By Nomi Prins, Editor, Inside Wall Street with Nomi Prins
Welcome to our Friday mailbag edition!
Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.
Up first today, reader Carl questions how advantageous owning physical gold is against a central bank digital currency (CBDC)…
Nomi and several other financial authors are warning about all kinds of imminent fiat money manipulations by the Fed/Treasury (looking at CBDCs). Just about all authors are recommending acquiring physical gold to protect/maintain one’s wealth.
I got gold, now what? I suspect that the number of Americans who can/will buy physical gold will be a small minority. When CBDC sweeps in and fiat blows away, what will the goldbugs do? I don’t expect them to have enough gold on hand to survive indefinitely.
A bit off topic here, but the hoarding gold idea strikes me as very similar to preppers hoarding food. At some point, the hoarded commodity is used up. In other words, eventually everyone will get sucked into the CBDC morass. How long can we be expected to hold off the inevitable?
– Carl N.
Hi Carl, thank you for your question. That’s a very good observation. I can’t speak for other financial authors, but I have been following the Fed’s movements since the early 1990s.
I’ve also written many books on the history of major changes in the monetary system. In my book All the Presidents’ Bankers, I talk about the hidden alliances between Wall Street and the White House. These alliances have driven American power over the last century. You can find an excerpt of how America’s Federal Reserve was created here.
I’ve also written about how major global central banks, including the Fed, operate together to create money out of nothing. You can find an excerpt from my book Collusion about Japan’s central bank here.
Now, back to your question. The way I see it, gold is not printable. You can’t fabricate it out of nothing. And yet for thousands of years, it has served many purposes ranging from a store of value to a means of exchange, and once, a backer of our currency.
That was until Nixon took the U.S. off the gold standard in 1971. More recently, the value of gold has risen during crisis periods – especially during a banking crisis. That’s due to gold’s longevity and value during times of turmoil.
So, you got gold, now what? Well, first of all – hold onto it. It doesn’t matter whether every American invests in gold to buy things with it. What matters is what you do and what the people who buy it do.
As long as it’s possible to buy and sell gold at prices set by the market and not by the Fed, it will have value.
So compare the introduction of CBDCs to the introduction of the paper dollar or fiat Federal Reserve notes (like your dollar bill). Since 1971, these are no longer convertible to gold.
Now, just because people transact with these bills, that doesn’t mean the value of gold has fallen. To the contrary, it has risen. In 1971, the price of gold was $42 per ounce. Now, it’s over $2,000 per ounce.
I believe that will remain the case. That’s even if everyone converts their money to CBDCs, or as you put it, the inevitable occurs. That’s because you can’t fabricate gold, and you can’t create its history out of thin air, either.
And that’s why goldbugs – or as I prefer to think of them, gold investors – won’t be swept away just because there’s a new method of exchange. Remember, CBDCs will still be fiat currency. They are created by government policy and backed by the confidence or lack thereof in the government. They are just in a new form.
In summary, here’s what to do: Buy gold. The best way to buy gold is with a combination of physical gold and gold stocks. I wrote a piece detailing the best places and practices to buy physical gold. If you didn’t catch it, read up here.
You can also buy a gold exchange-traded fund (ETF) that is backed by physical gold. Gold ETFs offer the advantage of holding gold without the hassle of storing, securing, or transporting it. (I covered this in more detail in a recent mailbag issue.)
Then, keep your gold safe. Use it when and if you need to. And don’t worry about what everyone else is doing.
Next, reader William wants to know how our investments would be affected if the dollar is converted into a CBDC…
I have asked several newsletter publishers what would happen to our investments if the dollar were converted into a CBDC.
Seems like we would get pennies on the dollar. So if you have, say, mining stocks, what would happen to the value?
And how would everything get converted in one’s investment account (like Morgan Stanley, etc.)?
– William L.
Hi, William. Thanks for your questions.
Let me start with the last one first. There is no official guidance on this yet. And since CBDCs don’t technically exist yet, please keep in mind that my answer is based on what I expect will happen.
First, brokerage accounts will likely create a mechanism that can replace the cash you have in those accounts with the equivalent value of CBDCs. Before this happens, they will likely test this procedure so that you don’t lose the value of what you had in your cash account when the conversion happens. I also imagine they will let you know in advance that this is happening and when it will happen.
The takeaway here is that if you don’t want the cash in your account to be converted to CBDCs, you can invest that cash in other securities, such as stocks or ETFs. You can do that through the same brokerage account that you use for that purpose now.
As for your other questions, as I mentioned above, a digital dollar should be worth the same as its paper counterpart. That means that if you choose to let your cash be converted to digital money, the value at that moment should not be changed.
That said, it’s even easier to fabricate a CBDC out of thin air than a fiat currency. So, if the government needed to create more money, it would be even easier than it is right now. And as we know, the more of something there is in supply, the less valuable each unit of it becomes.
That doesn’t mean we’d be facing an immediate hyperinflation scenario. That’s when the cost of everything rises because it requires more of a less valuable unit of currency to buy it. But it does mean that during periods of crises, there is a chance that the value of the digital currency will go down, as central banks create more of it.
We saw this with the recent spate of bank crises that we’ve written about. The Fed created hundreds of billions of dollars to help banks with their liquidity problems. At the same time, the value of gold and gold mining stocks increased because investors flocked to them and away from banks.
There’s no reason to believe that if the Fed created CBDCs instead, this situation would have unfolded differently. In the chart below, you can see that the price of gold (the orange line) tends to increase when the dollar (the blue line), relative to other currencies, falls.
This is especially true during crisis periods, like the years after the financial crisis of 2008 and the recent banking crisis months.
I also wrote about this in my essay on the Perth Mint. Even in Australia, people flocked to gold when they were concerned about the U.S. banking sector.
At any rate, several asset classes do perform well in inflationary environments. Commodities (and companies producing them such as mining stocks) have historically been inflation hedges and safe-haven investments. That means they preserve their value even if inflation rises or crises occur.
Gold mining stocks, for instance, increase in value as gold rises. Their profits are linked to the price of gold. I believe hard assets, such as gold and the miners that produce it, will retain their value as they have done historically in times of inflation or crisis.
In summary, here’s what to do. Don’t worry about your gold or your mining stocks becoming worthless just because the Fed has a new mechanism for creating money out of thin air. And consider allocating about 5% of your investment portfolio into gold, gold mining stocks, or other hard assets or their producer.
(I’ve actually identified my No. 1 gold pick for 2023 and beyond… and three “unprintable” plays to take advantage of the Fed’s adoption of CBDCs. For more information, go here.)
Finally, our last question this week comes from John. He’s curious about the role of natural gas in the energy transition…
No one mentioned how natural gas would be used as a way to fill the gap until the mines and nuclear power plants can be created.
Do you still feel that LPG will be a short-term solution to our energy needs?
– John N.
Hi, John. Thanks for writing in!
I don’t recall writing specifically about LPG (short for liquified petroleum gas). But I do have a take on natural gas.
Now, there’s some disagreement about whether natural gas has a special role in the energy transition.
On the one hand, you have those claiming natural gas is a perfect bridge between today’s fuels and New Energy technologies. For instance, gas infrastructure could be repurposed for low-carbon fuels such as hydrogen and biogas.
Natural gas is widely used for generating electricity. It produces significantly less greenhouse gas emissions than other fossil fuels. According to the U.S. Energy Information Administration, it emits between 45% and 55% lower greenhouse gas emissions than coal when used to generate electricity.
Others disagree, saying that natural gas can’t play a long-term role in our carbon-constrained future. And unlike coal, they say, it can’t be easily shipped. Its use as a global commodity depends on building export terminals to liquefy it for transport. And, then on the other end, you need an import terminal to re-gasify it. All this infrastructure takes billions to make and years to construct.
Both camps make some good points, but I find myself siding with the former viewpoint more…
Playing the energy transition remains an incredible opportunity. But right now, renewables aren’t ready to take the reins of worldwide energy demand. Global acceptance of nuclear energy will not happen overnight, either.
So that’s creating an opportunity for natural gas.
For confirmation, look no further than Shell, global energy giant.
Even though it’s considered an oil major, Shell produces much more natural gas than oil.
See, all oil companies report their oil and gas production in “oil equivalent” barrels. It’s a simple way to measure total production.
In 2021, Shell produced 344 million barrels of oil equivalent. Of that, 83% was natural gas.
That’s not a mistake. The company has identified the most promising transition fuel, and that’s natural gas. In fact, Shell’s move to rely on natural gas is part of its long-term strategy.
So here’s my take…
As long as multinational fuel companies like Shell continue to benefit from their role in both old and New Energy transitions, natural gas will play a significant role in the energy transition.
Shell isn’t the only company that will continue to profit from demand for natural gas.
Generally, these companies include natural gas plays that either own or supply natural gas. It also includes companies that own or operate energy infrastructure and pipelines that deliver natural gas. Companies engaged in natural gas exploration should also benefit.
And, despite any short-term jitters, I believe natural gas prices will continue to rise going forward.
If that makes sense to you, and you want to take advantage of that rise, you can consider the United States Natural Gas Fund LP (UNG). It’s an ETF that tracks the price movements of natural gas.
Put another way, UNG is made up of futures, not companies, in this sector. This means it captures more isolated price movements compared to companies that may use, transport, or produce natural gas.
And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. The Federal Reserve, the White House, and the financial elites are gearing up to enact the biggest change to our money since 1971.
This isn’t the first time they’ve overhauled our financial system. They’ve done it three other times in modern history. And now, they’re preparing to replace cash with the digital dollar, or CBDCs.
Luckily, I found one asset that will help you position yourself on the right side of this monetary shift and become your own banker.
I put the details in this new video presentation I just released. I’ll also show you my No. 1 gold pick for 2023 and beyond… and three “unprintable” plays to take advantage of the Fed’s next major distortion of the financial system. Watch it here.