Gold – Attractive Insurance Policy

The longest war in US history is finally drawing to a (clumsily handled) closure after 20 years. The assault on opium poppy cultivation in Afghanistan, on the other hand, appears destined to escalate. Fears are that this will be potentially at significant taxpayer expenditure.

 According to the United Nations Office on Drugs and Crime (UNODC), the country is responsible for 85 percent of the global poppy supply, producing morphine, codeine, and heroin.

The Taliban “officially” prohibited poppy cultivation in 2000 but quickly recognized it couldn’t survive without it. According to a recent inspector general report, Poppy is an appealing insurance policy.

US taxpayers and investors

Again, this is another reminder that US taxpayers and investors require their attractive insurance policy against rampant government spending and currency depreciation.

Gold is such an asset since it has no counterparty risk. It will become more valuable as more money is issued to finance government spending.

Bitcoin, which many see as “digital gold”. But, as I told Michael Saylor during last week’s webcast, Bitcoin should account for more than 2% to 5% of your portfolio right now. The cryptocurrency has excellent upside potential. However, because it has only been around since 2009, it lacks gold’s centuries-long track record as a wealth store.

Palantir Technologies’ decision to invest in gold was motivated by a desire to minimize risk. Last week, the data analytics firm, funded in part by billionaire Peter Thiel, stated that it has stored up to $50 million in gold bars in preparation for a future with more black swan events.

Gold Being Manipulation?

However, Bitcoin is on the rise—it surpassed $50,000 for the first time since May—while gold has remained in a relatively narrow range since the previous flash crash two weeks ago when the yellow metal fell below $1,700 an ounce.

The strengthening dollar is mostly to blame for gold’s difficulties. But something doesn’t make up when inflation is 5.4 percent year on year, and actual rates are still negative. Rates are presently lower than they have been since 1980 when gold reached its all-time high when adjusted for inflation.

Gold Miners Could Be a Buy

Not surprisingly, gold miners are down as well, by as much as 20% so far this year. Based on the 14-day relative strength index (RSI), the NYSE Arca Gold BUGS Index indicates that producers oversold, implying that they could purchase higher metal prices.

Suppose you invested you would concentrate on royalty and streaming companies like Franco-Nevada, Wheaton Precious Metals, and Royal Gold. In that case, these companies give gold to the mining industry many benefits without many of the hazards.

Recent earnings demonstrate this. Consider Franco-Nevada. Despite weaker gold prices, the Toronto-based company posted record second-quarter sales of $347 million, a 78 percent gain over the same period last year. Adjusted net income was $182 million, nearly double the amount earned the previous year.