The Best Financial Protection in 2020: How to Protect Your Wealth

The Best Financial Protection in 2020: How to Protect Your Wealth

Dear Reader,

As the pandemic, depression, and social unrest continue to grip the United States — and the world — the US presidential election has been pushed to the background.

Yet, as Jim Rickards explains below, the election may end up being the most pivotal event of the year. And amidst all the turmoil, one asset class continues to shine bright

Read on for more.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

Fiascos Waiting to Happen — and a Way to Protect Yourself

If Trump wins the election, the extent of Trump hatred and anti-Trump resistance will get worse, not better. The idea that the Trump-bashers will finally come to grips with reality and accept Trump as president is fantasy.

The Trump-bashing has been a steady, never-ending, 24/7 spectacle for the past four years. There’s no reason why it won’t continue for another four years. How about more impeachment hearings? (Don’t worry — those plans are already underway.)

The Antifa crowd will use a Trump victory as evidence that ‘democracy doesn’t work’, which will validate their violent tactics, at least in their own minds. They’ll find plenty of supporters. Get ready for more riots, urban looting and burning, and ‘autonomous zones’ in major cities by early next year, if not sooner.

A Biden victory brings its own set of fiascos waiting to happen.

The Biden blues

Biden’s cognitive capacity is clearly impaired, at least to some extent. That can happen with age, sooner in some than others.

Supporters and the media have tried to cover up the Biden mental health issues by saying he is ‘gaffe prone’ and that he has had a lifetime struggle with stuttering. Both statements are true and have been for decades. But they don’t explain what we’re seeing now.

Biden can’t complete sentences, can’t remember well-known quotes, can’t construct a coherent argument, and seems to drift off in the middle of answering a question. Those are all signs of a deteriorating mental capacity.

We’ll see how far this Biden-in-hiding can make it. The Democrat’s convention has already been turned into a ‘virtual’ convention at which Biden can hide behind a teleprompter again. The fall debates will be a huge challenge for Biden, except they may be rigged as to length, number and format to minimise the stress on Biden’s presence of mind.

Politics aside, the real problem is not the campaign but the election. If Biden wins, his mental health issues won’t go away. We will have a cognitively disabled president with his finger on the nuclear war-fighting trigger.

50/50, with wild cards

At the time of this writing, my forecast for the outcome of the election is still a toss up.

Trump had a 74% probability of winning as recently as January. But that has gone by the boards as a result of the pandemic and depression, and the more recent riots, and Trump’s inability to understand that a different type of leadership was required when the crisis is not strictly political.

The Trump-Biden contest is still basically 50/50, not because of any statistical tie in the polls (Biden is leading in most polls), but because there are so many wild cards in the deck that will be played between now and election day.

These wild cards include the strength of the economic recovery, the continuation of social unrest, a possible second wave of COVID-19, international hotspots, Trump’s petulance, and Biden’s mental health.

The biggest single variable in success or failure in electoral politics is not polling — it’s turnout. Even a candidate behind in the polls will win if his supporters turn out in force. Likewise, a candidate ahead in the polls will lose if his supporters stay home.

On that front, Biden will have great difficulty getting the ‘Bernie Bros’ and other left-wing elements of the Democratic electorate to turn out on election day. There’s a noticeable lack of enthusiasm for Biden, even among those who favour him in the polls.

These two trends — Trump’s lagging in the polls and Biden’s lag in enthusiasm — will help to define the presidential race over the next four months. In addition to the pandemic and the economy, which are the dominant factors, other campaign themes will include Trump blaming China for the pandemic, and Biden attacking Trump’s handling of the pandemic.

Both candidates have a path to victory. For Biden, it’s keeping a low profile and hoping to coast to victory on the anti-Trump feeling in the country. For Trump, it’s getting past his petty feuds and laying out a vision for a second term. In politics, something beats nothing every time.

Gold to your rescue

With so much medical, economic, and political uncertainty, what’s the best asset class for investor allocations today? The best asset class is also the oldest asset class — gold.

For the past three months, gold has been trading in a narrow range between US$1,685 per ounce and US$1,750 per ounce (that’s a 1.9% range above or below the central tendency of US$1,720 per ounce).

Gold has recently broken out to the upside. And here are four signs suggesting this will continue:

  1. It’s already happening. In early morning trading on 22 June, gold broke out to US$1,770 per ounce. That’s a decisive break above the prior US$1,750 per ounce high end of the recent trading range. Of course, we’re not day traders and another pullback is always possible. Still, this kind of decisive move is confirmation that the upside breakout thesis is correct.
  1. Continued strong buying of gold by central banks. The central banks as a whole went from net sellers to net buyers of gold in 2010. The recent buying has been growing larger, now around 500 tonnes per year. That’s a huge amount considering that the total official supply of gold is only 34,000 tonnes. When central banks are buying, you should ask yourself what they’re seeing that everyday investors may be missing.
  1. Global mining output is flat at around 3,500 tonnes per year. Output is not going down, but gold is getting harder to find despite low costs of capital, higher gold prices, and improved technology. When supply is flat and demand is up, then prices have nowhere to go but up.
  1. The emergence of a two-tier market. Gold futures prices and London market prices are around US$1,800 per ounce recently. But if you call a real dealer to buy real gold, the price they quote is ‘spot plus commission’. That’s fine, but the commissions have been expanding from 2% to 4%, to 10%, and even higher in some cases. This means that US$1,800 per ounce gold is really US$1,980 per ounce with a 10% commission.

That higher commission is not the result of dealer greed. It’s the result of scarcity and the dealer’s efforts to balance supply and demand. What it really means is that the real price of gold is closer to US$1,850 per ounce, once the excess commission is added to the spot price. When it comes to gold prices, forget New York and London. Real prices are already higher than you know.

Gold is an inflation hedge for obvious reasons. It is also a deflation hedge because deflation will cause central banks to create inflation by raising the price of gold.

Gold is also liquid in all states of the world. Physical gold cannot be electronically hacked, frozen, or seized. A 10% allocation of investible assets to gold is the best financial cure in the wake of COVID-19.

All the best,

 Jim Rickards Signature

Jim Rickards,
Strategist, The Daily Reckoning Australia

PS: Market expert Shae Russell predicts five knock-on effects of the recent market crash that could be even bigger threats to the average investor’s wealth than the crash itself. Claim the free report now.