It seems fitting that, at the very time we are seeing gold setting record highs almost every day, the U.S. Mint is releasing the 2009 American Buffalo gold coins. The strength of these magnificent creatures is certainly reflected in the purity of the gold each coin contains.

These spectacular coins became available for purchase just a few days ago and smart buyers are scooping them up as quickly as they can. The last time the Mint released any Buffalo coins they sold out quickly and the premiums in the aftermarket skyrocketed. We expect the same thing to happen again.

If the design of the $50 American Buffalo looks familiar to you, that’s because the Mint copied one of the most popular coins it ever created—the famous “Buffalo nickel,” which was first introduced in 1913. The designer was James Earle Fraser, a student of Augustus Saint-Gaudens—the man tapped by President Theodore Roosevelt to create new designs for America’s coinage.

For the famous buffalo on the reverse of the coin Fraser based his sculpture on Black Diamond, a powerful-looking bison and popular attraction at the New York Zoological Gardens.

Three different Native Americans posed for the obverse of the coin. Fraser said two of them were Chief Iron Tail of the Lakota Sioux and Chief Two Moons of the Cheyenne. He said he could never recall who the third man was.

American Buffalo gold coins were authorized by Congress in December 2005, by a bill that became known as the Presidential $1 Coin Act. The act specified that the coins be struck in .9999 fine 24-karat gold, making them the first “pure” gold coins ever issued by the U.S. Mint. (The American Eagle gold coins contain nearly 10 percent alloy and thus are 22-karat gold.)

Although the original “Buffalo” coins were worth five cents, the new American Buffalo gold coins carry a face value of $50, or 1,000 times higher. They are legal tender of the United States, so in the unlikely event that gold prices ever collapse you will be able to exchange your $50 gold Buffaloes for the equivalent amount of Federal Reserve notes.

We don’t expect that to ever happen, of course. What is far more likely is that the price of gold will continue to rise. And the premium on the $50 American Buffalo gold coins will also climb. We can’t promise that they will be a good investment. But that has been the case with every other Buffalo coin the U.S. Mint has produced.

The U.S. Dollar—Hazardous To Your Wealth

Ludwig von Mises, the father of the Austrian School of Economics, once said, "Government is the only agency which can take a useful commodity like paper, slap some ink on it, and make it totally worthless."

Until recently, many investors felt safe investing in the U.S. dollar. But as they’ve seen the purchasing power of the dollar fall, this has changed. Thanks to the government’s massive trade and budget deficits, wasteful spending practices, and gargantuan creation of new money and debt, cautious investors increasingly are looking for ways to protect their wealth.

For more than 6,000 years, nothing has protected wealth better than gold. When this country was founded an ounce of gold would buy you one of the finest suits available. That was true in the depths of the Great Depression. And it is still true today.

If I am correct that the U.S. government and the Federal Reserve will continue to flood the world with massive amounts of new “money”—virtually all of it created out of thin air—the purchasing power of the dollar will continue to fall. Simply put, it will take more diluted dollars to buy the same ounce of gold in the future.

I always like to own some gold as “wealth insurance” in case of a crisis. But in times like these, I also like to hold gold as an investment. Not in speculative, highly leveraged gold options, futures or even mining shares, but rather in the metal itself. I’m pleased to note that gold out-performed every other asset class—stocks, bonds, real estate, even other commodities—in 2008. I probably don’t need to remind you that 2008 was the worst year for most investors since the Great Depression. But not for those who had the protection of gold in their portfolios.

As our government works overtime to print more money and create more debt, I take pride in knowing that the U.S. Mint is producing something of beauty and of lasting value. No matter what current or future administrations do, the $50 American Buffalo gold coin will stand the test of time. Unlike paper money, which loses value while the ink is drying, the American Buffalo is .9999% pure gold. We know it will protect your purchasing power better than paper. Gold always has.

The $50 American Buffalo and other coins produced by the U.S. Mint can be purchased through a group of National Dealers registered with the Mint. I’m proud to say that my firm, Asset Strategies International, has been a member of that group since 1986. A list of all 21 National Dealers appears on the Mint’s website at www.usmint.gov/bullionretailer.

Many local coin dealers can also order American Buffaloes for you. Look under “coins” in your yellow pages for a list of stores near you. Before placing an order, ask what the availability is and what the premium will be. That’s the amount above that day’s spot price of gold you will be charged. Also, what shipping and insurance will cost. Then, go with the best deal from the most reliable dealer you can find.

If you want a well-recognized, 24-karat gold coin, the American Buffalo is a great choice. But don’t wait until limited supplies mean higher premiums. Get your American Buffaloes now and hang on for the ride!

—Michael Checkan

They weren’t alone. Investors and analysts were similarly surprised by the power and persistence of the rally in the broad U.S. equity market, and were left grasping for excuses.

The common denominator behind both bull moves: a declining dollar.

Bucking the Trend
Gold and stocks aren’t known as correlated asset classes, to be sure. So their almost perfectly choreographed moves in opposition to the dollar meant that analysts had to explain not only their individual moves, but why they were moving in unison.

Of course, it wasn’t too difficult to connect the stock and gold moves to the weakening dollar. But from there, most supposed experts were left scrambling.

They mentioned a growing dollar carry trade, wherein extremely low interest rates in the U.S. prompt investors to borrow dollars to fund riskier and higher yielding investments elsewhere.

This trade has, indeed, grown. And it will continue to have an impact, as long as the Federal Reserve Open Market Committee’s statements keep noting that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

If dollar interest rates are going to be low for the foreseeable future, why wouldn’t you arbitrage those low rates against higher yields elsewhere?

Another excuse put forth for dollar weakness has been the comparatively stronger economic growth rates in China and the rest of Asia. It seems obvious that Asia is far ahead of the West in the economic recovery, and this relative strength has been attracting capital to the dollar’s detriment.

But the columnists and talking heads on CNBC missed some of the most compelling reasons for the dollar’s swoon:

• The surprisingly broad push for a new global reserve currency to replace the dollar. China, Russia, Brazil, France and other nations have joined an international chorus calling for a new global reserve currency regime, one most likely based on a revamped International Monetary Fund (IMF) special drawing right (SDR).

The calls for talks on this issue have come so frequently, and the silence from the Obama administration has been so obvious, that what once seemed little more than bluff and bluster now appears to be the advance signs of an inevitable abdication of the dollar’s reign as the king of currencies.

I’ve covered this frightening development in recent columns so you know that if President Obama allows this to occur I’ll view it as one of the greatest foreign policy failures in American history. And the fact that the current administration doesn’t view it as such is what truly scares me.

• The socialization of the American economy. From bailouts to nationalized health care, from more steeply progressive tax rates to the assumption that government can dictate private sector compensation…and the myriad other assaults on capitalism and individual liberty now coming out of Washington, it’s obvious that the America of tomorrow will no longer resemble the dream of our founding fathers.

This concerns not only freedom-loving Americans, but also anyone anywhere in the world with assets in the U.S. When foundational principles are ignored as a matter of political expediency, when the rule of law offers protection only to favored classes or industries, then capital will flee to regimes that offer greater safety and certainty.

This is, in fact, a big factor behind the diminishing role of the U.S economy, and the decreasing relative value of the American dollar.

• The massive issuance of U.S. dollar debt and currency. I don’t want to belabor the point, but the world has been flooded with liquidity via the creation of unprecedented levels of new debt and currency.

The U.S. hasn’t been the only violator in this regard—only the most egregious.

Some argue that the Federal Reserve, having created much of the new liquidity with the figurative stroke of a pen, can mop it all up just as easily. They ignore the fact that if the Fed was so prescient and powerful it would have never been faced with having to create all that liquidity in the first place.

The Fed is so fearful of deflation, and has become so politicized, that it will almost assuredly overshoot the mark and leave its foot on the monetary gas pedal too long.

The bottom line is that the supply of fiat currency in the world at large has risen precipitously, but to a significantly greater degree in the U.S. While this will translate to higher asset prices generally, it will also translate to a lower relative value of the U.S. dollar.

The writing is on the wall, and investors know it.

A Battle Royale
In the meantime, the bulls and the bears have drawn the battle lines over gold and amassed on both sides what may be the most powerful forces we’ve seen for years.

Consider that the Large Commercial Net Short position in gold has risen to record levels, but on an absolute basis and as a percentage of total open interest. On the other side of the bet the speculative long position has also soared.

As long-time readers know, the large commercials are most often correct in their bets on gold. The reasons for this are two-fold: 1) Because they are so intimately involved in the gold market they understand the underlying forces much better, and 2) because they are typically hedgers who reflexively short gold in a rising price environment, their increasingly larger selling tends to create a self-fulfilling prophecy in lower gold prices.

So, again, when they pile on historically large short positions, gold usually heads south. However—and this is an important distinction—when they are wrong, they are wrong in a very big way.

As I noted last month, a prime example of this came in late 2005, when the large commercials were forced to cover their bets against gold en masse…with the result being a leap in the gold price from $450 to $700 over the coming months.

So the current situation is crucial. If the large commercials are forced to cover, they could send the price skyrocketing.

If the speculative longs are forced to sell out, gold could crater.

Ironically, some of the pressure has been let off by gold’s recent retreat below $1,000. The Commitment of Traders (COT) report for the week of gold’s highs shows that the larger commercials had added even more to their short positions, establishing a new record of 287,610 contracts net short.

However, this huge cumulative short position also acts as a cushion on any price declines. Undoubtedly, as the gold price fell from the recent heights, commercials began covering some of those short positions, helping to prevent further declines.

The physical gold market has also entered into this battle. Here we see a number of new factors coming into play…

First off, we saw the announcement by Barrick Gold that it had—finally, after a $750/ounce rise in gold from 2001—decided to buy back all of its remaining gold hedges.

Whether you think this announcement is bullish or bearish depends on your position in the market…and whether you’re a “glass-half-full” or “half-empty” sort of person.

In other words, once Barrick bought back all of its hedges (and it was rumored that they had already begun doing so in the preceding weeks), then that potential bullish factor would be removed. That’s the glass-half-empty view.

The glass-half-full view holds that Barrick’s upcoming buying will only add more pressure to an already drum-tight gold market.

Not long after Barrick’s announcement, we heard from the International Monetary Fund (IMF) that it was ready to begin the sale of 403 tonnes of gold. This didn’t have the bearish effect that similar announcements have had in the past when this issue has been trotted out to dampen gold price rallies.

It didn’t scare the market much this time because the sale would either come under the umbrella of the Central Bank Gold Agreement (where central bank sales had already slowed to a trickle), or the entire amount would be taken up by China or another central bank. The latter event would be net bullish for gold, by implication more than direct effect.

And finally, we’ve seen surprisingly strong physical demand from Asia, particularly India, despite the rising gold price. The reason? Festivals in India and government programs encouraging gold buying in China helped boost demand, and the weakening dollar meant that gold’s price rise was mitigated in local currencies.

So we can expect that any significant decline in gold, especially if it’s not accompanied by dollar strength of the same degree, will be met by increasingly large physical demand from Asia.

A Pressure Cooker About To Blow
So, the battle lines have been drawn, and it seems the gold price is destined to break strongly one way or the other.

Technically, the extensive consolidation pattern traced out by gold argues for a break to the upside. More fundamentally, the towering net short position of the large commercials seems to favor a correction, although the recent decline below $1,000 may have alleviated some of that pressure.

Regardless of the outcome, it seems safe to say that this rally has already demonstrated greater strength and resilience than anyone ever expected. Even if gold corrects, the price has spent enough time well above $1,000—setting new daily close price records in the process—to make this an important and confirming move.

The best strategy is to keep your metals in several secure locations. Ideally, at least one of these locations should be outside the country you live in.

Safety Deposit Boxes or Private Vaults

Safety deposit boxes and private vaults are good choices for physical security, but both have their drawbacks. Theft from safety deposit boxes is rare, but it does occur, and it’s unlikely your insurance—or the bank’s—will cover your loss. Private vaults are often more secure—and client records less accessible to investigators.

To keep your name off your holdings, form a limited liability company and hold the box in its name. You’ll still need to identify yourself when you rent the box, but the owner of record will be your LLC, not you. This precaution also insures tax authorities won’t seal the box at your death pending a probate proceeding.

However, in a full-blown financial emergency, banks and private vaults may be closed. You may not have access to your metals, at least temporarily. If you live in the United States, the government has assigned itself the authority to confiscate "any financial instrument" in a national emergency. Since gold and silver are money, they wouldn’t be exempt from a future confiscation order. (I’m NOT predicting this will happen—but it’s the law.)

Hiding Metals at Home

If you just have a few coins or bars, keep them in a hidden place at home. There are many possibilities: behind baseboards, paneling or walls; in a large houseplant; or even a hollowed out toothpaste tube. Use your imagination! If you have a large home, you may be able to create a secret room or compartment that’s revealed when you pull a hidden lever or pull a book from a bookshelf.

Concealing metals throughout your home has potential drawbacks. A hot fire can melt gold and silver. A thief with a metal detector may be able to find your hiding places, unless you’ve created fake stashes of nails, screws or other metallic objects.

A secure fireproof safe protects against both fire and theft. Install the safe in concrete in the floor, in a location that’s easily accessible, but not obvious. The top should be flush with the floor. Cover it with a rug or, even better, a false floor with a hidden hinge door built into it.

Hiding Metals Outdoors

The best way to hide metals outdoors is to bury them at least three feet underground on your own property. If you have a big backyard, you can bury the metals there. This doesn’t work if you have an immaculate lawn, unless you’re willing to completely reseed it. Otherwise, it will be obvious where you’ve dug the holes.

Use PVC piping to construct your own waterproof storage containers or purchase "Midnight Gardener"-type containers.

Put scrap metal or something else metallic on top of your stash. If anyone with a metal detector comes along, he will find the scrap metal, and hopefully, not dig deeper.

If you own substantial acreage, or have a really big yard, you can bury decoy caches. Bury scrap metal 18 inches or so under the yard at random intervals. Only the most persistent searcher will persevere after a few false alarms.

I don’t recommend burying metals on someone else’s property or on government-owned property (e.g., a national forest). If someone finds it, you probably have no legal claim to it.

Overseas Storage

If you need to leave your country in a hurry, offshore metals holdings could help you start a new life. An overseas metals cache may also be more difficult for your country’s government to confiscate.

If you own property in another country, you can store metals there the same way as in your permanent home. Theft may be a bigger threat abroad than at home, especially if your overseas property is in a less affluent country.

You can also keep precious metals in an offshore bank vault, offshore safe deposit box, or offshore private vault. If your holdings are large enough, you can use all three.

Your government may require you to report your offshore metals holdings. U.S. persons must annually report offshore "bank, securities, or other financial accounts" with an aggregate value exceeding US$10,000 to the U.S. Treasury.

To keep your name off your holdings, form an offshore company (e.g., offshore LLC) and hold the box in its name. The owner of record is the LLC, not you. Again, you may need to disclose an ownership interest in an offshore entity to your government. This is definitely the case for U.S. persons.

What’s the best way to hold precious metals? There are no perfect solutions, but many possibilities. If you believe that precious metals are a possible way to protect yourself in a global financial crisis, you’ll want to store your metals in several different places, in at least two different countries.

By Mark Nestmann
Copyright © 2009 by Mark Nestmann

As I’ve written before, I fully expected gold to begin rising between late-July and mid-August, beginning a stealth rally before much of the market started paying attention again after Labor Day.

Then I expected the fall physical buying season to support the price into the holiday season, whereupon—at some point—investors would begin to realize how much currency and debt had been created across the globe and begin buying up gold as the only viable counterbalance to massive currency creation.

But I never expected this whole scenario to play out within a few short weeks. For the record, gold dipped—briefly—back below $1,000 a couple of times, as cynical investors bet that the metal would once again fail to hold the millennium mark…or as concerted forces worked to prevent it from doing so.

But then the metal broke free from the attempts to shackle it. It even established a new record price when it closed over $1,002.80. So what’s behind this latest spike in gold?

Short answer: No one knows for sure…but there’s been no shortage of speculation from pundits everywhere.

My view is that the important transition in investor expectations that we’ve been predicting is being completed. And the result is that investors now understand that the dollar simply must fall in value relative to other currencies—both the actions and inactions of U.S. officials over the last few months completely support that view.

Moreover, all currencies will fall in value relative to commodities, primarily gold, as debts must be inflated away…and as the oceans of new currency created during the bailouts are pulled into commerce by the nascent global economic rebound.

From another standpoint, gold bugs have to be comforted by the level of skepticism that still accompanies this rally. If a true bull market “climbs a wall of worry,” then gold seems to be advancing steadfastly up a near-vertical slope of concern. There has certainly been no shortage of naysayers and unbelievers during the metal’s ascent past the $1,000 plateau.

And, frankly, there have been some valid reasons for concern. The large commercial net short position in gold, for example, just shot to record levels, even as heated demand for gold forced prices into backwardation. As Gene Arensberg and I have noted, the large commercials are rarely wrong in their prognostications.

But when they are wrong and are forced to cover their massive shorts (as in 2005), they are spectacularly wrong—and the gold price explodes higher in a short-covering frenzy. Were they going to be right or wrong this time?

Then we had the announcement in September by Barrick Gold that it had—finally, after a $750/ounce rise in gold from 2001—decided to buy back all of its remaining gold hedges.

This blockbuster announcement left many wondering if a top in gold had been marked. Indeed, considering how Barrick’s market calls over the years had been so perfectly erroneous, it was understandable that some experienced traders, the esteemed Dennis Gartman among them, considered this an opportune time to exit some of their bullish gold bets.

But perhaps that conclusion was just too simple…to easy…to be correct. Perhaps Barrick, with their sources inside the most hallowed boardrooms of Wall Street and Washington, were tipped off that gold was about to break loose from all efforts to constrain it. Perhaps they realized that the commercials were going to have to cover their short positions. Perhaps they became aware that the bottoms of government vaults had finally been reached…or at least a decision had been reached that no more official supplies would be forthcoming to dampen the market.

We can wonder all day long. But, as my old friend Jim Dines is wont to say when pointing at a particularly compelling chart, “Don’t think. Look!”

And it doesn’t take a master of technical analysis to look at gold’s chart and marvel at the power and clarity of this bull run. In fact, gold’s remaining real resistance has most likely already been cleared. The old intraday “high” of around $1,030 was fairly ephemeral. With the old, March 17, 2008 record close on of $1,002.80 on a spot basis growing distant in its wake, gold is truly breaking out to new territory on a nominal price basis.

And yet, on a real, inflation-adjusted basis, there is plenty of headroom ahead—to at least $2,200 in current dollars.

Yes, anything can happen…and gold could be driven back below $1,000 at any time. Gold’s foes may not have much ammunition in terms of bullion, but they still have bull—and plenty of it. While the rally was largely sparked by Ben Bernanke’s pronouncement that the recession is technically over (a fact we announced in July), the right words spoken at the right time by the right person could throw a barrel of cold water on this gold rally.

Regardless, as I’ve stressed over and over again, we are on the right side of the long-term move. Stand pat in your general allocations, while taking profits where prudent.

Although in failing health, Saint-Gaudens accepted what would become his last challenge. He produced a stunning design that many consider to be the most beautiful coin ever produced… the $20 Saint-Gaudens Double Eagle. Sadly, Saint-Gaudens died without ever seeing his magnificent coin enter circulation.

The Saint-Gaudens $20 Double Eagle was minted from 1907 to 1933. The last gold coin struck by the U.S. Mint for regular issue, it remains a proud symbol of the emerging greatness of the United States in the early part of the 20th Century. In 1933, during the height of the Depression, a different Roosevelt, Franklin Delano, outlawed private ownership of gold by Americans. Production of new gold coins was halted and gold coins in circulation were confiscated. Double Eagles were melted down and added to the Treasury’s horde of gold. The few that weren’t seized are now highly prized collectibles.

In 1975, U.S. citizens were again permitted to own gold. At the time the bullion coin of choice was the South African Krugerrand. For many reasons our government wanted to issue its own gold coin. A representative of the U.S. Mint came to my office in Washington, DC and purchased a variety of gold coins. I was the executive vice president of Deak-Perera then, a company that specialized in foreign currencies, including gold and silver coins. They purchased gold coins minted in South Africa, Austria, and yes, even Mexico.

A few years later the U.S. Mint announced the production of a new American coin—the gold Eagle. It was available in four denominations: 1-oz, ½-oz, ¼-oz, and 1/10-oz of gold. The obverse featured a redesign of the classic Augustus Saint-Gaudens design.

I’m proud to say that during the first year of issue, 1986, my new company, Asset Strategies International, helped a major precious-metals company pre-sell more of these new American gold coins than any other company in the U.S. One day alone we shipped 600 registered packages throughout the country. Over the course of a year literally thousands of gold coins passed through our offices. The Eagle had definitely landed!

In 1986, the U.S. Mint added a silver dollar to its offerings. The silver Eagle contains 1 ounce of silver and has a face value of $1. The mint wisely chose to use Adolph A. Weinman’s “Walking Liberty” design on the obverse of the coin. To say it is classically beautiful is an understatement. It is a joy to hold in your hand—and an even bigger delight to drop on your desk where it makes that unique “silver on wood” clink that Americans haven’t heard in years.

There is much that our government has done and wants to do with which we could quarrel. But no one can deny that it makes the most beautiful modern coinage in the world. And you can own some for a small premium over the spot price of their gold and silver content!

The best way to purchase these gorgeous coins is through a reputable coin dealer. You’ll find a list of recommended dealers on the website for the U.S. Mint, www.usmint.gov. I’m proud to note that ASI has been included there for many years.

Because demand can rise and fall, so can premiums. Get two or three different quotes before you buy. (And never, never give your business to mass marketers, who always have the highest premiums around. How do you think they can afford all that advertising?)

With gold hovering around $1,000 an ounce, the gold American Eagle is admittedly expensive. Remember, you can purchase versions as small as 1/10th ounce. But note: the smaller the coin, the higher the premium.

An even better investment, in my opinion, is the silver American Eagle. You can purchase this classic American beauty for less than $20 each. As the price of silver continues to climb (something I think is all but inevitable) your coins could turn out to be a superb investment.

When I was growing up, on every birthday, my parents gave me a bright, shiny silver dollar. I still have those coins, mostly for sentimental reasons. But they’ve also soared in value. If you’d like your children to know what “real money” used to look like, you might consider doing the same. After all, the only thing that’s still good as gold is gold… or maybe silver.

Case in point: Pundits have been making a lot of hay recently over gold’s apparent role-switch. Instead of rising on bad economic news and acting as a safe haven, the metal has been falling. And instead of falling when the economic picture brightens, it’s been rising.

Of course, gold’s fortunes are tied to the U.S. dollar, which remains (at least for now) the reigning king of fiat currencies. But the dollar has also apparently reversed roles.

So what’s going on here? Have gold bugs entered some sort of Bizarro world where down is up, up is down and they need to start hoping for a rip-roaring economy instead of a fiscal catastrophe?

Good News Is Golden

When you dig just beneath the surface of the recent headlines, data points and trend lines, you see that things aren’t quite as confusing or misplaced as some might imagine.

Bottom line: The investing world is currently divided between those who think another economic crisis lies ahead and those who feel that “happy days are here again”… or at least will be soon.

So, follow the logic: Negative economic data raises the specter of another economic nosedive toward deflation. In that scenario, investors are assuming the U.S. dollar would rise in value as the prices of everything else fall. The dollar would also function, as we saw at the depths of last year’s credit crisis, as a safe haven investment, and would accordingly benefit from this demand.

Of course, gold could also do well in a deflation. In the Great Depression, for example, gold and gold stocks were about the best investments you could make (if you had any money left), because gold was also the official U.S. currency at the beginning of the downturn. And later, when the gold standard was abandoned by FDR, that decision was accompanied by a dramatic devaluation of the dollar and upward valuation of gold.

But forget about this for now. Few investors today realize that gold can do well in a deflation, and the rest wouldn’t believe it if you told them. So this doesn’t currently factor into the decision-making of the investing public at large.

Now let’s look at the other side of the coin. Positive economic data points toward a recovery, which in turn means an unlocking of the U.S. credit market.

As you know, the supply of U.S. dollars has been expanded—by trillions of greenbacks—thanks to the various bailouts, Federal debt issuances and monetization, corporate and mortgage debt buy-backs and other assorted efforts to liquefy the U.S. economy. But relatively little of this new currency has been put to use: Monetary velocity—money at work in transactions—has remained moribund.

Think of it this way: A veritable ocean of fiat notes has been amassed, but this flood of money remains trapped behind a dam. Banks are risk-averse and reluctant to lend. Consumers are concerned that unemployment is still high and are reluctant to spend.

But if things start to look up, as they appear to be doing now, the dam holding back this ocean of money will burst.

That means inflation… which means a lower dollar and higher gold prices.

And here’s another way to think of it: We may be seeing only a tiny spark of life in the economy. But if that spark is enough to rekindle risk-taking by lenders and consumers it will be as if a bucket of gasoline is being thrown upon the budding flame.

And then, at some point, we’ll see the stimulus spending finally hitting the economy. As with nearly all government meddling in the free market, it will hit at the worst time… and throw more gasoline on the fire.

Keep in mind that I’m not predicting either the positive or negative scenario in the discussion above; I’m only explaining the thought process of the market right now.

So what do I think? Frankly, I’m worried about the next couple of months, as the stock market is discounting much better economic performance than we’re going to see anytime soon. It might not be pricing in “perfection,” but it’s definitely pricing in “pretty damn good.”

The slightest hiccup in the recovery will send the longs running for the exits, eager to capture whatever profits they’ve amassed on paper. This would likely precipitate a very significant sell-off in the U.S. and global stock markets.

That prospect aside, I do think that an economic recovery is beginning to take hold, both in the U.S. and in the economies of our major trading partners.

As you know, I noted last month in the article Gold Quietly Marshalling Strength that the recession here was technically ending, although there would be considerable economic pain still ahead.

So it appears we’re going to dance along a razor’s edge for the next couple of months.

One of my SFS classmates from Canada told a memorable story about how his grandfather was constantly troubled about the possibility that “the Yanks were coming.” This elder Canadian, steeped in colonial history, was convinced that someday those ornery Americans would storm north across the border and invade again.

Well, in truth, a small number of Americans have headed north across that 5,525-mile long United States-Canadian border, famously styled as “the longest undefended border in the world.”

The objective of this migration is not to conquer, but to become Canadian citizens—and thereby reduce the American migrant’s U.S. taxes to zero.

Canada is not an offshore tax haven. Commonwealth and provincial taxes are relatively high. Except in specific programs designed to entice new immigrants to come to Canada (more on that below), there are few tax breaks for foreigners. However, little-known Canadian trust and tax laws, when properly employed, offer Americans a legal way to forever end the obligation to pay U.S. taxes—by becoming Canadians.

Expatriation

This unusual tax freedom is accomplished by a process known as “expatriation” in which a U.S. person voluntarily ends U.S. citizenship. That may seem extreme, but it can be done legally and consistent with U.S. and Canadian law—with the right expert professional legal and tax advisors.

American tax laws require “U.S. persons”—citizens or resident aliens—to pay income taxes on earnings from any source anywhere in the world no matter where they live. Unlike most other countries with “territorial” tax systems, a U.S. person can’t escape taxes by moving offshore.

By contrast, most other countries tax only the people who actually live within their borders. Canada for example, does impose taxes on the worldwide income of residents. But if a Canadian moves out of Canada and establishes a new residence in another country, the legal duty to pay Canadian taxes ends with few exceptions. This feature of Canadian tax law is an important part of our tax-saving expatriation plan.

Tax-Free New Residents

However tough taxes may be for the average Canadian, wealthy immigrants can take advantage of tax-free loopholes available only to them. Here are some of the options for high net worth immigrants who come to Canada:

1) A qualified immigrant accepted for eventual Canadian citizenship is eligible for a complete personal income tax moratorium for the first five calendar years of residence in Canada. They pay no taxes if the source of their income is a previously existing offshore, non-Canadian trust, (known as an “immigrant trust”) or an offshore corporation.

Because the high establishment and administrative costs of such a trust, it generally is best suited for immigrants who have at least $1 million or more in assets that can be placed in the offshore immigrant trust.

2) After living five years tax-free in Canada as a new citizen, the new Canadian can move his or her residence (and tax domicile) to another country, preferably a tax haven, and afterwards pay taxes only on income earned or paid from within Canada. They pay no taxes on their worldwide income. (There is a Canadian “departure” tax to be paid after filing a notice of intent to live abroad. There is no way of determining the exact rate of this tax since various types of property are taxed at differing rates.)

3) Canadian citizens and resident aliens employed by certain “international financial centers” are forgiven 50 percent of all income taxes.

4) Canada has abolished all national death (estate) taxes (but the provinces do have such taxes).

Investors Welcome

Canadian law favors a specific class of preferred immigrants including investors, entrepreneurs, the self-employed and those who will add to the “cultural and artistic life” of the nation. With minor variations in each of the provinces, investor immigrants generally must have a net worth in excess of C$500,000 (US$443,000) and be willing to invest at least C$250,000 (US$222,000) in a Canadian business for a minimum three- to five-year period. Purchase of a residence usually does not qualify as an investment, although it may if you work from home.

American Tax Burden

While most foreigners can relocate to a tax haven as a legal way to avoid home country income taxes, U.S. persons cannot. The only way a U.S. person can escape taxes is to end U.S. citizenship and residency—but only after acquiring a new citizenship from another country, another important step in the expatriation process. (No one wants to be the man or woman without a country!)

Let me assure doubters that, yes, this is legal. The U.S. Supreme Court has upheld Americans’ right to acquire another citizenship, to end their U.S. citizenship and to expatriate.

Likely Candidates

Q: Which Americans should consider expatriation?

A: Those concerned with high taxes. Without good estate planning, U.S. death taxes can take up to 55 percent of your assets from your heirs when you pass away—and that final tax insult comes after a working lifetime of paying up to 40 percent of your earnings in federal income taxes every year. Add in state and local income and sales taxes and you stand to lose in taxes well over half your earnings during your lifetime—and your heirs lose another half of what’s left at death.

The potential emigrant from America eventually must surrender U.S. citizenship in order to end U.S. tax obligations. But be aware of the new (2008) U.S. “exit tax” now in effect. If you qualify as what the law calls a “covered person” the exit tax may outweigh any benefit to be gained by immigration to Canada.

A Potential Savings of Millions of Dollars

There you have it. It may seem a difficult road to travel, but becoming a Canadian citizen investor can save a U.S. citizen millions of dollars that would otherwise go directly to the Internal Revenue Service.

Yes, these savings are predicated on major changes—including surrender of your U.S. citizenship. You must move yourself, your family and your business to Canada and possibly to another country later on. Despite these drawbacks, the true bottom line measured in dollar savings can be enormous.

–By Robert E. Bauman JD

“The only thing the States is pumping these days is money.” A Calgary-based, multi-national oil executive.

I use to love to ski. But one March morning a couple of years ago it left me feeling pensive and depressed. I stood at the top of Silver Mountain Ski Resort, east of Coeur d’Alene, Idaho, and watched the lower clouds disperse.

I saw how Interstate 90 snaked through Idaho’s once-famous Silver Valley. But that day the only silver I would see was the giant reflective sign that stood over my shoulder.

Fresh snow had only dusted the mountain. Down below the Silver Valley was black and barren, closer to what you would see on the moon than to what you would experience in the Alps.

My research as a metals analyst reminded me that Silver Valley was the only place on earth where more than a billion ounces of silver have been mined. Since 1884 some 1.2 billion ounces of silver have been harvested in Shoshone County.

I left for home in the afternoon and looked at road signs. The towns along the valley proclaim you can revisit the past and see how it was in the days of the silver barons. But with the sun setting the surroundings looked more like they were from the days of the Jurassic than from the days of Hunt and Getty.

The landscape has been dug, drilled, mauled and mined, and whatever silver was in the region has been long since spent. In a way the Silver Valley is a microcosm for America’s over-harvest of its once-bountiful natural resources.

Fifty years ago the United States was the largest producer of oil and a net exporter. Today its number one import is crude oil. Each year the United States spends nearly $300 billion on foreign petroleum. But oil is not the only resource in shortage.

In 2007 five of the 10 fastest growing imports were: nickel (up 47 percent), feedstuff and food-grains (up 34 percent), precious metals (up 34 percent), tin (up 27 percent) and food oils and oilseeds (up 26 percent).

This year the United States will run a trade deficit of about $350 billion. More than 80 percent of that deficit will be for the purchase or raw materials.

Meanwhile America’s insatiable thirst for natural resources has some Canadians nervous.

“Could the U.S. takeover Canada?” asks the Aug. 20, 2009, Vancouver Sun. Perhaps not anytime soon the newspaper says, but there are reasons to be concerned.

The Sun concludes that Canadian politicians will become more protective of this nation’s sovereignty, “if Americans relentlessly continue their unsustainable consumption patterns even as U.S. resources keep on depleting.”

Given the 100-year trend, it is hard to imagine anything else.

America has always been relentless in its consumption of raw materials and it’s hard to see how that will change. The nation’s whole way of life is based on the excessive consumption of oil, land and minerals. It was the harvesting of those resources that made America great and at the same time addicted the country to a resource-intense lifestyle. But now the nation’s resources are running low.

For example, U.S. experienced peak oil production way back in 1970. Since then domestic oil production has been in a steep decline.

Today Canada funnels more than half the 3.4 million barrels of oil it produces daily to the U.S. and provides 82 percent of all U.S. natural gas imports.

Canada also sells a third of its hydroelectricity to U.S. markets and supplies a third of the uranium used in U.S. nuclear power plants.

Water, of course, is another resource soon to be in shortage. Earlier this year, the U.S. Government Accountability Office said at least 36 states are anticipating water shortages within five years. Again, Canada has excess water it can sell to the U.S. (not because Canadians have been better stewards of the land but because Canada has a richer inheritance and one-tenth the population.)

But even Canada does not have the wherewithal to meet all of America’s resource needs, never mind the needs of a thirsting world.

“In the 1960s most countries lived within their ecological resources,” writes guardian.co.uk. “But the latest figures show that today three-quarters of the world’s population live in countries which consume more than they can replenish.”

While Western economies have slowed to a crawl, China’s economy will grow by more than 8 percent this year. Each new day brings tons of new consumption of raw materials—everything from alfalfa to zinc. And as 1.3 billion Chinese continue to satisfy their growing Western tastes for everything from cars to washing machines, the finite supply of natural resources will get smaller and smaller.

According to guardian.co.uk, “The natural resource crisis is proving worse than the global financial crisis. We are using up the earth’s resources very fast; and as a result, we are heading for an ‘ecological credit crunch.’”

That is certainly an exaggeration from the Liberal left. But there is no denying that real assets are getting used up and at a record rate. If you don’t believe me, just look at some commodity price charts. Rising prices reflect growing scarcity or fears of scarcity.

Commodity markets are one of the only true free markets left, and if you ignore them it is at your own peril. Right now the CRB Index tells me that the commodity bull, while wounded in 2008, is very much alive and getting stronger. That means even higher prices for real assets across the board.

Action to take: A conservative but profitable way to play the commodity bull market is with a real asset fund. There are plenty of good real asset funds out there so talk to your stock broker. Just remember, when you invest in a real asset fund you are betting the price of commodities is going to go up. Given the recent weakness in the U.S. dollar and the continued global demand for commodities, I think this is a safe bet.

Yours for real wealth,

John Myers
Myers’ Energy and Gold Report

Simply put, the world has been on vacation. Yet, despite the inattention, gold has been quietly building strength throughout much of the summer. The month of July, for example, was quite good for gold, as the metal steadily rose before meeting resistance at around $955.

Still, as we enter the fall, it seems as if gold is sitting tight on a very strong foundation. The market continues to anticipate the return of physical demand in September, along with the impact of America’s loose-money policies and stimulus spending.

Some forward-looking speculators have already entered the market in anticipation of these factors kicking in, but there is still plenty of room left for more longs before the market could be considered crowded.

In the meantime, the large commercials, as our talented associate Gene Arensberg has been reporting in his “Got Gold Report” for Gold Newsletter readers, have been piling up their short positions during gold’s summer rally. But once the dollar begins rolling over again, these commercials will be in an increasingly dangerous position.

As I’ve noted before, these guys are usually right. But when they are wrong, they are spectacularly wrong.

In the past, when the commercials have been forced to cover large-scale short positions, gold has exploded higher to a new price plateau. As an example, consider late 2005, when the commercials were caught badly offsides, and gold catapulted from $450 to over $700.

I’m not saying this will happen anytime soon, but, with federal deficits now measured in trillions of dollars, with deficit- and debt-to-GDP ratios rising to levels that presage at least a doubling in long-term interest rates, and with proposed nationalized health care programs that would further inflate the national debt, the prognosis for the dollar is not good.

The federal debt is already far beyond manageable levels. The only way to control it at this point is to inflate it away. And investors know it.

As I said months ago, it seems we’re on a collision course to repeat the mistakes of the 1970s. But this time, “it will be like the ’70s on steroids.”

In the meantime, many of the resource companies we’re following are making news with their summer exploration programs. At the same time, there have been significant developments on the mergers and acquisitions front, as challenged companies merge to build strength through synergy, and as weak companies are consumed by the strong. Our readers have already multiplied their money on a number of these stocks, and there will undoubtedly be more to come.

It all adds up to an uncommonly interesting—and potentially profitable—market ahead.

But as the ongoing global financial crisis deepens, many other countries have imposed foreign exchange controls in recent months, including Argentina, Iceland and Nigeria. Is it possible that the United States would ever impose these types of controls? The answer may surprise you… but first, let’s explore the history and mechanisms of exchange controls.

Exchange controls date all the way back to ancient Greece. The philosopher Plato proposed an inconvertible currency to prevent anyone outside Athens from interfering with its economic autonomy. And only a few decades ago, exchange controls were common in western countries: France and Great Britain had them in effect until the late 1970s. Indeed, one form of exchange control remains in effect worldwide—no government, anywhere in the world, will redeem its national currency in gold.

Exchange controls take many forms:

• Prohibiting residents from owning a bank account denominated in another currency or an account in a foreign bank.
• Banning the use of foreign currency within the country.
• Banning residents from possessing foreign currency.
• Prohibiting exporters from drawing against a bank account except for internal transfers.
• Limiting bank trading in a domestic currency to discourage currency speculation.
• Restricting the amount of currency that may be imported or exported.
• Prohibiting residents from owning gold or exporting gold abroad.

Foreign Exchange Controls Step-by-Step

The main reason a government initiates foreign exchange controls is to discourage speculation in its national currency. This helps preserve foreign currency reserves and props up the international value of the national currency. In most cases, the national treasury or central bank of a country that imposes exchange controls has created an excessive amount of money out of thin air. Exchange controls appear to offer the government an opportunity to achieve what would otherwise be economically impossible.

In most cases, governments don’t impose foreign exchange controls overnight, but rather, in a step-by-step process:

Why Exchange Controls Don’t Work

Unfortunately for the governments that impose them, exchange controls simply don’t work. The longer they’re in place, the more ways clever people find to get around them. To begin with, exchange controls create a huge black market and an accompanying criminal class. This phenomenon is well known in countries with stiff criminal penalties against mind-altering drugs.

Exchange controls also inevitably disrupt legitimate businesses. For instance, Venezuelan exchange controls, re-imposed in 2003, bankrupted thousands of small and middle-sized businesses because they could no longer obtain foreign currency.

Moreover, while Venezuela’s foreign currency reserve position stabilized after it imposed exchange controls, remittances of foreign currency fell dramatically. This led to a steep decline in the standard of living for most residents. Many of Venezuela’s most successful citizens emigrated to other countries, particularly those lucky enough to qualify for another passport, or wealthy enough to purchase one.

Despite the many shortcomings of exchange controls, the historical record is clear. In times of economic crisis, protectionist sentiments grow. Those advocating protectionist measures label anyone with offshore investments or other financial interests as traitors. Foreign exchange controls are a way of dealing with these purportedly disloyal citizens.

In the United States, the dollar has actually appreciated in value in the current economic crisis, so there’s no immediate pressure for Congress—or President Barack Obama—to impose exchange controls. However, Obama has advocated that offshore "tax havens" be shut down. And if investors begin fleeing the dollar, and its value collapses, exchange controls may quickly follow. Indeed, if Congress fails to act, President Obama can impose exchange controls with the stroke of a pen, via an executive order. The enabling legislation is already in place, via the International Economic Emergency Powers Act (IEEPA).

How to Prepare for the Prospect of Exchange Controls

U.S. residents concerned about the prospect for exchange controls in this country need to prepare for them now. The most basic strategy is to open a foreign bank account or to store precious metals at an offshore safekeeping facility.

However, any U.S. exchange controls (in common with those in most other countries) may prohibit U.S. residents from maintaining a foreign account or other foreign investments without a "permit" to do so. Without a permit, the government may force you to repatriate your foreign account in exchange for dollars at the official exchange rate. This rate may be much less than the market exchange rate.

A better strategy may be to create an international structure in which you are not the owner of the underlying investments, but only a beneficiary. An offshore trust and some types of offshore insurance investments provide this sort of protection. Historically, payments from overseas life insurance and annuity policies have been exempt from foreign exchange controls—although there’s no guarantee they would be in the future. An additional benefit is that these structures provide significant protection against claims in civil litigation. (My book The Lifeboat Strategy, contains complete details on how to set up these types of international structures.)

Are foreign exchange controls coming to the United States? I certainly hope not. But if they do, I hope you’ve made arrangements to prepare for their arrival.

By Mark Nestmann
Copyright © 2009 by Mark Nestmann