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LPG’s thoughts on gold and a cashless society

Big Al
April 27, 2015
Reading the ongoing comments on cashless society and AFTER just reading something on Martin Armstrong website (giving credit where it’s due), it would seem to me that ONE of the catalysts for gold/silver for them to move up again in the next few years are probably going to be the slow move to cashless societies.
Many some of us think cashless societies are bad for precious metals.
I actually tend to think it’s EXACTLY the opposite, as long as – stating the obvious – there are no risk of confiscation from governments.
Here’s the rationale for my views:
For anyone with a good amount of LIQUID assets… what are the alternative ?
1) IF cash in a bank is increasingly subject to negative rates
2) IF cash withdrawals are increasingly restricted
3) IF cash is increasingly a dying beast…. then it cannot be “held under the mattress”
What’s left as alternatives are basically real estate, art/collectable items, equities, diversified FX/money market funds, bonds, and precious metals/gems (stones).
I) Real estate doesn’t fit the bill as it it not very liquid and can be very sizable (high price tag) in currency terms,
II) Art is not very liquid… and can be very sizable as a price tag too.
II) diversified FX doesn’t fit the bill either as if it is held in cash, it’s an issue (remember: cash is dying). If it is held in a bank, it could be subject to negative interest rates
III) bonds don’t exactly fit the bill: wait for the cycle to slowly turn up… and people see the value of their bond portfolio turn south slowly slowly every month… and it’s not going to be an incentive to rush into that asset class
SO:
A) stocks might be a good fit, and might be what will continue to push the market higher (slowly: a bid from retail investors who will feel kind of forced to participate). But stocks holdings are still held with a broker… with all the potential risks entailed
B) precious metals or gems (stones) are a perfect fit: costs nothing to hold, are decently liquid, and have no counter party risk. The advantage of precious metals vs. gems (stones) is their standardization (999 or 999.9 gold for example vs. stones have different levels of purity so people with little knowledge about them can easily be fooled).
Just my 2 cts.
Discussion
7 Comments
    Apr 27, 2015 27:35 AM

    Cashless societies require identification and permission to buy or sell or even get paid.
    By definition this is what the book of revelations warns of and that is why a movement to a cashless society must be stamped out brutally even if we have to do with out financial institutions and party politics. The problem is that serious and its protagonists are that diabolically evil. There should be no cash except for coin and bullion and those that subvert or alter that should be executed.

      Apr 27, 2015 27:51 PM

      But just think Steven, no more illegal immigrants taking your job or pushing down local wages. That means tax collections would rise because cash-work would end and also government expenses would decline as fewer support services were needed. So you save twice.

    LPG
    Apr 27, 2015 27:47 AM

    Re-posting the below (already posted under Richard Postma’s today podcast)

    ++++++++

    I just had a detailed conversation with Al on the matter, so a few things.

    1) on the topic of cashless/gold, for whoever wants to read a bit more on what was said, there are a few posts under Gary’s podcast today (some food for thought, FWIW).

    2) the reason why I see a cashless society (or the move toward it as it is a process) as a “gift” for the price of precious metals is the confluence of
    a) lack of alternatives to paper cash
    b) small ownership of PMs as a %age of total assets for both households and investors and
    c) the current price of PMs such as Gold and silver where probably 50% of producers are currently losing money.

    The thing is that the paradigm and the narrative on precious metals is not conducive for a move up, nor is exactly the current price. BUT….
    … once people will SLOWLY (it’s a process) realize that their cash is TRAPPED within the banking system, then they will (slowly) try to take it out of the financial/banking system.

    By elimination, I believe that what most will favor are equities and precious metals/gems (stones). The main difference between equities and PMs are the absence of counterparty risk for PMs. A big plus for PMs when the narrative starts to shift.

    Once the public and some investors slowly realize the EMBEDDED risk to their capital/assets of being in the banking system (and to a certain degree in the financial system), THEN the paradigm will start to shift.
    THEN the narrative will start to be different.
    THEN the precious metals will start to be bid.

    As the screw is slowly being turned on households and capital holders in different parts of the world (EU, USA, Switzerland – other countries/regions I can’t say but I’m confident the list is longer than just the EU,USA, Switzerland), the risk is shifting more strongly against capital holders of cash in bank accounts and to a certain extent to some bondholders.

    When the REALIZATION that the risk is shifting start to hold ground… then it becomes an entirely new narrative/paradigm for the marketplace. When the paradigm shifts, capital flows change, and some forgotten/cheap asset prices start to get a bid again.

    Just keep in mind it’s just a process. Things are unlikely to change in one day, one week, or one month.

    The lowest PM prices over the next few months, the better for me as an investor w. a multiyear time frame in the PM space (bullion and publicly listed PMs equities).
    The better because it increase my chances on this dissimetry of risk that I perceive in the PM space.

    It is a bit like those hedge fund managers (such as Mark Hart) who bought CDS on Greece in the late 2000′s at 10-15bps… The risk profile was hugely dissymmetric and in their favor.

    It took a few months for them to make money on these CDS, but then, it became a 50x slam dunk in their favor in just a few quarters.
    Before, the narrative/paradigm was that Greece was fine, and that the country risk (as per gvt bond yield) was similar/close to the one of Germany. The market was mispricing the risk.
    When the narrative started to shift because obviously reality had been misperceived for so long (as reflected by a long mispricing of the risk) then it was game over and RING RING for Mark Hart and other hedge fund managers who had bet similarly to him.

    If they had bought the CDS at 40, 50 or 100bps, they would still have lost made money (assuming they had held all the way down to 10-15bps). But at 10-15bps the cost of insurance, the investment/trade was almost a guarantee of a slam dunk when the narrative would change.

    That’s why, for the PM space, I like the risk/reward profile. And that’s why I would LOVE to see lower prices for the PM and the equities. To me, it would be like moving from 50bps on Greece’s CDS toward 10-15bps. That’s why I still keep a good amount of drypowder and hope for lower prices. However, I am cognizant that MAYBE the low is already in gold (but I have no idea) and therefore I have a plan, and a plan after the plan.

    Hope this clarifies my thoughts a little bit.

    GL to all investing/trading.

    LPG

    Apr 27, 2015 27:20 PM

    Cashless Banking and (( NO MORE BANK CARDS )) MICROCHIPS !!!!!!

      Apr 28, 2015 28:49 PM

      Well there are already ‘contactless debit cards that contain a chip (chip and pin cards preceded these already) then the chip can easily be put into the person instead. After all, it’s so inconvenient to lose your card!

      Doc’s point about pulling money out of banks is a good point. Who would put money in the bank? So capital controls are inevitable in some sense. However in multi-cultural societies, like the UK, immigrants like to send money home by wire to their relatives abroad to help their families. They would lose their reason to stay if they could not send money to their extended families back home. It could change the whole dynamic of economic growth and mass immigration to the West. Feliz Zuluaf warned of capital controls in his KWN interviews as far back as 2010/2011.

    Apr 28, 2015 28:40 PM

    What do you think all those grey and black market people who work for cash in hand are going to do? Do you think they will go quietly?

      Apr 28, 2015 28:42 PM

      Boy, they are going to have to build a large number of new prisons!