The Sunburst Food Mart has it all. Energy drinks, scratch-off lotto tickets, and even gold.
The owner of the store couldn’t tell me much about the gold machine other than it worked. He’d seen someone use it. But said the Bitcoin machine next to it is more popular.
Both machines accept only cash. U.S. dollars that is. In the case of the Gold ATM, feed cash in, get gold out. Sounds simple enough.
But the machine wanted a lot of information before handing over the gold. My suspicion is, government regulation.
It takes me about 20 seconds to pull $1,000 from a Wells Fargo cash machine. The gold machine wanted this from me:
· Insert driver’s license
· Enter email address
· Enter cell number
· Enter unique time-sensitive pin sent to cell number
· Agree to terms and conditions
Then there’s the gold. It’s not gold coins, it’s gold bills. And while beautiful, spending them proved difficult.
Alternative Currencies
In the Last issue of TTL we visited a town in Washington state printing its own wooden money. You can spend it around town. I had trouble doing that and returned home with ~$200 worth of it.
My kids had fun with the wooden bills over the weekend. Otherwise, it’s a waste. I’d rather have two of the those blue, paper $100s from the Wells Fargo machine. At least each of those buys me a tennis lesson, with change to spare.
There are nearly ~100 communities using local currency in the U.S. Most work like the wooden bills in Tenino, WA. Some don’t work at all, serving as collectable relics.
People seem fascinated with alternative money. When asked why, they tend to relay distrust for government.
And rightly so. The older you get, the more you realize the terms of the relationship with government. You pay the bills; it makes the rules. People tend to start out blissfully ignorant, and finish with a more somber assessment of this arrangement.
While trying to spend the gold bills, I met some interesting people. This man went on to explain how the government may, “go kaput.” He means fail entirely. In that case, he’d have plenty of these gold bills in various denominations. He’d carry on buying the things he needs without concern.
Maybe so…but I’m skeptical. And not because I’m a fan of government.
In fact, I’m not a fan of any rule-enforcing group, elected or otherwise. In my experience, people function best when left alone, to live freely. But I’m not out to make a crusade of it.
Instead, it’s my way of seeing things. Every problem looks like a choice. I can choose to be right, or be successful.
Ideology or Success
I got interested in gold more than 20 years ago. The price was ~$300/oz.
The way I saw it, buying a small amount of gold protected my hard work. I thought of it as a savings mechanism for effort. I wanted to avoid exerting the same amount of energy repeatedly.
That meant I didn’t care too much about the price. Over time, I figured the value of a coin kept pace with the effort required to get one. So far, that’s been about right.
That mentality means I never bought into the government collapse theory. Everything collapses eventually. Plus, be careful what you wish for.
The Fed has people well-sedated. It openly talks about creating a “wealth effect.” This means tweaking monetary policy to create a sustained and steady rise in asset prices.
The problem is, we don’t take the Fed at its word. People said the policy can’t work. But it did work.
Going back to 2000, here’s how stocks and gold held up during the Fed’s money experiment. Keep in mind, both suffered unpredictable periods of decline. In the end, both trudged higher.
· Gold +713%
· S&P 500 Index +255%
Most people don’t own gold. They don’t understand it, because it’s not popular. But stocks are.
Almost everyone owns stocks, so to speak. Even lawn spraying technicians have access to a 401k plan. That makes them stock investors. They get a statement quarterly. If it reads green, they feel good. If red, worried.
Then there’s the American home. It’s more than a place to sleep, it’s the largest family asset in most cases…and often the most leveraged.
Former Fed Chair Janet Yellen openly discussed the psychological effect of rising home prices. The value of the home is the thermostat of the American psyche. Program it to a comfortable setting, and people behave.
In this case, behave means, keep borrowing and spending. Yellen said so herself…
“…central bank models have long incorporated the wealth effect of house prices and other assets on spending…” Janet Yellen
And why not play the Fed’s game. It wants you to feel like a winner. Mostly so you’ll pay taxes on the winnings. Without that, it can’t keep growing our bloated system.
Playing along doesn’t mean agreeing with the ruse. The way I see it, you can do both. You can make a profit from a policy that someday ends badly. Because that day is not today.
Expensive And Complicated
Meanwhile, back in Salt Lake City, I had a hard time getting rid of the gold bills.
I found a website listing “hundreds of merchants” willing to accept the bills. Surely I could find somewhere to spend the money.
As I combed through the list it seemed like most of the merchants were people sympathetic to a collapse ideology. There were a lot of solo-practitioners, notably chiropractors.
I also found some odd listings. Utah Batman being the most interesting. For $75 per hour, or $300 per day, he’ll show up at your event, dressed as Batman. I tried to hire him, but he was booked.
Batman accepts gold bills as payment. However, you’ll have to do some conversion math.
The gold price moves daily. Mostly higher so far this year. That means the price of gold bills moves with it.
The bills are real 24-karat gold with a plastic backing. The larger the face value, the more gold. The machine spit out all 10s in my case.
$200 USD inserted produced 4 gold bills showing a denomination of 10 each. That means each gold bill with a 10 on it cost me $50 USD.
The 10 gold bills contain 1/100th of a troy ounce. On the day I exchanged them it meant I got $90 worth of actual gold for $200. ($2,280 / 100 = $22.80 per 10 gold bill)
It’s a high premium. It’s also a lot of math. I decided to stop by a local gold dealer to see how people handle all of this.
Cole, who claims to be “Utah’s friendliest gold dealer,” tells me people rarely sell the bills. For several reasons, they also rarely use them.
First, there’s the math. The customer or the merchant needs to calculate the payment amount converted from dollars to gold bills. For instance, the exchange rate moved from 4.95 to 5.05 in the time since my visit. It means keeping up with that rate to be sure you maintain spending power.
Then there’s durability. U.S. dollars end up in bizarre places. Pinned up on the walls of a bar, crammed in sweaty wallets, and exchanged in shadowy transactions…the dollar travels a filthy trail. But it holds up. And when it looks tattered, the Fed collects and replaces it.
The gold bills work in a similar way, but Cole shows me they do fail. He says the gold content remains, but needs to be recycled.
While beautiful, the gold bills don’t circulate like government money. They don’t travel well, and require too much math to use quickly. That leaves only one thing left to do with them.
Hoarders
For some reason, people feel safe hoarding things of value. But value is subjective.
Soviets hoarded everyday items when they expected future shortages. Think paper towels during the flu panic of 2020.
Tenino residents hoarded 99% of the wooden money printed during the early 1930s cash shortage. And Utah residents apparently hoard gold bills today.
There’s nothing wrong with hoarding physical gold. In fact, it’s meant for hoarding.
I prefer gold coins over gold bills, but both fit into the same category. An honest gold dealer might charge a ~3% commission for a one-ounce U.S. gold eagle. The gold bills I bought came with a ~120% commission.
Coin dealers tell me the March runup in gold prices produced 4 sellers for every buyer. That means the record high price brought out people who bought years ago, only to wait out a massive period of stagnant prices. Since the public has a bad track record with money decisions, it tells me the price can go even higher.
Meanwhile, occasionally turning cash into a gold coin over 24 years beat most other assets. Not Bitcoin of course. But to be fair, Bitcoin didn’t exist until ~9 years into the century.
That lack of gold ownership is the backdrop for where it goes next.
Major League Dizzy Bat
The gold chart looks great. It also looks set to move up to ~$2,500 in short order.
The Fed expanded, tinkered, and managed our indebted system at a new pace over the past three years. During that time, gold essentially didn’t move. That means it has some catching up to do.
Try to follow these headlines. Remember, the Fed has you playing dizzy bat at a professional level.
At 2:52 PM on April 4 the Fed’s Kashkari tells the market, there might not be any rate cuts. That sends stocks down, gold down, and rates up.
At 3:41 PM, just 49 minutes later, the Fed’s Mester says the central planners may be almost ready to cut rates. That type of statement reverses the fall in stocks and gold, sending them the other direction…on a dime. It sends rates falling to match new expectations.
Just twenty hours later, the Fed’s Logan says, “Too soon” to think about rate cuts. That reverses stocks and gold yet again, and causes a correction in rates.
This game of dizzy bat goes on and on. If you trade it, best of luck to you. With hours, sometimes minutes, between Fed messages, your luck won’t last.
All the while, gold rises. This chart shows the value of gold during dizzy bat. Notice the moves up and down on the afternoon of April 4. Again, notice early morning April 5 when Logan says, “Much too soon” for rate cuts.
The way to play gold is long and strong. The hoarders are the reigning world champions of dizzy bat. They’re the patient owner, so far at least. And the central planners may keep you from joining them…if you keep taking their minute-to-minute statements seriously.
But get the big picture right, and there is no mystery.
How to Beat the Fed
The easiest way to avoid the debilitating effects of dizzy bat is to not play.
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