Back in 1975 I was a senior officer with the world’s oldest and largest dealer in precious metals and foreign currencies, Deak-Perera. I learned this lesson firsthand and it forever taught me about the importance of the “barbaric relic”… gold!

Deak-Perera was one of the few financial institutions in the United States with a combined expertise in precious metals, foreign currencies and international banking. As a result of this knowledge the company was invited by the State Department in April 1975 to assist the South Vietnamese refugees that were pouring into the U.S. as Saigon fell. The company became the exclusive “moneychanger” for all five of the Vietnamese refugee camps.

You may recall that, as of Jan. 1, 1975, Americans could once again legally own gold bullion. It had been illegal to own gold since 1933, when President Roosevelt took the U.S. off the gold standard and ordered all privately held gold coins and bullion be surrendered to the government.

Unaccustomed as we were to handling displaced persons, it was nonetheless clear that even the most prominent of these refugees would be arriving at the camps with little more than the clothes on their backs and whatever valuables they could carry. And who knew just how valuable some of their belongings would be?

Only one thing was certain: They wouldn’t be drawing checks on their local banks. All banks in Vietnam had been taken over by the communists, along with the rest of the economy. At the time, the cruel joke was Vietnam was a true “cash-and-carry economy.” If you had the cash, you got to carry off anything you wanted.

A Day that Changed My Life

May 1975 found me at Eglin Air Force Base, Fla., one of the five refugee camps. I will never forget my experience with two families in particular. The experience is burned into my mind forever.

A middle-aged man, trim and well-spoken, was wearing what had once been an expensively tailored suit. He obviously cared deeply for his bedraggled family. He had been a businessman in Vietnam. In fact, I was later to learn, he had been a very successful banker. But now all his family’s wealth was in the small dingy canvas bag that he was hanging onto for dear life.

Even through all the adversity he and his family had recently experienced, there was still a glimmer of hope in his eyes. Despite losing his job, his home and his country, he still wore a relieved expression whenever he gazed upon that canvas bag. It was his key to a new life in a new country. It was, quite literally, a golden anchor.

Gently, carefully, he poured the contents of the bag onto the table in front of me. There, gleaming in the sun, was an enormous collection of golden taels. For those of you who are not familiar with taels, they are a form of gold bullion indigenous to Southeast Asia. Each tael was 1.2 ounces (37.5 grams) of .9999 pure gold. They looked like tiny wafers—thin sheets of gold, delicately wrapped in paper.

It was Deak-Perera’s job to buy the gold taels from the refugees, and, with the proceeds, issue traveler’s checks.

A Lifetime of Savings, Now Worthless

Further back in line there was another refugee who was less fortunate than the banker carrying the golden taels. Much like the banker, he was a successful businessman before he and his family were uprooted by war.

He approached my table with two suitcases in hand. Like his countryman with the taels, he had worked very hard, saved extremely well and carried all his worldly wealth in those satchels.

But there was one major difference. His wealth was in the form of piasters, the currency of the Republic of Vietnam. These were paper promises of a government that no longer existed. I had to tell this man his piasters were worthless. They would not buy anything—not even a Coke or a pack of cigarettes—in his new country.

Can you imagine toiling and saving for a lifetime for two suitcases filled with worthless currency?

Sad to say, other formerly valuable pieces of paper were now worthless as well. One was the Military Payment Certificates (MPC), issued by the U.S. military. Each one carried the likeness of a famous Hollywood movie star. Now they would not buy admission to a show.

Other items, even valuable diamonds, jade and loose gems, were hard to exchange on the spot for a fair price. Only gold had an immediate market at a fair price.

Before that day I always knew that precious metals were an important asset. But, after looking into the eyes of these two men and their families, I knew firsthand the value of gold and other precious metals. Gold holds its value when nothing else will.

Does gold in 2010 offer the same peace of mind and protection to Americans that it has through 5,000 years of history? Absolutely!

As an American, there are many threats to your hard-earned wealth. The most insidious is not military in nature. It is the weakening of the U.S. dollar.

In the past year these mounting costs exceeded our government’s revenue by more than $1.4 trillion. Meanwhile, the Federal Reserve loaned or guaranteed another $2 trillion. How will this debt ever be repaid? The only politically acceptable solution is to print more money. But creating more dollars means, inevitably, that each one is worth less. The dollar is being devalued right in front of our eyes.

Get Ready for Fireworks in the Gold Market

My friend Doug Casey likes to say that the price of gold is not only going to the moon, it’s going to several planets beyond.

When this happens… when gold prices double from where they are now and continue rising… when the dollar falls into the abyss… which would you rather own? Which do you think will better protect your life’s work?

Would you rather be holding two suitcases full of worthless U.S. paper? Or a canvas sack full of gold?

I’m going to choose the latter. I hope you will, too.

If you’d like to know about the safest, most secure way I’ve found to own gold, let me tell you about the Perth Mint Certificate program.

It’s one I helped develop 12 years ago, and it comes with the most rock-solid guarantee you’ll find anywhere. In case you’re not familiar with it, the Perth Mint is wholly owned by the Government of Western Australia. It has been storing and dealing in precious metals for more than a century.

The Perth Mint is the only depository operating today that can offer you a comprehensive storage and trading program, with the unconditional written guarantee of one of Australia’s wealthiest states. In addition, all precious metals stored at the Perth Mint, including your metals lodged under this program, are insured (at the Perth Mint’s cost) by Lloyds of London.

When we designed this storage program, we wanted to make sure it was SAFE. That is, that it offered Security, Affordability, Flexibility and Exclusivity. The Perth Mint Certificate Program has our highest endorsement on all counts.

Purchasing gold or other precious metals through the Perth Mint Certificate Program requires an initial investment of $10,000 or more. Sale amounts or additional purchases must be for $5,000 or more. There is no additional cost for unallocated storage; the one-time administrative fee is a very reasonable $50 per certificate.

When you are ready to dispose of some or all of your holdings, the Perth Mint will arrange to purchase them back from you at the then-current market price. Or you can take delivery of your holdings at the Mint or via insured delivery to most any location in the world.

To learn more about how the Perth Mint Certificate Program can help you find a safe haven for some of your assets in an increasingly troubled world, please contact my company, Asset Strategies International. You may email us at info@assetstrategies.com, or call us at 1-800-831-0007 or 301-881-8600.

Please let us know how we can help you achieve your financial goals.

Live Strong,

Michael Checkan
President
Asset Strategies International

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

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.

Written by inventor, architect, engineer, geometrician, cartographer and philosopher R. Buckminster Fuller in 1981, Grunch of Giants postulates the theory that the United States industrial complex—corporations—are controlling world events for their own ends. Even politicians are controlled by Grunch, a vast invisible empire that includes airwaves and satellites, factories and research laboratories and large cities.

Nobody knows who runs Grunch, but it controls all the world’s banks and does just what its lawyers tell it to do. All decisions for Grunch are made in back rooms, with the deciding factors being business and money.

According to Fuller, every day 75,000 humans around the world die of starvation and its side effects, even though more than enough food is produced to support all the people on earth. Grunch did not cause this, Fuller says, but Grunch could easily end it if it so chose.

Grunch, Fuller writes, did not invent the universe. In fact, it did not invent anything. It monopolizes know-where and know-how but is devoid of know-why. It is preoccupied with absolute selfishness and its guaranteed gratifications. It is as blind as its Swiss banks are mute.

In order to understand how the Grunch works, Fuller says you must first study their history and development. In beginning his explanation, Fuller quotes one of his friends, who he called a giant and described as a member of the Morgan family (presumably the J.P. Morgan banker family). “Bucky, I’m very fond of you, so I am sorry to have to tell you that you will never be a success. You go around explaining in simple terms that which people have not been comprehending, when the first law of success is, ‘Never make things simple when you can make them complicated.’”

One of the first things Fuller had to do was make a decision: Did he want to try to make money, or make sense, as the two things are mutually exclusive. So Fuller decided to make sense and he used his books to explain how the world works.

This book is not light reading. In fact, it is often difficult to follow and at times quite scientific in its language. Nor is it for the closed-minded, because it challenges conventional thinking and forces the reader to look at the world from a different paradigm.

But if you are willing to consider that things aren’t as they seem, and in fact are completely different from what all are taught, then this book makes a good addition to your library.

Mismanagement in Washington is punishing the dollar. Continued incompetence puts all dollar-backed assets at risk.

Meanwhile, gold prices are once again back over $1,000 per ounce. Yet for gold to reach its inflation adjusted 1980 price it would have to trade at $2,500 per ounce. Impossible you say? Not given the current crisis in leadership.

On Sept. 8, at Wakefield High School in Virginia, President Obama gave a speech to students across the country about the importance of their education, and their responsibility as American students to work hard.

Certainly hard work is needed. Two weeks before Obama spoke it was announced that high school students’ performance on last year’s Scholastic Aptitude Test (SAT) college-entrance exam fell yet again.

Average scores for the class of 2009 in reading dropped to 501 from 502, in writing to 493 from 494, while math managed to hold steady at 515. The combined scores are the lowest this decade. Furthermore, these SAT scores follow more than 25 years of trying to improve U.S. education.

"This is a nearly unrelenting tale of woe and disappointment," said Chester E. Finn Jr., president of the Thomas B. Fordham Institute, a Washington, D.C., think tank. "If there’s any good news here, I can’t find it."

In fact the news is dismal. SAT scores have been in an overall decline for almost 40 years. Meanwhile a new wave of nations are producing another generation of smart kids with a global economy itching to buy up their services.

Hopefully the President has not inspired another generation of wanna-be lawyers. America has more than enough of them. In 2007 the American Bar Association (ABA) counted 1,143,358 in all. That is one lawyer for every 265 people, twice the ratio that Germany has and five times as many as France.

It is interesting to note that last year plans for a new generation of nuclear power stations was put on hold by its own inspectors because of a shortage of skilled engineers.

That’s bad news for the lawyers because no new nuclear plants mean no new litigation against nuclear plant designers and owners. Not that there isn’t plenty of work to keep lawyers busy.

The U.S. tort system cost more than $250 billion in 2007. That is up from less than $43 billion in 1980.

In total, tort costs translate to about $850 per man, woman and child. And get this, since 1950 growth in tort costs has exceeded gross domestic product (GDP) growth by an average of 2 percentage points. Even during recessions, Americans spend more in legal costs. It’s too bad you can’t buy shares in the ABA.

This is not to suggest that we are not heavily vested in lawyers. Some of the very “best” of them are running our nation. Today 46 percent of our government branches are in the hands of lawyers. That includes, of course, the President and the First Lady.

A founder of the Constitution, James Madison, understood that the checking of each branch by the other made for a less effective government. Madison wrote that the sacrifice was worth it to prevent tyranny by a government “in the same hands.”

“No political truth is certainly of greater intrinsic value or is stamped with the authority of more enlightened patrons of liberty than that . . . the accumulation of all powers legislative, executive and judiciary in the same hands, whether of one, a few or many, and whether hereditary, self appointed, or elective, may justly be pronounced the very definition of tyranny.” (Federalist No. 47)*

Whether the federal government is tyrannical can be debated, but you don’t need an MBA to see that it is damned inefficient. Last month the Obama Administration announced its estimate for the budget deficit at $1.58 trillion. That is a trillion dollars larger than last year’s deficit and represents the largest percentage share of GDP in more than 60 years.

Why would we expect anything less? If you have ever been on the “clock” with a lawyer you probably realize how much it costs and how little actually gets accomplished.

Now before I get a rash of comments from lawyers, let me say that I am not alone in my criticism. Way back in the February 1987 Ruff Times, Robert Ringer wrote: “I abhor overgeneralizations. Fairness compels me to point out that only 97 percent of the attorneys in the U.S. are lazy, incompetent, negligent and greedy—yet they give the entire profession a bad name.”

The truth is our government is rife with lawyers and they have been doing a rotten job. An even more alarming truth is that they hold our future and our finances in their hands.

Federal Reserve Chairman Ben Bernanke mans the printing press. Despite the recession, new money is pouring into the economy. Since 2000, M2 money supply has more than doubled, rising from $4 trillion to $9.5 trillion.

One of Bernanke’s first speeches was entitled “Deflation: Making Sure It Doesn’t Happen Here.” On that front he is doing one heck of a job.

What people need to fear from the firm of Barack & Bernanke is the unprecedented amount of new money coming on-stream. The creation of all this cash out of thin air will inevitably be inflationary. That impacts the purchasing power of every dollar instrument you own.

You can protect yourself from dollar inflation by owning gold. I recommend you put at least 10 percent of your investment assets in physical gold. I like 1-ounce U.S. American Eagle coins as well as 1-ounce Canadian Maple Leaf and South African Krugerrand coins.

Call your local coin dealer or if you need one, call Asset Strategies International in Rockville, Md., 800-831-0007 or 301-881-8600 or go to www.assetstrategies.com

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

PS. I will agree with the President that our kids have to get serious about their education. Perhaps they should read Shakespeare. In King Henry VI he wrote: “The first thing we do, let’s kill all the lawyers."

*Footnote: Federalist No. 47 is the 47th paper from the Federalist Papers. Written by Madison, it was published in 1788 under the pseudonym Publius.

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

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.