Rudy Martin: The presidential contenders are waging war on the debate stage about everything from energy to taxes to education to gender equality to foreign policy. But there are still several parts of their respective platforms that aren’t being hashed out in the public forum.
Money is at the heart of many, if not most, of the hotly contested issues in this election cycle. But we haven’t heard much about hard money — in particular, gold, and what might happen to it if the U.S. dollar were to fall apart.
Interestingly, however, Republicans are calling for a commission to fix the dollar’s value. And I never thought I’d say this, but I find the idea intriguing.
In particular, I find it intriguing as an emerging-market play, that is. And in just a few moments, I’ll share five ways to play a surge in gold prices. But first, it’s worth asking the question …
Could Bretton Woods Make a Comeback?
The answer to that question is “probably not,” as the platform does not contain the phrase “gold standard,” which ended 40 years ago under the Nixon administration.
But with the money-printing presses running at full-tilt, many continue to wonder whether our current paper currency system is sustainable.
However, it does hark back to a commission created a decade later, after President Reagan’s 1981 inauguration, to “consider the feasibility of a metallic basis for U.S. currency.”
We all know how that story turned out — we’re still using fiat currency today. But if they have their way, that could change. According to the platform:
“Now, three decades later, as we face the task of cleaning up the wreckage of the current administration’s policies, we propose a similar commission to investigate possible ways to set a fixed value for the dollar.”
Now, I’m not expecting the U.S. to return to a gold standard. However, the idea of a gold commission like Reagan’s charged with coming up with ways to preserve and even restore the dollar’s value could be a step in the right direction for the country.
Who Would Benefit from a Gold Standard?
Of course, if the debate continues and this proposed commission becomes a reality, you can expect financial analysts and economists to warn against a modern-day version of the gold standard.
They would call it a way to hand over power to other countries that produce gold. And the biggest non-U.S. gold producers, in order, are China, followed by Australia, South Africa and Russia.
Well, that’s the best kind of news that a long-term international investor like you could want to hear.
Under this fictional gold standard scenario, these countries would see the value of their currencies and stock markets surge relative to other, more-developed economies.
And for countries with surplus funds, it would be natural to expect the central banks to acquire physical gold to back up their currencies.
Believe it or Not, This Is Already Happening
Russia has been the most-vocal of these countries about building gold reserves. But the new buyers now also include South Korea, Turkey, Russia, the Ukraine and a growing list of emerging and frontier economies.
Central bankers around the world scooped up 158 tons of gold. That number marks a 63 percent increase from the first quarter and a whopping 138 percent increase year-over-year.
That’s the most gold central banks have bought up in a single quarter since the World Gold Council started tracking the numbers in the second quarter of 2009.
Time to Add an Emerging Metals Play?
Normally, I would suggest a gold miner or two for my Emerging Market Winners subscribers as the ideal way to profit from gold via the emerging markets.
But in this case, gold is NOT part of a cyclical industry pricing turn based on supply. The change is on the demand side, so it’s the financial equivalents to gold and alternatives that are likely to hold high return potential.
My take on this is that, in a couple of weeks, we will be in a better environment for investing in the gold Exchange-Traded Funds (ETF) … depending on the political developments in Europe.
In terms of year-to-date performance, the best gold ETF and Exchange-Traded Note (ETN) products range from a triple-leveraged, gold-futures ETN to an ETF that stores gold bars exclusively in Switzerland.
Despite the individual uniqueness of the top-five performing gold products, they all share two elements:
- A focus on gold prices, and
- No exposure to gold stocks.
Here’s a snapshot of the best gold ETF and ETN products based off year-to-date performance.
- UGLD — VelocityShares 3x Long Gold ETN (NYSEARCA:UGLD), up 10.3%
- DGP — PowerShares Deutsche Bank DB Gold Double Long ETN (NYSEARCA:DGP), up 9.8%
- UGL — ProShares Ultra Gold ETF (NYSEARCA:UGL), up 9.0%
- IAU — iShares Gold Trust ETF (NYSEARCA:IAU), up 6.6%
- SGOL — ETFS Physical Swiss Gold Shares Trust (NYSEARCA:SGOL), up 6.4%
Take a closer look at these when you can. While I don’t have immediate plans to recommend these or other potential gold plays at this time, it would be wise to get familiar with what is available in case a great buying opportunity arises.
And when I do plan to add my next emerging-market play, my subscribers will be the first to know. Won’t you consider joining them and being on board for the next profit opportunity?
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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