DRIGGS, IDAHO – Greetings from our winter mountain bolthole…

It’s time for our weekly mailbag edition, where I do my best to answer the latest questions you’ve sent in. (As always, you can write me at [email protected].)

This week, we talk about gold – including why I chose to go nearly all-in on gold instead of investing in faster-moving assets like bitcoin… Income for Life insurance policies… and a resident of Taiwan shares their perspective on China, after I said China will soon overtake the U.S. as the global leader.

Lots of ground to cover, so let’s get right to it…

Reader question: Thank you for writing your Postcards, which I always enjoy reading. I’ve read every one since the summer of 2019. However, I sometimes wonder if you’re too attached to your basic idea that gold is the best place to park your money, followed by silver and tanker stocks.

The fact is that in the last few years, bitcoin, blue-chip cryptos, and tech stocks have far outperformed gold, silver, and tanker stocks. Bitcoin has risen 373% in the last 12 months, and Ethereum has risen 676%, whereas gold has risen a measly 16%.

Over the last five years, bitcoin has gone up 126 times, whereas gold is up only 53%. Have you ever considered the possibility that you might be wrong about gold, etc.? I hope the above doesn’t offend you.

Your question doesn’t offend me at all. This is a good question and I suspect many others may be having the same thoughts. You say gold has risen “only 53%” over the past five years, and in the past 12 months, it’s only risen a “measly 16%.”

Gold is an inert yellow metal that doesn’t pay a yield and sits in vaults gathering dust. It’s doing exactly what it’s supposed to be doing… storing wealth and preserving purchasing power.

Next, you suggest I’m making a mistake by allocating my capital to gold, silver, and steel. But you are assuming this euphoric sentiment will continue in the markets. It might. It might not. Either way, I’m not gambling on it. Look at a chart of the Dow-to-Gold ratio. It looks like the next down leg in the Dow-to-Gold ratio is approaching. I have a 10-year time horizon. I’ve created a safe portfolio designed to preserve purchasing power and compound as the USA goes deeper into stagflation, and the government quietly defaults on its debt.

The time for having courage with your investments was in March and April 2020. If you made some big profits from cryptos and stocks, I commend you and I’d be trying to let my profits run with a trailing stop loss, while at the same time, keeping my eye on the exit. Now is the time for caution and prudence, in my opinion. But that’s the great thing about our gold, silver, and steel portfolio. It wins either way. Sort of a permanent portfolio for the inflationary ’20s.

Reader question: You didn’t respond to my question a while ago about changing your mind on bitcoin (BTC) after you had written some time ago that you would if it beat its all-time high. It has now more than doubled that.

Without sounding like a smart arse, I am just curious about your take on bitcoin now, after so many large companies and institutions (as well as a super environment company like Tesla, and its richest-man-in-the-world owner) have invested 15% of their cash in BTC. Would you change your view on this?

Huge amounts of money, I believe, are pouring out of the analogue hard money (gold) and into the digital hard money. I think the naysayers are being left behind. But I do think there is a very long way to go, Tom, and you would not be the first person to change ships, mate. We are very much living in a digital age… Fiat is dead and you can’t spend physical gold to buy milk.

I have most of my savings in gold, but I have invested approximately one-tenth in good crypto projects over the past few years. I now have double what I invested in gold. Some have been duds, but I have had some very successful tokens, also, that are amazing projects. I only can imagine how much you would have made if you kept your BTC?

If you put a gun to my head and made me trade bitcoin, I’d buy it. It’s clearly in an uptrend and when something gets in motion, it tends to stay in motion.

That said, I won’t be buying bitcoin, at any price. Quick singles and a 12% annual return after inflation is all I dream about. I don’t need to mess with bitcoin to get that. I’ll let other people figure out what bitcoin is worth, and I’ll stick to what I understand.

Reader question: I purchased gold and silver coins in 2015 when gold was at $1,346 per ounce. Recently, I called the major company here in Southern California to check the price and was told it was worth only slightly more than I paid for it then. They said when you get a major stock market hit is when you would really see the increase in value.

I am beginning to think when things really get chaotic, collecting these coins from storage, or trading for some form of useful cash, is going to be a nightmare. Maybe a remote compound with lots of supplies would be a better option? Also, I think the price of these coins should be proportional to the ounce price of gold and silver, but it is not? I have lost some faith here.

What coins did you buy? Gold is at $1,850 per ounce today… a gain of nearly $500 from where you bought it. Your gold and silver coins should be showing a handsome profit. Did you buy rare numismatic coins? Or commemorative coins? Without more information, I can’t understand why your coins would not have appreciated more.

I also don’t agree with the statement, “When you get a major stock market hit is when you would really see gold increase in value.” When the market crashes, as it did a year ago and in 2008, gold almost always sells off with it… at least initially.

Perhaps you’re referring to the relative purchasing power of gold during a deflationary crash? It’s true gold preserves purchasing power in deflation, but in nominal terms, it’s still likely to fall.

Reader question: So sorry for the loss of your mother. Was there a few years ago with my own. Enjoying the newsletter and all your advice. Was wondering if you see any benefit at all to owning bullion physically in a vault such as BullionVault, as opposed to Sprott funds such as PHYS or CEF, where you still technically can have your bullion sent to you.

I know there are differences in fees/expenses, but was wondering otherwise – in particular, related to safety with relation to the government, in any way you might imagine.

Not that I know of. Sprott and BullionVault have both been around for decades and I wouldn’t hesitate to use them or recommend them. (I have recommended them both in the past.)

Reader question: How much premium should I expect to pay for gold bars? If you buy bars in a certified package? Do they still have to be tested before dealers will purchase them back?

I just did a quick search of the top gold dealers and I found a kilo bar of gold for 1.81% over spot. Otherwise, I found plenty of smaller bars with good brand names like PAMP and Valcambi for less than 4%. It’s been many years since I last sold physical gold, so I don’t know about testing requirements these days.

Reader question: I just wanted to ask you your thoughts on the price of gold in Australian dollar (AUD). In AUD, we have lost all the gains over the past year. That is a lot and it looks like today we are down another 1.5%. Have a look at the 12-month chart of gold/USD and gold/AUD. As the AUD gets stronger, the USD is getting weaker.

I am losing big money from my gold portfolio. Seems absolutely insane considering the market. I think I am too connected to the U.S. in regard to how I view gold. If you have time, I would appreciate where you think the AUD will eventually go with the USD debasement, etc., and will gold in AUD terms. Thanks for your time!

I understand your concern. I’m having the same problem with my investments denominated in British pounds, as the pound has soared 20% against the dollar since March of 2020, too. Gold hasn’t done much in U.S. dollar terms either recently. It’s still at the same price it was at eight months ago.

Remember, we’re coming out of a pandemic and the things are going from “bad” to “less bad,” which means investors are focusing on ideas like commodities, aviation, junk bonds, and other pro-cyclical businesses. The Australian dollar (AUD) is considered a commodity currency and so it’s rising on reflation hopes. Meanwhile, gold is a defensive asset and it’s out of favor right now, relatively speaking.

This is all only temporary… like a lull in the storm. If my hypothesis is correct, it’ll only be a matter of time before the trends that were in place before the pandemic arrived reassert themselves again and gold will resume its uptrend, against all currencies.

Reader question: My Income for Life policy guarantees me a set yearly income in the future. My concern is that set income will be affected by inflation. The amount I am guaranteed will be worth less in the future due to inflation. How do you think inflation will affect your six Income for Life policies?

Income for Life are whole life insurance policies. Another way of looking at them is that they are bonds with a maturity date on the day I die, currently valued at 30% of par or so, but every day I get older, their value rises.

Frankly, I do worry about inflation eroding the value of my death benefit. That’s why I’ve bought so much gold. It’s a hedge against my Income for Life policies, which will be redeemed (by Kate or my children) in cash.

I’ve long considered borrowing against my policy to buy more gold and silver, but I decided that was being greedy, so I haven’t done this yet. I also considered borrowing against then policy to buy shipping stocks that pay large dividends, but I haven’t done this yet, either. If I ever borrow against my policies, I will certainly let my readers know the moment I do…

Reader comment: You cracked me up writing about the board game, Cashflow, when you said: “The board game is a little expensive – I think we paid around $70 for it,” with a picture below those very words of Dusty relaxing with his MacBook.

It’s my old MacBook from when I used to work at the Palm Beach Letter advisory. I don’t use it anymore (I do all my writing by hand and then transcribe it with the phone), so Dusty inherited it.

Reader comment: I’m a resident of Taiwan and believe I have a better understanding of real China, as I ran a manufacturing plant there back in the year 2000.

The reality is: DON’T TRUST ANY INFORMATION (or, at least, have deep skepticism for information) released by the state or its agencies. IT’S A COMPLETELY DIFFERENT STORY BEING VISITORS AND RESIDENTS.

You won’t be happy seeing China as the worldwide superpower. Fight against them while you still can.

It’s very interesting to hear the perspective of someone living in Taiwan. Thank you for your message.

And thanks to everyone who wrote in! As always, please keep sending your questions and comments to [email protected].

I can’t give personalized investment advice, but I’ll do my best to address your questions and comments in future Friday mailbag editions.

– Tom Dyson

Like what you’re reading? Send your thoughts to [email protected].