where Its Treated Best

Gold pays no interest. Its just a lump of yellow metal. So if the bank is paying you 7% interest on your cash, chances are youll prefer to have your money in the bank.

12

13

It makes sense... because due to compound interest, in 10 years youd have doubled your money in the bank. But if youd held gold instead, youd still have the same lump of metal. But consider this... Imagine if the bank was paying zeropercent interest... then which is more attractive, paper dollars or gold? In this case, both pay no interest. And in this case, a rational investor would choose gold. The gold is still the same lump of metal, but a government could print money and make the paper money worthless. It cant print gold. Money flows where its treated best. If there are high interest rates, gold does poorly, as money flows where its treated well. If interest rates are low or zero, money flows toward gold. Gold cant compete with high interest rates. But it is extremely competitive with zero-percent interest. But wait, you say. How did gold run from $100 to $800 in the late 1970s?

was 13%. That means your real return was negative 5% a year on your cash. Gold went from $100 to $800 in no time. Then, at the end of the decade, Fed Chairman Paul Volker drove short-term interest rates through the roof. By 1981, shortterm interest rates were 15%, and inflation was back into the single digits. That means investors got an outstanding real return on their money... and gold tanked, back into the $300plus range by 1982. The present situation is like the 1970s... Back in the 1970s, the real return on cash (the return after inflation) was negative. So money flowed out of cash and into gold. Today, for the first time since the late 1970s, were seeing the same thing. The real return on cash is negative. Its gold time. No fear-mongering necessary.

The Real Deal... Considering Inflation

If youre just looking at the current interest rate, youre not getting the whole picture. You have to consider inflation as well, to get to the real interest rate. For example, banks might pay you 1% interest. But inflation may be 2%. So the real interest rate the interest rate AFTER inflation would actually be -1%. And that explains it all... Right now, investors lose money to inflation by putting it in the bank. When faced with -1% interest in cash, or 0% interest in gold, the smart money is choosing to get out of cash and into gold. Back in 1979, short-term interest rates were 8%, but inflation

14

15

Exactly Where We Are in This Gold Bull Market

By Dr. Steve Sjuggerud, editor, True Wealth Son, Im behind you in everything you do... But theres no way Im buying any gold. My dad told me that back in 2002 (and in 2003... and in 2004...) Son, I bought gold Krugerrands in the late 1970s, and Im still down on em 25 years later. Gold is never going up. In the nearly two decades Ive been analyzing investments, my dad bought just about everything I recommended. But he drew the line when I recommended gold in 2002. I thought, Wow. Now this is what a bottom looks like... when even my dad doesnt trust me on this one. Back then, the gold story was simple to me... Gold is financial catastrophe insurance. When is catastrophe insurance the cheapest? When there hasnt been a financial catastrophe in decades. In the early 2000s, thats where we stood. So I recommended buying gold. It wasnt about being a gold bug. It was about buying something cheap. Back then, my parents bought everything I recommended except gold. And my in-laws were starting to do the same. But they drew the line at gold, too. They thought I was nuts.

What really did it was when I started recommending gold coins in 2003. Cancellations to my True Wealth newsletter started pouring in. The typical letter said, Steve has always had outside-the-box ideas, but this gold coins garbage has gone too far. Id never seen such a hated asset class. I personally believed gold could absolutely soar. And True Wealth readers who actually took my advice and bought my 2003-recommended MS-63 SaintGaudens gold coins made hundreds of percent profits. Now, more than a decade later, the situation is much different... Gold has gone up 12 years in a row. My in-laws now have a big portion of their portfolio allocated to gold investments. A decade ago, you could hardly get a quote for gold on CNBC or Yahoo Finance. Today, gold quotes are on the front page. If you want to make hundreds of percent on an investment, you have to buy it for pennies on the dollar, when nobody wants it. When major financial news networks run week-long specials on gold (like CNBCs GOLD RUSH in September 2011) its hard to say nobody wants it. In short, it feels like were closer to a top than a bottom in gold... On the other hand, the numbers we track through my True Wealth Systems trading service tell us we might not be at the top yet, because most people are NOT overinvested in gold. The details are complicated. But the basic thought is simple: People are watching gold go up, like spectators watching from the sidelines. They are not active participants... yet. I can say without worry, there is more upside. It sure doesnt

16

17

feel like the real estate boom, or the dot-com boom yet, when EVERYBODY is in. Thats when were at the top. Gold will certainly have extreme corrections. On its march from $35 to $850 an ounce in the 1970s (peaking in January 1980), gold lost HALF its value multiple times. But I dont believe the top is in yet. Fortunately, just about every way to buy gold is still cheap... Gold stocks (through GDX), junior gold stocks (through GDXJ), and gold coins (like the U.S. Gold Eagle coin) are all at extremely cheap levels relative to the price of gold. Yes, gold has soared. But no, you havent missed it yet. Fortunately, you can still buy in cheap through gold stock plays and gold coins. Dont wait. Take advantage of it...

PART III
The Best Ways to Buy and Own Gold

18

19

The Right Amount of Gold Investors Should Own

By Dr. Steve Sjuggerud, editor, True Wealth You often hear You need to own gold! But how much is the right amount? You dont want to own too little gold and have the purchasing power of all your savings shrink dramatically. You cant afford that. But you dont want to be an end-of-the-world nutcase, either. Well, one of the worlds shrewdest investors Jean-Marie Eveillard has 10%-12% of his extremely successful investment fund allocated to gold and gold plays... Jean-Marie Eveillards First Eagle Global Fund beat the stock market every year this decade. Whats more, hes done it conservatively... He doesnt take big risks. Over 30 years, hes proven to be one of the most successful mutual fund managers ever. When I got into investing nearly 20 years ago, Jean-Marie was already a legend. After doing my homework, his First Eagle Global Fund was one of the very first investments I ever bought. (Back then, it was called the SoGen fund... it still uses its old symbol, SGENX.) Jean-Marie started managing the fund in 1979. If you had invested $10,000 in the fund back then, it would be worth roughly $875,600 today. (Heck, I should have kept my money

20

21

in there!) His big idea now is very simple. Gold pays no interest. And money in the bank pays nearly no interest. You can print money. But you cant print gold. If the Fed keeps interest rates low, the obvious outcome is that it will take more slips of paper (dollar bills) to buy an ounce of gold. He believes his clients money should be about 10% or so allocated to gold and gold investments. Whats right for your situation? Thats up to you. But if youre substantially under or over the legendary investors gold allocation, you ought to consider getting more in-line with him...

The Gold Investors Biggest Risk

By Jeff Clark, editor, Casey Researchs Big Gold What do you suppose is the biggest risk gold investors face? Another 2008-style selloff? Gold stocks never breaking out of their funk? Maybe a depression that slams our standard of living? Though those things are possible, I dont see that as your greatest threat. Master speculator Doug Casey summed it up well: Your biggest risk is not that gold or silver may fall in price. Nor is it that gold stocks could take longer to catch fire than we think. Not even the prospect of the Greater Depression. No, your biggest risk is political. As bankrupt governments get increasingly desperate for revenue, any monetary asset held domestically could be a target. It is absolutely essential that every investor diversify themselves politically. In fact, at this point, it is the one action that should be taken before anything else. Doug Casey, September 2011 I know many reading this are prudent investors. You own gold and silver as solid protection against currency debasement, inflation, and faltering economies. You set aside cash for emergencies. You have strong exposure to gold stocks, both producers and juniors, positioned ahead of what is likely the next-favored asset class. You feel protected and poised to profit. Yet, despite all this preparation, you remain exposed to one of the biggest risks.
22 23

Similar to holding a diversified portfolio at a bank without checking the institutions solvency, many investors keep their entire stash of precious metals inside one political system without considering the potential trap theyve set for themselves. While storing some of your gold outside your home country is not a panacea, it does offer one important thing: another layer of protection. Consider the exposure of the typical U.S. investor: 1) systemic risk, because both the bank and broker are U.S. domiciled, 2) currency risk, as virtually every transaction is made in U.S. dollars, 3) political risk, because he is left totally exposed to the whims of a single government, and 4) economic risk, by being vulnerable to the breakdown of a single economy. Viewed in this context, the average U.S. investor has minimal diversification. The remedy is to internationalize the storage of some of your precious metals. This act reduces four primary risks: Confiscation: I dont know the likelihood of another gold confiscation. But I do know that things are working against us particularly for U.S. citizens. With over $100 trillion of unfunded liabilities, the U.S. government will likely pursue heavy-handed solutions. Under the 1933 FDR gold confiscation in the U.S. (the executive order was actually a forced delivery of citizens gold in exchange for cash), foreignheld gold was exempted. Capital Controls: Many prudent analysts, including my colleagues at Casey Research, believe some form of capital controls lie ahead, limiting or eliminating a citizens ability to carry or send money abroad. If enacted, all your capital would be trapped inside the U.S. and at the mercy of whatever taxing
24

and regulating schemes the government might concoct. Although you might be able to leave the country, your assets could not travel with you. Administrative Action: There are plenty of horror stories of asset seizure by a government agency without any notice or due process, possibly leaving the victim without the means to mount a legal defense. Having some gold or silver stored elsewhere provides what could be your only available source of funds in such a scenario. Lack of Personal Control: Having gold and silver stored elsewhere adds to your options. You will have a source of funds available for business, entrepreneurial pursuits, investment, or pleasure. Notice above I said these risks can be reduced, not eliminated. There is no perfect solution. U.S. persons could, for example, be compelled to pay a wealth tax on assets held worldwide, or even repatriate them in a worst-case scenario. But absent a crystal ball, the political diversity of asset location is an essential strategy against an uncertain future. Foreign-held assets also require greater awareness and planning: Access to your metal or sale proceeds may not be quick. Therefore, this option is for those with some gold and silver stored at or near home. I do not recommend storing all your precious metals overseas. That defeats one of its purposes: to have it handy for an emergency. While I think the U.S. poses the greatest threat, a foreign government could move to control certain assets as well. The risk varies by country and is generally greater within the
25

banking system than with private vaulting facilities. Understanding and complying with reporting requirements is essential. The bottom line, though, is that foreign-held precious metals can mitigate risk and give you more options. And as your metal holdings grow, diversification becomes more crucial. Given our current rapacious climate, its likely that simply buying gold wont be enough. I strongly suggest every investor diversify ones bullion storage outside their current political regime. The option may not be available someday, leaving you vulnerable without a secondary source of bullion. I advise taking advantage of the opportunity before it is gone.

The Best One-Click Ways to Own Gold

By Matt Badiali, editor, S&A Resource Report The gold-fund universe has exploded with opportunities. Today, we have more than a dozen different one-click ways to play gold. Take a look:
Name (Symbol) 1 SPDR Gold Shares (GLD) 2 iShares COMEX Gold Trust (IAU) 3 Central Fund of Canada (CEF) 4 Sprott Physical Gold Trust ETV (PHYS) 5 ETFS Physical Swiss Gold Shares (SGOL) 6 Central GoldTrust (GTU) 7 ETFS Physical PM Basket Shares (GLTR) 8 ETFS Asian Gold Trust ETF (AGOL) 9 PowerShares DB Gold (DGL) 10 PowerShares DB Gold Double Long ETN* (DGP) 11 Ultra Gold ProShares* (UGL) 12 RBS Gold Trendpilot ETN (TBAR) 13 iPath DJ-UBS Prec Metals TR Sub-Idx ETN (JJP) 14 UBS E-TRACS CMCI Gold TR ETN (UBG) 15 iPath Pure Beta Precious Metals ETN (BLNG) *Designed to return twice the actual return of gold Fees 0.40% 0.25% 0.00% 0.45% 0.39% 0.00% 0.44% 0.39% 0.75% 0.75% 0.95% 1.00% 0.75% 0.30% 0.75% Market Value $62.9 bil $10.9 bil $4.9 bil $2.6 bil $1.8 bil $1.1 bil $209.4 mil $82.6 mil $474.2 mil $370.6 mil $305.6 mil $62.7 mil $38.3 mil $16.3 mil $2.2 mil Type Bullion Bullion Bullion Bullion Bullion Bullion Bullion Bullion Futures Futures Futures Futures Futures Futures Futures

All these funds match the short-term performance of gold well enough: From December 2010 to December 2012, the price of gold rose about 18%. The largest bullion fund, GLD, rose about 17%. The largest unleveraged futures fund, DGL, rose 14%. But the differences start to show in the long run. From January 2007 through December 2012, the price of gold rose about 157%. GLD rose about 160%, but DGL only rose about 137%.
26 27

Store Your Gold with One of the Most Reputable Firms in Canada
One of the safest paper gold investments is the Central Fund of Canada (symbol: CEF). This company holds a mix of actual gold and silver bullion to back its shares. But you have to be sure to buy CEF at the right time. You see, its a closed-end fund, meaning there are a finite amount of shares. Those shares can trade at a premium or a discount to the net asset value (NAV) of CEFs bullion. CEF shares have recently traded around a 1.5% discount to NAV. Keep an eye on this number. Try to buy when the premium is at or below 5%, which is about what youd pay to buy a real gold bullion coin. You can find out how high the premium is here: www.centralfund.com/Nav%2 0Form.htm. Or you can call the Central Fund of Canada at (403) 228-5861.

In general, the bullion funds track the actual gold price much better than futures funds over the long term. Futures contracts expire, so the funds that use gold futures are forced to sell their old ones and buy new ones... Each time they do it, it costs a little bit. Thats why these funds consistently underperform the commodities they track. And each futures fund tracks a different basket of futures, based on a unique index. The subtle differences in the indexes can mean a big difference in your account. Over 2009, for example, there was a 23% spread between the best- (UGL) and worstperforming (UBG) gold futures funds. And thats just the unleveraged funds... DGP offers the ability to speculate on gold with leverage: It tries to return twice the rise in the spot price. But from its February

2008 launch through December 2012, it was up 102%. Gold was up 72% over that period. What does this all add up to, besides a lot of confusing choices? Well, these funds are there to make the banks money... not you. So if I were adding a precious-metal fund to my own account, I would stick to the big bullion funds. They track the spot price well and are liquid enough to buy and sell easily. Theres no substitute for real gold. But if you cant or wont go out and buy bullion, the bullion funds are the next best thing.

Store Your Gold in a Private Swiss Bank Vault

In September 2009, ETF Securities launched Physical Swiss Gold Shares (SGOL). SGOL holds real gold stored in Swiss vaults, rather than futures or mining stocks. SGOL is a $1.8 billion fund with a modest 0.39% fee. Each share represents about 1/10 of an ounce of physical gold. So, if gold is $1,700 per ounce, you shouldnt pay more than $170 per share. Take care not to buy these shares at a premium.

28

29

Get Paid to Protect Your Savings

By Dr. David Eifrig, editor, Retirement Millionaire Investing in gold comes with two problems. First is where to store it... Gold is heavy, and it needs to be put some place safe. Some gold bugs even bury it in their backyard. The other problem is gold doesnt generate any income. Unless you own a well-run mine that passes on cash flow to you, gold is just a boring hedge with no income. Ive found a secret that solves both of these problems. Heres how it works... Today, you can buy the New York-based SPDR Gold Shares (GLD). GLD is an exchange-traded fund that buys and owns gold bullion. By owning shares in this trust fund, you own actual gold... and the trust stores it for you. That solves the first problem: storage. But simply investing in this fund doesnt fix the income problem. The gold just sits in the trusts vaults, gathering dust. The trust doesnt pay a dividend. So in order to get some income from your pile of gold, you can sell covered call options on the shares. If youre not familiar with trading options and find the idea uncomfortable, rest assured: This call-option strategy is easy and safe. In fact, the upfront income this trade generates makes it safer than simply buying shares in GLD. Selling a call option simply gives someone else the right to
30

buy your GLD shares at a specific price (the strike price) before a specific date (the expiration date). In exchange for that right, the investor pays you money up front (called the premium). Heres one way to think about it... Selling these covered calls is like owning a rental house... and giving your tenants the right to buy your house at a predetermined price, which is higher than the current value. You collect rent no matter what. And if the price goes up, you get the gains up to a predetermined price. In other words, its a very, very safe investment. Heres how it can work out: 1) If your GLD shares never trade for more than the strike price, you keep the premium and the shares. You can continue to sell call options against your shares. 2) If the share price exceeds the strike price on or before the expiration date, your shares are automatically sold for you, you book any profit up to the strike price, and you still keep the premium. If gold continues its uptrend, I expect you can make a safe 10%-15% a year with this strategy. The best calls to sell have a strike price 5%-10% above the current price and expire in six months or so. Those will give you plenty of cash up front and still leave you some upside on your gold. You can also follow this strategy with other gold funds, like New Jersey-based IAU. If you havent sold options before, you should talk to your
31

broker about the best way to take advantage of this opportunity. Please dont rush out and do anything you dont understand. But as I said, this trade is one of the safest, easiest ways to own gold. Its a fantastic hedge against calamity and the collapse of the dollar. Plus, with 10%-15% annual gains, you can earn more income than the best dividend-paying stock in the marketplace today.

You Can Hold Gold in Your Bank Account

By Dr. Steve Sjuggerud, editor, True Wealth Your cash in the bank earns you next to nothing... Meanwhile, the government has the ability to print all the money it wants to. In short, your wealth in the bank is steadily eroding. Your dollar is losing purchasing power year after year. What can you do to protect your savings? My friend Frank Trotter of EverBank has an innovative solution... Hold some of your savings at the bank in gold. Frank and I go way back. I like him a lot, and I like his firm. His team has taken good care of my readers over the years. (And in case youre curious, I have no business relationship with EverBank, and neither does my publisher, Stansberry & Associates.) Over dinner one night, he explained to me that, through EverBanks Metals Select Gold accounts, you can keep a portion of your savings at the bank in gold, instead of in dollars. So, Frank... I could keep my everyday money in my regular checking account... and then I could keep my longer-term savings split between a regular savings account and gold? Yes. But what if I need to convert my gold at the bank into cash to pay for a big expense? No problem.

32

33

How long will it take to get my cash? A day or two? Yes. OK. How do you hold my gold? However you want. You can have gold with your name on it, so to speak, which has a storage fee. Or we can hold it for you as unallocated gold, where theres no storage fee. Will you send me my gold if I want it? Absolutely. Its your gold. I hadnt heard of U.S. banks offering gold as an account option. But EverBank does. And its a pretty convenient way to hold gold... Imagine your house needs a new roof, and you need to get the money out of savings. If your savings are in gold coins in a safe deposit box, you have a serious hassle... You have to go to your bank and get your gold coins. Then you have to find somebody to buy them from you at close to full price... Either take them to a local dealer or mail them off to a reputable dealer. Youre taking a bit of a risk, having them on you or putting them in the mail. Then you have to wait on a check. Then you deposit that check in your bank. Then let it clear. Then you can write a check for a new roof. What a pain! With your gold at EverBank, you tell them you need to convert your gold to cash and move that cash to your checking account. Itll take a day or two from when you say sell my gold. Then you can write that check for the roof. Now, if you hold your account in gold, its value is not
34

guaranteed by the FDIC. Your checking and savings accounts are, of course. But if the price of gold goes down, the value of your gold account goes down the FDIC isnt going to help you out there. But with the bank paying next-to-no interest and a government with the ability to print money at will it makes sense to hold a portion of your savings in gold. Holding gold in your bank account keeps your life simple. EverBank offers a hassle-free way to do it. For more details, go to www.everbank.com/001MetalsGold.aspx.

35

How to Keep the Governments Hands Off Your Gold Profits

By Brian Hunt, editor in chief, Stansberry & Associates Investment Research Before you sock your money into a gold exchange-traded fund (ETF), theres something important you should consider: The IRS has a crazy view of gold ETFs... and it could cost you a lot of the gains you plan on making in gold and silver. You see, the IRS doesnt view gold as a normal financial asset like a stock or a bond. The IRS views gold as a collectible. And the IRS taxes the gains made in collectibles at a higher rate than conventional assets. If you buy a stock and hold it for over one year, and make a profit on it, the tax rate on your gains is 15%. This greater-thanone-year rate is called the long-term capital gains. If you buy a stock, hold it for less than a year, and make a profit on it, the gains you make will be taxed at your ordinary federal income tax rate. This less-than-one-year rate is called short-term capital gains. The higher your income, the higher your ordinary income tax rate. Most Americans with investible assets (and a job) are taxed in the 25%-35% range. Collectibles like art, stamps, and gold coins are in a different boat. The IRS assesses a tax rate of 28% on collectibles like these. And despite a precious metal ETFs stock-like attributes, it is backed by gold bullion, so the IRS calls it a collectible. This means, even if youre a buy and hold for the long term investor in a gold ETF , youll still get hit with a tax rate of 28%, versus the lesser 15% tax rate for normal financial
36

assets like stocks and bonds. Thats why an investor should consider a gold and gold stock strategy to minimize taxes. Heres what I mean: Shares in large goldproducing companies fall under the long-term capital gains tax rate of 15%. An investor looking to keep his hard-earned gold returns away from the taxman should consider a gold stock for his taxable account... rather than buying a gold ETF . The savings can be significant...

Another Twist in the IRS Code

The IRS does not allow folks to hold collectibles in their IRA accounts. This rule is to keep folks from placing their life savings into a Picasso or something like that. But for whatever reason, the IRS does allow you to place a gold ETF into your IRA. Thats right. Repeat after us, The IRS sees a gold ETF as a collectible. The IRS does not allow you to place collectibles into your IRA... But the IRS will allow you to place a gold ETF into your IRA.

Lets say you buy $50,000 So if you want a low-tax bet on straight gold bullion, worth of a gold ETF . You hold put a conventional gold ETF it for three years. Gold goes into your IRA. Your taxon a bull run during your advantaged IRA will shield holding period, doubling in your gold profits from the price. Your gold ETF stake is government. worth $100,000, meaning youre sitting on $50,000 in profits. If you decide to sell your gold ETF stake, youll have to hand over $14,000 (28% tax rate x $50,000) to Uncle Sam. Now lets say you put that same $50,000 into the large gold stock fund (GDX). This is an investment fund that diversifies your dollars into a basket of the worlds biggest and best gold

37

mining companies. Lets say you make the same profit of $50,000 over a few years. Youll only have to hand over $7,500 (15% tax rate x $50,000) of profits to Uncle Sam. I dont know about you, but the less I have to pass onto Uncle Sam to finance bank bailouts, welfare handouts, wars, and other ridiculous boondoggles, the better. Now, before you get excited about tax-advantaged gold, be aware that gold stocks are more volatile than gold itself. These companies are sensitive to borrowing costs, fuel prices, and wild swings in profit margins caused by the ever-changing gold price. As with all tax questions, its best to consult with your own advisor before taking any major action. But if you want a lowtax way to get into gold and you dont mind a little volatility, consider the gold-stock fund, GDX.

How to Buy and Store Physical Gold

A Daily Crux interview with Jeff Clark, editor, Casey Researchs Big Gold Interest in buying and storing gold is on a lot of minds these days. Thats why we sat down with Casey Researchs Jeff Clark to talk about the best places to buy and store physical gold. As the editor of Big Gold, Jeff is one of the most knowledgeable gold investors in the world. We think youll find his tips on buying and storing gold extremely valuable over the coming years... The Daily Crux: Lets get right to how to own gold... What forms of gold do you encourage people to buy? Jeff Clark: The average Joe may not be aware of it, but gold is very mainstream these days... Meaning its easy to invest in, and there are plenty of choices. You can buy GLD and the ETFs that have been in the news over the last couple years, which are reasonable options. But physical gold should be where your first dollar goes. What I recommend everyone buy is the one-ounce gold coins. Bars are fine, and people with significant wealth should use them. But Id rather have 100 gold coins than a 100-ounce bar of gold. The one-ounce coin is easily recognizable and easy to sell if you need to. If you have it in smaller denominations, you can sell only what you need if it comes to that. And gold is easily transportable. You can literally hold $50,000 worth in your hands. And no one has to know about it.
38 39

As far as the rare and numismatic coins, theyll certainly rise in an inflationary environment. But you have to be a little more careful here because values are based on their rarity and their condition, and the average investor cant judge those things. There are good rating services out there now, predominantly the Professional Coin Grading Service (PCGS). But its a tricky area for the novice, and you can lose money if you dont know what youre doing. I only buy from Van Simmons of David Hall Rare Coins. I trust him, and he actually helped create the standards for PCGS. Crux: Who else do you trust when it comes to buying gold, particularly the one-ounce coins you mentioned? Clark: For online buying, I like Kitco [877-775-4826], which charges a set dollar amount over spot, versus a percentage as most dealers do. This can work in your favor as the gold price moves up, although Kitco does change its prices from time to time. You can also buy gold and silver in their pool account at just pennies over spot. The Coin Agent [1-888-494-8889, [email protected]] is a small shop and his prices cant be beat. I really like him, and I trust him, too. Border Gold [888-312-2288 ext. 7] is in Canada and sells primarily the Maple Leaf. If I wanted Leaf, thats where Id go. Another one I like and trust is Asset Strategies International [1- 800-831-0007]. I can personally vouch for each of them. When youre shopping, keep in mind that you want a fairly common coin such as an Eagle, Maple Leaf, Krugerrand, or Philharmonic. You dont want an obscure coin and have someone

question if its real if you sell it someday. Other than that, youre just looking for the best deal from a reputable dealer. Crux: Do you have a rule of thumb where you never pay 5% or 10% over the spot price of gold? Clark: Sure, but that rule of thumb is a floating number. In late 2008, that number was 9%, and if you could get that you had to grab it. Now, you shouldnt have to pay more than 5% or 5.5%. The way to avoid paying too much is to shop around, and that only takes a couple calls or clicks. Crux: So we should go to the dealers you recommend and shop around for the best price? Clark: Thats what I do. If you want to buy online, Id go to Kitco. If you want to talk to a dealer, Id call one of the other places I mentioned. What you want to avoid are the large houses you see advertised on TV or online. Youll occasionally see a low premium advertised, say 5% or maybe even less. But quite frankly, thats usually an enticement to get you in the door. They make a much higher commission on numismatic coins. So if you buy from them, some day youre likely to hear, You know, my friend, we have a great deal right now on this rare coin. Let me tell you about it... Crux: Something where the uniformed novice can get taken advantage of. Clark: Yes, it happens regularly. Save yourself some hassle and avoid those guys.

40

41

Of course, you can go to your local shop, too. But right now, my local shops are more expensive than the other places we just talked about, even after shipping. One of my local guys is charging a 9% premium right now. I like him, but thats unacceptable in an environment where premiums have come way down. Crux: How about paying for physical gold with cash? For the completely hypothetical person who doesnt want to leave a paper trail? Clark: You can certainly pay with cash. In that scenario, youll be going to your local coin shop. Crux: Once youve bought it, where do you store it? Clark: The easiest way to store gold is in a safe deposit box at the bank. But you can only get to the gold when the bank is open, and youre not insured if the bank gets robbed. If you do decide to use a safe deposit box, make sure you use a local bank. You want to be able to get it in an emergency. Another option is to hide it in your house, which is good for small amounts of gold. Avoid jewelry boxes or cookie jars. The risk here is fire or flood. You could consider a safe, bolted to the floor. Talk to a bonded safe company. Or look for safes online with tags like floor safe or personal safe or home safe. Sentry is probably the leading brand. And safes dont have to be expensive they start around $150. If you get a safe, put it somewhere you can place something over it, like a refrigerator, because you dont want it visible to strangers or easy to find if youre robbed. And for obvious reasons, you should install it yourself. Some of the kits make it

easier than you it might expect. Crux: What about midnight gardening? Clark: This got its name from people burying their gold at night so their neighbors wouldnt see them digging. If you bury your gold in the daylight, find another reason to dig like fixing a pipe or removing a stump. The advantage to burying your gold is that you dont have to worry about it getting stolen or losing it if your house burns down. But make sure you store it in something airtight and waterproof, like a hikers water bottle or a bit of PVC pipe with capped ends. Find somewhere on your property that youll remember but that isnt easy to guess if someone learns youve buried something valuable. Crux: Right. What if you cant remember where you hid it? Clark: You should definitely let one person know the details someone you trust. They need to be able to access the gold if you get hurt or die. If you use a safe deposit box, put their name on the registration and tell them where you put the key. But dont tell more than one person. And most of the time, your kids arent going to be a good choice. Kids talk, and you definitely want to keep quiet about your gold... Crux: Would you ever sell your gold holdings? Clark: Well, since gold is insurance, you cash it in when calamity hits either you personally or the economy. That said, I would only sell my gold if I absolutely had to if I lost my income or if the world came to an end Mad Max style. I may
43

42

cash some in if we get the parabolic move in gold that I expect, but Ill decide that then. Crux: Thanks for your time and insight, Jeff. Clark: My pleasure.

What My Most Trusted Gold Insider Is Buying

By Dr. Steve Sjuggerud, editor, True Wealth Editors note: In May 2010, Steve spoke to collectibles expert Van Simmons and put together a two-part series for DailyWealth readers on buying gold. These ideas are still useful today...

How to Buy Gold

I spoke with Van Simmons recently... Van is a legend when it comes to gold and gold coins and hes one of my good friends. (A few things from his resum... In 1986, Van was a founder of PCGS the Professional Coin Grading Service which revolutionized the gold coin industry. As a dealer hes possibly bought and sold more dollars worth of rare coins than anyone on the planet.) Van is a mentor of mine. I give him a call and ask him his opinion when Im considering buying an alternative investment (even beyond gold and coins). Having collected and bought and sold so many different things over decades, his experience is priceless. This time, we kept it simple... I asked him: Whats the best way for the typical American to own gold?

44

45

Bullion is where you start which usually means modern gold coins. The most widely traded gold coin is the U.S. Gold Eagle, Van said. If youre new to gold, and you want to physically own gold bullion, the U.S. Gold Eagles are the way to go. (Its easy to buy Gold Eagles. Ill show you where and how at the end of this essay.) I asked Van why we should want these in particular... For example, my parents owned Krugerrands (which are gold coins from South Africa). I asked Van why we shouldnt own Krugerrands or Canadian Maple Leafs. Well, you can own those you mentioned... But when a customer sells a Krugerrand or a Maple Leaf, a dealer has to fill out a 1099 Form about who bought and sold and mail it to the government. We dont have to do that for Gold Eagles. All things being equal... the less reporting requirements, the better. (You can also hold these coins in IRA accounts.) Also, importantly, theyre the most liquid coins... so while you might not find a full-price buyer for a Mexican Peso gold coin, theres always a buyer for an American Gold Eagle you can always get a good price. How much should people hold in gold bullion like Gold Eagles, versus, stocks, or rare coins? Right now, personally, Im about equally split between those three... I might have a bit more in gold stocks. For customers, its their decision. If you want to have a speculative element to it, you should have gold stocks and rare coins. Some people dont want rare coins. And some people just want bullion. Its

your call. How should people store the stuff? Once again, its your call... You can put it in a safety deposit box, in a home safe, or bury it in the backyard. One thing, I do not recommend having a dealer store or hold it for you. What about shipping? Any concerns? Its no big deal. We typically send coins by registered mail, insured. We also use FedEx. The only complaint we hear is when registered mail takes more time to deliver than the customer expects and they start to get antsy. But buying coins is as easy as when you order a book on Amazon and it shows up at your house. As for how much to pay, expect it to cost around 5% to 6% over the current gold price, plus shipping (which is typically around $25). For where to buy... In my 15 years writing investment letters, Ive dealt with a handful of dealers that have handled thousands of our readers and have proven to treat them right. These dealers include: Camino Coins in the San Francisco area (www.caminocompany.com). Asset Strategies in the D.C. area (www.assetstrategies.com). American Gold Exchange in Texas (www.amergold.com). And of course, Van Simmons in Southern California (www.davidhall.com).

46

47

I dont receive any compensation for mentioning these guys. And youre welcome to call around or buy locally. Im just letting you know these dealers have handled thousands of orders each from my readers over the years. And Ive had few complaints about them (and never anything serious). They each have decades of experience. The message here is simple... If you want to get started owning gold bullion, the best starting point is U.S. Gold Eagles. Dont worry if youve never bought gold before. Like I said, its as easy as ordering a book on Amazon and having it show up on your doorstep! Of course, as with all asset classes, you should really diversify your gold holdings. Its the best way to lower your risk and to put you in a better position to maximize your returns. Van doesnt have all of his gold investment in bullion. He thinks of his gold holdings in three buckets. I like that approach. I asked Van to explain how it works...

For your bullion bucket, Van suggests U.S. Gold Eagles, as we just discussed. For your rare coins bucket, you need expertise. You can learn all you want from books and doing your own research (which you should do). But Van Simmons is my go to guy. I always say, You and I cant call Warren Buffett about stocks, or Bill Gross about bonds... but we can call Van about gold and gold coins. Hes accessible. You can reach him through www.davidhall.com, e-mail [email protected]. Dana Samuelson and his team at American Gold Exchange also do a nice job. At the end of the day, I think youll do great relying on Van and Dana. Theyve proven to be trustworthy, they know their stuff, and their prices are reasonable. For your gold stocks bucket, a great starting point is shares of the Gold Miners Fund (GDX). GDX is an exchange-traded fund that holds the top 30 names in gold stocks. You make one investment, and youve got it all. If you want to juice your returns in gold stocks, you might consider junior mining stocks. The simplest way to buy them is through the Junior Gold Miners Fund (GDXJ). This one investment gets you exposure to 58 junior gold stocks. If youre just starting out in gold, of if youd like to add more money to your gold position, Van laid out your path... Hold bullion first. U.S. Gold Eagle gold coins are a great starting point. To juice your portfolio from there... Hold rare coins. They soared 1,195% in the last gold bull market (as measured by the PCGS 3000 Index) from 1976 to

Three Must-Own Gold Investments

The three buckets Van holds gold in are: gold bullion, rare coins, and gold stocks. You choose the mix thats right for you, based on how much risk you want to take and how much you want to juice your portfolio to take advantage of a big move in gold. Rare coins and gold stocks, for example, give you a lot of leverage to the price of gold. A 50% move in gold has historically meant, say, two, three, or five times your money in rare coins and gold stocks.

48

49

1980. We have yet to see anything like that this time around. And also... Hold gold stocks: GDX (major gold miners) and GDXJ (junior gold miners) get you exposure to a total of 90 gold companies. Choose your mix of these three based on your risk tolerance.

My Favorite Way to Own Gold Bullion Today

By Tom Dyson, publisher, The Palm Beach Letter This is not an essay about gold. Its about the best way to own gold bullion. You have many choices when it comes to buying gold bullion. You can buy gold jewelry. You can buy gold bars. They sell them in one-ounce, 10-ounce, or even 400-ounce bars. Or you can buy gold coins. There are thousands to choose from, from ancient Roman coins to coins issued by the U.S. Mint this year. When I buy gold bullion, I need to know I can trade my gold anywhere in the world, whenever I want. I need to know Ill get full value for my gold when I sell it. And I dont want to the government knowing about my transactions. The $20 Saint meets these three requirements better than any other gold bullion investment I know. America became the largest economy on earth in the early 20th century. Americas $20 gold piece became the worlds most important coin. You might say it was the early 20th century equivalent of the $100 bill today. The U.S. Mint produced 70 million of these $20 gold coins between 1907 and 1933. The proper name for this coin is a $20 Double Eagle gold coin. But coin experts call them $20 Saints because Augustus Saint Gaudens designed them. For the last 100 years, collectors have spread the $20 Saint all

50

51

over the world. There are hundreds of thousands of these coins in North America, Asia, South America, and Europe. Everyone recognizes them. Everyone will trade them with you at a fair price. I like the $20 Saint in brilliant uncirculated condition. To give you some history, in the late 19th century, people used gold coins as currency. They bought steamboat tickets with them. They purchased houses with them. They even paid bills with them. The vast majority of the gold coins from this era that exist today are in junk condition, like most of the coins in your pocket. Few uncirculated gold coins exist from this era. By the early 20th century, people used paper money for dayto-day transactions. Gold coins became a savings instrument. Savers kept these coins in sock drawers, safety deposit boxes, and bank vaults. There are hundreds of thousands of uncirculated gold coins still in existence from this era, especially the Saint Gaudens $20 piece. A few of these uncirculated $20 Saints are so beautiful and rare, collectors pay tens of thousands of dollars for them. These are called graded mint condition coins. I am NOT talking about mint-condition collectible coins here. Brilliant uncirculated (BU) coins are neither mint condition nor junk coins. They are simply coins that look shiny and new, but theyre still common enough that they dont have any rarity or collectible value. BU Saint Gaudens are free of any government reporting requirements... and the government is unlikely to confiscate them.

In 1933, the U.S. government outlawed gold ownership. It demanded Americans turn in their holdings of gold coins. But it made an exception of collectible coins. If the government decided to confiscate gold again something we consider unlikely you would have to turn in your holdings of Krugerrands and American Eagles. But your pre1933 Double Eagles in BU condition would likely receive an exemption as collectibles. Finally, BU Double Eagles have more upside potential than any other gold bullion investment. Over the last 40 years, these coins have commanded a significant premium over gold bullion coins. For example, during the 1960s when gold was trading at $32 per ounce, BU $20 Saints sold for almost $65 per coin... a 100% premium over gold. In 2001, when gold was trading at $300 an ounce, BU $20 Saints traded for $710-$750 each... as much as a 150% premium. With the run-up in gold prices in recent years, investors are buying up modern gold bullion coins like the American Buffalo and Eagle, and even one-ounce gold bars. And so inventories of these BU vintage gold bullion coins have built up. The premiums have fallen to all-time lows. Today, you can buy a pre-1933 brilliant uncirculated Saint Gaudens for just a little more than a Krugerrand or an Eagle costs today In sum, BU $20 Saints offer three practical advantages over common gold bullion coins: better liquidity, insurance against

52

53

confiscation, and more upside potential but they only cost slightly more than a Krugerrand or Eagle. This is the bargain of all bargains. Take advantage of it while gold investors concentrate on modern bullion products.

How to Buy Bullion with No Markup

By the Stansberry & Associates Investment Research Team The New York Mercantile Exchange (NYMEX) is the worlds largest physical commodity futures exchange. The futures exchange is a market like any other, where sellers and buyers agree on a price. The only difference, really, is that they dont settle up right away. They lock in the price for a future date. One of its two principal divisions of the NYMEX is the Commodity Exchange (COMEX), where you can buy gold. When you buy a gold futures contract on the COMEX, you agree to buy gold at a particular price on a particular date. Unfortunately, you cant buy just a few ounces of gold on the COMEX. Each gold contract covers 100 ounces of gold, in a 100-ounce good delivery bar. So if you dont have the capital to cover 100 ounces of gold, try a couple of the other sources of cheap gold listed in this book. If you do have the capital, heres how it works... Very little gold actually changes hands on the COMEX. Most buyers and sellers of gold futures contracts are speculating on changes in the price of gold. But every participant who buys a gold futures contract can request actual delivery of the gold. To buy physical gold on the COMEX, you need to open an account with a futures broker. You can do this through a U.S. Futures Commission Merchant like www.rjofutures.com. These brokers may ask you to prove a minimum net worth

54

55

and a minimum income. If you can put down enough cash for 100 ounces of gold, you should clear these requirements no problem. The most active months for trading gold futures contracts are the current month, the next month and the month after that... along with every February, April, June, August, October and December. In other words, you have lots of choices for when to

get your gold. But if you want to get your gold as soon as possible, buy a futures contract for the current month. That contract will close (settle) on the third-to-last business day of the month. Buy your contract and deposit the full amount into your account. In less than a month, youll be the proud owner of 100 ounces of gold. Now, you dont have to deposit the whole amount right away. Youll probably have to put down something like 10%. But if gold declines in price, youll be required to deposit more or risk getting kicked out of the contract at a loss. On the settlement date, your account will be charged for an amount equal to the settlement price (whatever the contract price was when you bought it) multiplied by the exact weight of the particular bar thats been assigned to you. (Bars can vary from 95 to 105 ounces.) You wont pay any markup on the gold, but you will pay a commission ranging between $30 and $80. (These rates are paid per contract, so thats not even one-tenth of one percent.) When you buy gold off the COMEX, it is stored in one of the four designated COMEX depositories, all of which are in or near New York City. The average storage fee is $15 a month per bar. Ask your broker to mail you the warehouse receipt, which includes all the details on your specific bar. Dont lose this receipt. You can get your bar delivered to your home, but you have to pay a $150 delivery fee to get the bar released. Then youll have to add shipping charges on top of that. If you leave your bar in the COMEX vaults, you know its

Two Ways to Buy Cheap Gold Bullion in 10 Minutes or Less

Option No. 1: Bullion Direct Headquartered in Austin, Texas, Bullion Direct is an online service that offers trading, clearing, purchasing, and storage of precious metals. Recently, you could buy a 32-ounce kilo gold bullion bar for a 1.9% markup from the catalog or a 10ounce bullion gold bar for a 2.2% markup. (The more gold you buy at one time, the smaller the markup.) To get started, go to www.bulliondirect.com and click on the New Account tab located on the top right-hand corner. Option No. 2: Bullion Vault Another way to buy gold cheaply and quickly is to buy from BullionVault. At BullionVault, you can buy gold and have it held in good delivery form. BullionVault charges a maximum commission rate of 0.5%, which falls progressively to 0.05% depending on how much you invest. The more you trade, the less you pay. And the system remembers how much you have traded in each year starting from the day you first register. To get started, go to www.bullionvault.com and click Open Account.

56

57

safe. And its easier to sell this way. (A prospective buyer will not question the authenticity of your gold if it has been locked away in a monitored facility since you bought it.)

How to Legally (and Easily) Hold Gold Offshore

By Dr. Steve Sjuggerud, editor, True Wealth Michael Checkan has been a reliable contact for me in the gold world since I started writing investment newsletters in the 1990s. He runs a firm called Asset Strategies International and along with my late friend of mine, Glen Kirsch, he helped pioneer a few interesting products, including one called the Perth Mint Certificate Program. Ive known about Perth Mint Certificates for many years... I know theyre a simple, safe way to hold gold. But I never actually thought of these certificates as legally owning gold outside the U.S. However, thats exactly what they are... and that makes them extremely interesting now. You see, the government really wants to know if you have money in a foreign bank account. When you mail in your taxes, you have to report if you have one. The fear is that by reporting those accounts, youve made it easy for the government to confiscate the money someday, even if its held overseas. But (and you might get a laugh out of this one) the government doesnt count gold as money. It doesnt consider gold a financial asset. So holding gold in a foreign country doesnt count as owning a foreign bank account. There is no reporting requirement. This puts it out of the immediate grasp of the government. If it cant see what you have... it cant take it!

58

59

This loophole has been around for a long time. But to me, the idea of shipping a bunch of gold bullion overseas... and then storing it where? In a garage or a bank somewhere? It just didnt seem that practical. So awhile back, I asked another friend of mine, Joel Nagel, Whats the most practical, easy way to hold gold overseas? Joel said, Well, you could buy a Perth Mint Certificate. I felt like a knucklehead... It was so obvious. Buy a certificate, receive it in the mail, and boom! You now own gold offshore. Specifically, with a Perth Mint Certificate, you own physical gold held at the Perth Mint in Australia. Its guaranteed by the government there, its fully insured by Lloyds of London, and it has both internal audits and independent audits. Ive personally been to the Perth Mint and have seen the gold. I wanted to verify the specifics, so then I got in touch with Glen... Glen, can a Perth Mint Certificate be redeemed through you [at Asset Strategies International] in the States? Can someone get their cash through you? Glen replied, The answer to both questions is YES! Now thats convenient: Your gold is in Australia, out of reach of the U.S. government. But you can easily cash it in right here in the States. Many people prefer to hold physical gold themselves, believing that the safest place for it is in their possession... And thats fine, too. To each his own. But Perth Mint Certificates are probably the easiest, safest way to buy gold and hold it overseas.

You are in full compliance with U.S. law. But at the same time, by holding gold offshore, you have made it more difficult for the government to reach into your account and take your wealth. For more on Perth Mint Certificates, call Michael or Rich Checkan at Asset Strategies (800-831-0007) or e-mail [email protected].

60

61

How to Legally Smuggle Gold

By Dr. Steve Sjuggerud, editor, True Wealth Did you know the president confiscated all the gold of American citizens in 1933? Its true... all in one quick swoop of the pen:
UNDER THE EXECUTIVE ORDER OF THE PRESIDENT All persons are required to deliver ON OR BEFORE MAY 1, 1933 all GOLD COINS, GOLD BULLION, AND GOLD CERTIFICATES now owned by them to a Federal Reserve Bank, branch, or agency, or to any member bank of the Federal Reserve System. Issued April 5, 1933

Checkan. Michaels business is called Asset Strategies International. He finds legal ways to protect and diversify your wealth. Michael told me about a neat little idea he came up with. I thought the idea was worth sharing with you... When the U.S. government confiscated gold back in 1933, Michael told me, you were allowed to keep your gold jewelry. The president didnt ask for Grandmas wedding ring. So Michael started a gold jewelry company, called First Collectors Guild. This company is different from other jewelry companies. It thinks about the gold first... For example, each piece of First Collectors jewelry measures exactly one ounce or five ounces of gold. Most gold jewelry is 14 karats (which is only 58% pure) or 18 karats (which is 72% pure). But each First Collectors piece is 24-karat gold which is 99.99% pure. These pieces are, of course, jewelry... not currency. For example, if you wanted to, you could carry 100 First Collectors necklaces out of the country, and you wouldnt run afoul of the currency laws. And then you could convert them to money at most gold dealers in the world. Its like legal gold smuggling. Now, I dont recommend doing this on any scale. First off, youd look like Mr. T. going through customs. And secondly, its just not cost-effective... . First Collectors jewelry is handmade and costs a premium over the price of gold. But a gold dealer will only pay you a discount to the gold price. Finally, Im not a lawyer, but Im sure that if you tried to

It was the height of the Great Depression. And the U.S. government desperately needed to shore up its financial position. So in a dramatic move, it took everyones gold. Could it happen again? Well, put it this way: Who could have imagined it would happen the first time around? Every day on the radio, I hear ads about buying gold as a store of wealth. But folks who held gold as a store of wealth in the Great Depression had that wealth confiscated by the government. I recently had lunch with my longtime friend Michael
62

63

bring a load of First Collectors jewelry across the border, someone would decide youre somehow breaking a law. However, for a small portion of your gold, First Collectors jewelry is an interesting idea... My friend and publisher of The Palm Beach Letter Tom Dyson, was also at the lunch, and he was considering buying some for his wife. My wife would like some jewelry, but I dont like getting ripped off through jewelry store markups. If I bought this, my wife would get something she wants to wear... and Ill be confident that its not worthless. It has real gold value. If you feel the way Tom does, you might consider Michaels necklaces or bracelets... You specify the length, gold weight, and style you want. It takes four to six weeks to arrive at your doorstep. (If youre curious, we dont receive any compensation from Michael. Hes an old friend, and we liked this idea.) With this idea, you can keep your significant other happy while youre confident you own something with real value. And in the extreme case, if we see another 1933 again, your gold should be safe. Its an interesting idea. For a small portion of your gold holdings, jewelry from First Collectors is worth considering... To learn more about First Collectors jewelry and other asset diversification strategies, we recommend you talk to Michael. He is extremely knowledgeable and has offered to answer any questions for Stansberry & Associates readers. Visit his website at www.assetstrategies.com or call (800) 831-0007.

What You Need to Know About Counterfeit Gold...

A Daily Crux interview with Van Simmons, president of David Hall Rare Coins The Daily Crux: Van, there have been several recent reports of counterfeit gold popping up in the U.S. Is this something most readers need to be concerned about? Van Simmons: Yes, it definitely is... but with a caveat. Gold counterfeiting is nothing new, but reports of counterfeit bars turning up in New York have brought new attention to it. Of course, its not just China... but much of the counterfeit gold these days does come from there. These items typically contain tungsten, which has a similar mass as gold but trades for only a few hundred dollars an ounce. As for the counterfeit bars, its usually a case of real gold bars being drilled out and refilled with tungsten. Coins and ingots things like rounds, small bars, and non-denominated coins minted by private companies are smaller, so theyre typically tungsten with some type of gold plating. The fact is, its not even against the law in China to counterfeit American coins, so there are many companies over there in that business. Fortunately, Ive never seen or heard of any problems with counterfeit bullion coins like Gold Eagles, Krugerrands, or

64

65

Maple Leafs. There probably are some out there, but theyre extremely rare. Dealers trade in these coins all day long and are very familiar with them... so any potential counterfeits wouldnt stay in circulation long. Like I said, Ive been trading them for decades and havent encountered them. Where counterfeiting is a problem is in ingots and more importantly rare coins. Because these items are not widely traded and dealers are much less familiar with them, theyre a much bigger and more profitable target for counterfeiters. We see these coins at PCGS every so often. But its usually a case where someone will call us and say they have some rare date coin thats worth a great deal of money... when the reality is they bought it off eBay or someplace similar, paid cash for it, and its counterfeit. I had a complete set of Barber half-dollars, trade dollars, and Morgan dollars that were all counterfeit. A customer came in with them and was surprised to discover they were fakes. Of course, it turned out he bought them off Craigslist. If I showed you some of these Morgan dollars, youd think they were some of the best-looking coins youve ever seen. But they dont look quite right if you know what youre looking for... And its pretty easy for a professional to spot them as counterfeit. So theres definitely counterfeit stuff out there, and it can be a big problem if you dont know what youre doing. Crux: Whats your best advice for avoiding these problems? Simmons: Its simple.

First, dont buy ingots. It just doesnt make much sense to buy them today. They were popular in the past, but once coins like the Krugerrand, Maple Leaf, and the U.S. Eagle began trading in the U.S. in the late 1970s and 1980s, these coins have dominated the bullion market. These are what everyone trades... theyre super-liquid... and the premiums are reasonable compared to most ingots. So its simply not worth the risk to buy ingots to try to save a little money. Second, I suggest buying your bullion through a reputable dealer. The risks with Eagles, Maple Leafs, or Krugerrands are quite low, as I mentioned. But why take on unnecessary risks? Third, if youre going to purchase rare and relatively expensive coins, its even more important to buy from a reputable dealer, and only buy those graded by PCGS. I cant emphasize this enough. If youre going to spend a lot of money on an item, you owe it to yourself to ensure you get what youre paying for. Naturally, as a founder of PCGS, Im not unbiased here, but theres a reason were the most trusted grading service in the world. I talk to people all day long that have sought out really good deals, and end up hurting themselves. Its a clich, but its particularly true in the rare coin market: If a deal sounds too good to be true, it probably is. Counterfeit gold is a serious problem, but it doesnt have to be a serious problem for you if you take a few common-sense precautions. Crux: Great advice... Finally, if readers are concerned they may

66

67

already own some counterfeit gold, what would you recommend? Simmons: Well, as I mentioned, if they own ingots especially ingots they purchased from a third party, or got a really special deal on its a valid concern. If theyre worried about coins, its a different story. If theyve owned the item for more than five years or so, chances are they have nothing to worry about. These realistic-looking counterfeits are relatively new. And of course, if you bought PCGSgraded items from a reputable dealer, your risk is quite low. But in any case, they can call up a local coin dealer and most would be happy to take a look. Of course, any readers with specific concerns about rare coins can also contact us at David Hall Rare Coins, and wed be happy to help. Crux: Thanks so much for talking with us, Van. Simmons: My pleasure.

PART IV
How to Know When to Sell Your Gold

68

69

The Ultimate Gold Bubble Test

By Brian Hunt, editor in chief, Stansberry & Associates Investment Research Recently, theres been a very popular and very wrong thing to say about owning gold. I hear it a lot from inexperienced Wall Street analysts, bloggers, and money managers who spend little time living in the real world. Heres what theyre saying: Gold is way too popular now... Its near the end of its bull market. The recommended action to take is to cash in your gold profits and move on to something different. I can tell you that taking this advice is a big mistake. Anyone who believes gold is too popular with the mainstream public simply doesnt know who the mainstream public is... and they dont understand how bull markets end. Sure... gold is up big in the last decade. Gold is also enjoying a lot of mainstream press these days. In 2003, when I would tell someone I was placing a significant portion of my net worth in gold, theyd look at me like I was crazy. Now, they nod and say, I heard something about gold the other day on TV. Thats as far as the average Joe goes with his interest in gold. This is why gold is nowhere near a blow off top. Heres how to perform the ultimate test of whether an asset is too popular or in a bubble... Ask 100 people on the street if they own gold. See what
70 71

they say. Dont ask folks who read newsletter writers like Doug Casey or Porter Stansberry. Dont ask folks who you regularly talk investments with. Ask randomly chosen members of the public if they know why gold is real money. Ask them why gold climbed from $650 to over $1,700 in five years. I guarantee you the average person on the street is going to look at you like you asked him which airline offers nonstop flights to Venus. Hes going to have no idea what you are talking about. Hes heard about gold on the news a few times, but he cant tell you why gold is rising, who is buying it, or why it is the best form of money mankind has ever found. Gold is divisible, portable, lasting, consistent the world round, useful in industry... and as master speculator Doug Casey reminds us, gold cannot be created out of thin air by a government. In other words, you actually have to work and save in order to build a gold hoard. You cant Bernanke your way to real gold wealth. The people who realize this like billionaire hedge-fund manager John Paulson are getting more publicity now than they were six years ago. But its nowhere near enough publicity for a seasoned investor to say, Gold is too popular. When a bull market gets too popular, it looks like tech stocks did back in 1999. This was when everybody and his brother bragged at the office Christmas party about making a fortune in Cisco or Microsoft. It was when schoolteachers, personal trainers, and cab drivers suddenly became tech stock experts. Folks knew what bandwidth, routers, and e-commerce
72

meant. Only when an asset enjoys that sort of widespread attention can you say its too popular. I cant say that about gold right now... not after talking with friends who do not invest... not after talking with the people sitting next to me on the plane. The public still has no idea what bullion really is... or how the governments reckless tax and spend behavior is clobbering our currency. Dont believe me? Just ask em.

73

Watch for This Signal to Sell Your Gold

By the S&A Investment Research team Business was so good, Empire Diamond and Gold Buying Service had to hire a security guard to handle the crowd in their office. Weve been serving about 100 cups of coffee a day, going through three or four pounds daily, said an assistant, hurrying away to fill the empty pot. We found Empire Diamond and Gold Buying Services story in the New York Times archives from January 1980. When the gold price soared, Empire Diamond and Gold Buying Service were suddenly inundated with people looking to sell gold trinkets. We are handling a couple of hundred customers a day off the street and the average wait is three hours, said the owner, Mr. I. Jack Brod. Nobody has ever seen anything like this. Im looking for a beautiful year in 1980, said Bob Deitel, owner of the Madison Coin Shop in Connecticut. If youre trying to spot the peak of a gold bull market, dishoarding is one clue to look for. Dishoarding is what happens when people decide the gold price is so high, theyd like to swap their old gold heirlooms for cash. They pile down to the local gold and coin stores with their lockets, scarf pins, and old gold dental fillings. The massive new supply floods the market and causes the gold price to collapse. The intense dishoarding in January 1980,
74

for example, was one reason golds bubble popped. Gold fell $250 in the final days of January and then kept falling for the next two decades. Heres the thing: Gold fever has returned to America. A few commercials on TV are offering cash for gold... Pawnshops are doing well right now, too. But so far, it seems people are still more interested in accumulating gold. Until you see lines around the block at coin shops and New York Times articles about dentists earning thousands of dollars from used gold fillings, you should assume were still in the bull market.

Warning on Mail-In Gold Offers

By Dr. David Eifrig, editor, Retirement Millionaire Right now, late night commercials are begging you to sell your unwanted jewelry. Unless youre in dire circumstances, hold on to your gold. If you absolutely need to sell your gold, do some research first. The most advertised company seems to be Cash 4 Gold. It claims you can get cash fast when you mail in your gold, silver, platinum, or diamonds to them. We called Cash 4 Gold, and the people there refused to give us price quotes. ABCs Good Morning America sent in gold jewelry valued at $350 and only received $66.07 from Cash 4 Gold. Instead of mailing your jewelry off, your best bet is to shop your gold around to a few local jewelry stores and compare their offers. You probably wont get face value... but youll do much better than you will with Cash 4 Gold.

75

BONUS:
Chinas Influence in the Gold Market

76

77

Editors Note: This commentary was published in DailyWealth, S&As free e-letter in February 2012 but the ideas Porter addresses are still relevent today.

How the Chinese Will Establish a New Financial Order

By Porter Stansberry, founder, Stansberry & Associates Investment Research For many years now, its been clear that China would soon be pulling the strings in the U.S. financial system. After all, the American people now owe the Chinese government nearly $1.5 trillion. I know big numbers dont mean much to most people, but keep in mind... this tab is now hundreds of billions of dollars more than what the U.S. government collects in ALL income taxes (both corporate and individual) each year. Its basically a sum we can never, ever hope to repay at least, not by normal means. Of course, the Chinese arent stupid. They realize we are both trapped. We are stuck with an enormous debt we can never realistically repay... And the Chinese are trapped with an outstanding loan they can neither get rid of, nor hope to collect. So the Chinese government is now taking a secret and somewhat radical approach. China has recently put into place a covert plan to get back as much of its money as possible by extracting colossal sums from both the United States government and ordinary citizens, like you and me.

78

79

The Chinese State Administration of Foreign Exchange (SAFE) is now engaged in a full-fledged currency war with the United States. The ultimate goal as the Chinese have publicly stated is to create a new dominant world currency, dislodge the U.S. dollar from its current reserve role, and recover as much of the $1.5 trillion the U.S. government has borrowed as possible. Lucky for us, we know whats going to happen. And we even have a pretty good idea of how it will all unfold. How do we know so much? Well, this isnt the first time the U.S. has tried to stiff its foreign creditors. Most Americans probably dont remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the U.S. government policy of printing overvalued U.S. dollars to pay for its trade deficits... which allowed U.S. companies to buy European assets with dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction. So de Gaulle took action... In 1965, he took $150 million of his countrys dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Today, this gold is worth about $12 billion. Keep in mind... this occurred during a time when foreign governments could legally redeem their paper dollars for gold, but U.S. citizens could not. And France was not the only nation to do this... Spain soon redeemed $60 million of U.S. dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.

By 1950, U.S. depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the U.S. government was willing to give away more than half of the countrys gold. Its estimated that during the 1950s and early 1970s, we essentially gave away about two-thirds of our nations gold reserves... around 400 million ounces... all because the U.S. government was trying to defend the U.S. dollar at a fixed rate of $35 per ounce of gold. In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $620 billion... a 4,330% difference. Incredibly stupid, wouldnt you agree? This blunder cost the U.S. much of its gold hoard. When the history books are finally written, this chapter will go down as one of our nations most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse... The root cause of the weakness in the U.S. dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our governments annual deficits, which were larger than ever and growing... thanks to the gigantic new welfare programs and the Vietnam police action. You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the U.S. dollar. Of course, economic realities are never foremost on the minds of politicians especially not Richard Nixons. On August 15, 1971, he went on live television before the most popular
81

80

show in America (Bonanza) and announced a new plan... The U.S. gold window would close effective immediately and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold. The president announced a 10% surtax on ALL imports! Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what actually happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse. Of course, Nixon pitched these moves as patriotic, saying: I am determined that the American dollar must never again be a hostage in the hands of international speculators. The sheeple cheered, as they always do whenever something is done to stop the speculators. But the joke was on them. Within two years, America was in its worst recession since WWII... with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight. And that brings us to today... Roughly 40 years later, the United States is in the middle of another currency war. But this time, our main adversary is not Europe. Its China. And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. Thats not the case today. This new currency war with China will wreak absolute havoc
82

on the lives of millions of ordinary Americans, much sooner than most people think. Its critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near-certain outcome. In the next essay, Ill explain the rest of the story... and what it means for you as an investor.

83

The Largest Gold-Accumulation Plan of All Time

By Porter Stansberry, founder, Stansberry & Associates Investment Research For more than 30 years, since the start of the countrys Reform Era in 1978, China has been selling (exporting) more goods than it has imported. Thats allowed the nation to stockpile trillions of dollars more money than our entire monetary base totaled before the recent financial crisis. The way it works is simple to understand. When a Chinese business earns dollars by selling overseas, the law requires the company to hand those dollars over to the countrys central bank, the Peoples Bank of China (PBOC). In return, the business gets Chinese currency (called either the yuan or the renminbi) at a fixed rate. Theres nothing fair about this. The Chinese people do all the work, and the Chinese government keeps all of the money. But thats the way it goes. At first, the dollar inflow was small because trade between the two countries was tiny. In 1980, for example, Chinas foreign currency reserves stood at approximately $2.5 billion. But since then, the amount of foreign currency reserves held by the Chinese government has gone up nearly every year... and as of 2011 stands at $3.2 TRILLION. Thats a 127,900% increase. Its simply astonishing to look at the chart of the increase in currency reserves...
84

As I mentioned in my previous essay, the group in China that manages these foreign reserves is called the State Administration of Foreign Exchange (SAFE). This group is engaged in a fullfledged currency war with the United States. The ultimate goal as the Chinese have publicly stated is to create a new dominant world currency and dislodge the U.S. dollar from its current reserve role. And for the past few years, SAFE has had one big problem: What to do with so much money? SAFE decided to use most of these reserves to buy U.S. government securities. As a result, the Chinese have now accumulated a massive pile of U.S. government debt. In fact, about two-thirds of Chinas reserves remain invested in U.S. Treasury bills, notes, and bonds. The next biggest chunk is in euro. Of course, all this money is basically earning nothing to speak of in terms of interest... because interest rates around the world are close to zero. And while the Chinese would love to diversify and ditch a significant portion of their U.S. dollar holdings, they are essentially stuck. You see, if the Chinese start selling large amounts of their U.S. government bonds, it would push the value of those bonds (and their remaining holdings) way down. It would be like owning 10 houses on the same block in your neighborhood... and deciding to put five of them up for sale at the same time. Imagine how much that would depress the value of all the properties with so much for sale at one time. One thing China tried to do in recent years was speculate in the U.S. stock market. But that did not go well... The Chinese government bought large amounts of U.S. equities just before the market began to crash in late 2007. It purchased a nearly

85

10% stake in the Blackstone Group (an investment firm)... and a similar stake in Morgan Stanley. Blackstones shares are down about 46% since the middle of 2007, and Morgan Stanley is down about 70% since the Chinese purchase. The Chinese got burned big time by the U.S. equities markets and received a lot of heat back home. They are not eager to return to the U.S. stock market in a meaningful way. So Chinas U.S. dollar reserves just keep piling up in various forms of fixed income U.S. Treasury bonds, Fannie and Freddie mortgage bonds, and other forms of debt backed by the U.S. government. These investments are considered totally safe except that theyre subject to the risk of inflation. According to a statement by the government: SAFE will never be a speculator. It mainly seeks to protect the safety of Chinas foreign exchange reserves and ensure a stable investment return. If the Chinese wont buy stocks and the only real risk to their existing portfolio is inflation, what do you think they will do to hedge that risk? They will buy gold... lots and lots of gold. It was no surprise to us when, in 2011, China became the No. 1 importer of gold. For many people in the gold market, this was a big shock India has always been the worlds leading gold buyer. In India, people traditionally save and display their wealth in gold. Their entire financial culture is based on gold. Historically, silver has played the same role in China... but not anymore. In fact, not only has China become the worlds leading importer of gold, it was already the worlds leading producer...
86

by far. According to the most recent figures from the World Gold Council, China produces nearly 50% more gold (about 300 tons per year) than the second-place country... Australia. And guess what? Every single ounce produced in China whether its dug out of the ground by the government or a foreign company must, by law, be sold directly back to the government. The Chinese are now clearly on a path to accumulate so much gold that one day soon, they will be able to restore the convertibility of their currency into a precious metal... just as they were able to do a century ago when the country was on the silver standard. The West wasnt kind to China back then. The country was repeatedly looted and humiliated by Russia, Japan, Britain, and the United States. But today, it is a different story... Now, China is the fastest-growing country on Earth, with the largest cash reserves on the planet. And as befits a first-rate power, Chinas currency is on the path to being backed by gold.

87

China desperately wants to return to its status as one of the worlds great powers... with one of the worlds great currencies. And China knows that in this day and age when nearly all governments around the globe are printing massive amounts of currency backed by nothing but an empty promise it can gain a huge advantage by backing its currency with a precious metal. As the great financial historian Richard Russell wrote recently: China wants the renminbi to be backed with a huge percentage of gold, thereby making the renminbi the worlds best and most trusted currency. I know this will all sound crazy to most folks. But most folks dont understand gold, or why it represents real, timeless wealth. The Chinese do. And in my next essay, Ill provide more evidence of how they are carrying out the largest gold accumulation plan of all time.

How and Why China Came to Dominate the Market for Gold
By Porter Stansberry, founder, Stansberry & Associates Investment Research In some recent essays, Ive introduced an idea that Im sure will earn me jeers and derision from the mainstream press... And probably even worse from the U.S. government. But my job isnt to fit in with the mindless journalism that passes for the mainstream press these days. And it isnt to impress the U.S. government. My job is to study the numbers and report on the most important financial developments that will affect my readers. One of those ideas is the ongoing and enormous accumulation of gold by China... which will allow it to supplant the United States as the owner of the worlds reserve currency. If you doubt this is what the Chinese are doing, I suggest you take a look at a cable that was leaked on the nonprofit website Wikileaks last year. This cable was prepared by the U.S. Embassy in Beijing and was sent back to officials in Washington, D.C. The embassy was commenting on a recent report by Chinas National Foreign Exchanges Administration. The cable quoted the Chinese administration as follows... Chinas gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the

88

89

U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. [The U.S. and Europe] intend to weaken golds function as an international reserve currency. They dont want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollars role as the international reserve currency. Chinas increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB [Chinas currency]. Do you see where this is all heading? A century ago, China used silver to back its currency. Today, it has chosen gold... And it is basically buying up the worlds gold supply. China is essentially attempting to corner the gold market. Just remember... no gold mined in China... not a single ounce... is allowed to leave the country. It all goes to the governments reserves. Yes, the Chinese government allows foreign companies to enter China and form joint ventures with local Chinese firms. And foreign companies are free to mine as much gold as they want in China... But every single ounce must be sold to the Chinese government at current market prices. So the government is piling up every ounce thats mined in China... at least 9.6 million ounces a year (the equivalent of 300 tons). And thats just the beginning... I can also say with near-100% certainty that China is secretly
90

buying massive amounts of gold from the International Monetary Fund and other sources. I feel confident about saying this because its exactly what the Chinese did from 2003 to 2009. If you remember... in 2009, China suddenly announced that its gold holdings had risen by 75% because of secret purchases that took place over six years. These purchases moved China into sixth position on the list of countries with the most foreign gold reserves. But keep in mind, even with these giant purchases, Chinas gold holdings still account for less than 2% of its foreign reserves. Thats a pittance when you compare it to places like the U.S. and Germany, which hold more than 70% of their reserves in gold. Theres no doubt in my mind that China will continue to buy huge amounts of gold. In January, news outlet Bloomberg reported mainland China bought 3.6 million ounces of gold from Hong Kong over the past few months... Thats 483% more than during the same time the year before. The data come from the Census and Statistics Department of the Hong Kong government. The Chinese government does not make such information public. In fact, the Chinese have not announced a single gold purchase since 2009. But when you look at the massive amounts of gold disappearing from the world markets, its obvious the Chinese must still be buying. As the newswire Reuters recently suggested in an article that detailed the sale of 150 tons of gold to unnamed buyers, among the most likely candidates is China, which has the largest currency reserves... at $3.2 trillion. When you are buying this much gold, its almost impossible to keep the entire thing a secret. Thats why many stories of Chinas secret purchases have been mentioned in the
91

mainstream press. For example, CNN Money interviewed Boris Schlossberg, director of currency research at Global Forex Trading. What follow is an excerpt from that interview China is considered a stealth buyer of gold... As the worlds largest producer of the metal, China often buys gold from its own mines and doesnt report those sales publicly. Analysts suspect the country is continuing to buy gold and could in fact, be the worlds largest buyer consistently. It simply doesnt reveal its pro-gold stance Announcing an aggressive gold buying spree is not in Chinas best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the countrys portfolio of U.S. government bonds. This is why the Mining Journal said last November that it expects China to amass some 5,000 tons of gold over the next five years. I would not be surprised if it amasses twice that amount. As CNN explained, The thing to remember here is that if China is going to continue to purchase massive amounts of gold, the last thing they want to do is make this information public, until they really have to. The less they say, the cheaper the price theyll have to pay. I recently interviewed the most successful gold and silver investor in the world, Eric Sprott, on this subject. Eric is a billionaire, who made much of his fortune in silver. He runs Sprott Resource Management, one of the worlds largest resource investment firms. Heres what he told me... Im sure Chinas buying gold. I just have no doubt that its the most logical thing in the world that they would be buying gold. Theyre seeing their value of their Treasurys
92

declining almost every day now with the weakness of the U.S. dollar. They are losing a lot of money, and they see the gold price essentially go up every day. Well, its not a difficult decision to say, Well, we should be buying gold and getting rid of dollars. Thats got to be the easiest call in the world. Now... while I might not be able to technically prove that the Chinese are buying millions of ounces of gold bars, I can prove theyre buying plenty of gold out of the ground. The Chinese government is now in the process of secretly buying up part or all of dozens of the best gold mining companies around the globe. One of the biggest recent purchases was by the governmentowned Shandong Gold Group (the second-biggest producer in China), which made an offer to purchase Jaguar Mining for $785 million in cash thats 77% more than what Jaguar is now worth in the markets. Keep in mind... This is the biggest premium EVER paid for a large gold mining firm. Before that, state-owned Zijin Mining Group (Chinas biggest gold producer by market value) said it would spend as much as $1.6 billion a year on acquisitions. Last year, the company bought 17% of Australian gold miner Norton Gold Fields and a 60% stake in gold company Altynken. And these are only the deals the government WANTS to make public. The government also has kept a slew of investments in the gold markets private and secret. You see, few investors realize the governments China National Gold Group (CNGGC) makes little information public on its most sensitive purchases. For example, CNGGC has many aliases, including its 40%
93

stake in China Gold Intl. Resources and may have more than 300 secretive investment stakes in various gold mining companies around the globe. With a tremendous amount of digging in recent months, weve been able to locate the Chinese governments significant equity stakes in dozens of junior gold mining stocks. The point is, when you look at the gold China already has in reserve... and look at what it controls thats still in the ground... the Chinese might already have more gold than any other nation on Earth. But even these resources dont guarantee China control of the market. To really control the market for gold, the Chinese must establish the worlds leading exchange and regulate it honestly. As Ill show you in the next essay, they are doing just that. Its the next step in Chinas hidden currency war against the United States.

How China Plans to Change the Way Gold Is Traded

By Porter Stansberry, founder, Stansberry & Associates Investment Research Today, the global price of gold is largely controlled by just five bullion banks in London. These banks establish the price twice a day by offering to buy or sell gold at a fixed price. The worlds other markets operate largely off these prices. Manipulating the price of gold (and thus the value of other major currencies, like the U.S. dollar) is possible by influencing those five bullion banks: Bank of Nova Scotia, Barclays Capital, Deutsche Bank, HSBC, and Societe Generale. Whether thats happening right now or not, I cant say. But it is a matter of public record that the worlds eight leading governments conspired from November 1961 until March 1968 to suppress the price of gold by using their central banks to manipulate the London bullion market. So it has happened before. Meanwhile, the trading range of the gold price suggests that the market continues to be heavily manipulated. Why do I believe that? Because as a precious metal with no yield, gold should be a fairly volatile asset like silver and platinum are. But when you look at how many times the price of gold moves by more than 5% in a day, you find that it almost never happens.

94

95

Over the last 10 years, the price of gold has moved up or down by more than 5% on only 10 occasions. The same volatility has occurred in silver 80 times. It has happened in oil 137 times. No explanation other than manipulation can account for golds exceptionally low volatility. It simply doesnt trade like a free-market commodity. As I explained in a recent essay, to control the market for gold, the Chinese must not only accumulate massive gold reserves (which its doing), it must establish the worlds leading exchange and regulate it honestly. And thats exactly whats happening... For decades, Chinese citizens were barred from owning physical gold under penalty of imprisonment. Then in September 2009, China became the only country in the world to promote gold ownership to its citizens. The government started a major campaign to encourage all citizens to buy gold. Locals can now buy gold bars, which come in four sizes, at ANY Chinese bank in the country. If you dont think thats unusual, try buying gold at ANY bank in the United States and watch the funny look you get from the teller. The Chinese government has also set up thousands of gold stores around the country... which look like jewelry stores, but instead sell bars of gold. As Forbes recently reported at the scene of one such gold store... The crowds surge shoulder to shoulder inside Beijings Cai Bai store to buy 5 to 10 gram slivers of gold and

jewelry of every size and shape. Its one dramatic example of the gold craze in China, which is officially and unofficially promoted by the Communist government... And it is an integral part of the pro-gold preference by the Chinese public and its government. My friend Simon Black who writes about geopolitical, expatriation, and wealth issues on his Sovereign Man website also visited one of these Chinese gold stores on a recent trip, and said... On the inside, these gold stores look like jewelry shops armed guards, glass viewing cases, etc. But instead of diamond crusted earrings and white star sapphires, you see bars. Lots of bars. The government mints bars in sizes ranging from 5 grams (which are so tiny theyre actually cute) to 1 kilogram. The prices are updated instantly they have a Bloomberg screen that tracks the spot price... and the bars are all serialized and [offer] 0.9999 purity, the same as you would get from Switzerland. They are also certified by the gold exchange, which validates the quality. We went into several stores and saw Chinese people buying like crazy... all with cash. The most popular denominations were 10 grams and 50 grams, as well as every piece of jewelry in sight. Im surprised the mint shops didnt sell out [as] the inventory was flying off the shelf. Why would the Chinese government set off a frenzy for gold? Well, heres one thing to remember... the Chinese government doesnt pay much attention to human rights or property rights. It could demand all of its citizens gold at any time just like FDR did in the U.S. back in 1933.

96

97

But all of these facts are just hints about whats to come. The real story wont be unveiled until June. Thats when China will open something called the Pan Asia Gold Exchange (PAGE). This is a direct competitor to the London Metals Exchange and the COMEX in New York. The way things work right now, the futures market in London fixes the spot price of gold each morning and afternoon, based on trading in London and on Americas COMEX market. But both of these markets back gold contracts with only 10% of the actual metal. The new China PAGE market is expected to have a much larger gold backing and could change the way gold is traded. As James Turks GoldMoney site recently reported: The potential effects cannot be underscored enough PAGE is clearly preparing the world for a Chinese world reserve currency, and is doing this by bringing gold, and by extension silver, back into the Chinese economy Forbes wrote about the development... It means the spot market in gold could be headed for China and away from Londons Metals Exchange or the Comex in New York. It also means that the Chinese currency not dollars will for the first time become the ruling currency used in one of the major speculative commodities of our age. All eyes will be on the influence of the gold trade in China rather than New York, London, Switzerland, or South Africa. For several years, weve been warning about the loss of world reserve currency status for the U.S. dollar. We have worried

about our currency because we understood the propensity of governments to steal from their citizens through inflation. With roughly half of our national debt held by foreigners, we have long believed efforts to print away our obligations will prove catastrophic for Americas leading international position and most especially for the role of our dollar as the worlds leading reserve currency. But until recently, we were unsure of the exact mechanism by which the dollar would be replaced. Now, we see how it will unfold... The Chinese will slowly hedge their exposure to the dollar by becoming the worlds leading gold investors. By taking over the worlds gold markets and building a huge stockpile of gold, they will be able to back their currency with the worlds traditional form of money. Once they are ready to make the yuan freely convertible, they will have created tremendous demand for their bonds and bills by making their currency the worlds most reliable... and the only one backed with gold. The impact on the dollar could be catastrophic... And every day the dollar falls, Chinas gold stockpile will grow more valuable (and more powerful). You can protect you and your family from this potential collapse with a handful of very simple steps... the first one being to own plenty of gold.

98

99

This work is based on SEC filings, current events, interviews, corporate press releases, and what weve learned as financial journalists. It may contain errors, and you shouldnt make any financial decision based solely on what you read here. Its your money and your responsibility.

Stansberry & Associates doesnt recommend or endorse any brokers, dealers, or advisors. Any brokers mentioned constitute a partial list of available brokers and is for your information only.

Stansberry & Associates forbids its writers from having a financial interest in any security they recommend. All employees of Stansberry & Associates (and affiliated companies) must wait 24 hours after a recommendation is published online or 72 hours after a direct mail publication is sent before acting on that recommendation.

We welcome comments or suggestions at [email protected]. This address is for feedback only, and you will not receive a reply. To speak with customer service, e-mail [email protected] or call 888-261-2693 (U.S.) or 443-353-4359 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Please note: The law prohibits us from giving personalized financial advice.

2013 Stansberry & Associates. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry & Associates, 1217 Saint Paul Street, Baltimore, MD 21202 or www.stansberryresearch.com.

350B002143