Own Gold, Don't Worry About Interest Rates

If you have been paying attention to the news, much like myself, you have no doubt heard the talking heads claiming that gold prices will fall, implode, end up priced in hamburgers, or whatever negative metric you can think of once the economy rebounds, interest rates rise, and real yields trickle up. This would be a great narrative.... if it was true. But, the data just does bear any of the talking heads out. Not only is there no relationship between gold prices and economy, but there is no relationship between gold prices and interest rates, at least in the historical data.

First, we have this recent commentary from Kitco news seen the other day.


Interesting yes, but why just take someone's word for it. Let us turn to the data.

Gold vs. 10 year interest rates


I am no math genius but I don't any long-term relationship here. How about the year-over-year change in gold prices and interest rates.

Year-over-year changes in gold and 10-year treasury rates


Again, I dare you to make the relationship here. Of course you may be asking, what about the numbers? Looking at the absolute daily pricing of gold and interest rates, the correlation between the two is a negative 47% and the R-squared is a whopping 22.5%. Essentially showing little to no relationship between the two. More so, the year-over-year correlation and r-squared are essentially zero. Essentially zero even for using interest changes to predict future changes in gold.

Real yields (defined as 10 year treasury yields minus annual CPI) does not fair any better.

Gold vs. real yields


Year-over-year gold vs. real yields


I am hard pressed to see any relationship here either. In fact, the numbers again bear this. The correlative factors show little to no relationship on either a coincidental or forward bases while the r-squared figures are strongest on the year-over-year, coincidental view, with an astoundingly strong (sarcasm noted) 16.5%.

The moral of the story, if you own gold or other precious metal related investments, you can disregard interest rates.  

Fractional Reserve Banking With Walter Block

An older speech by Mr. Block but still relevant.

Bitcoin Taxation Ruling Sets Aweful Precedent

Despite one head of the hydra siding with Bitcoin being a currency, the militant financial arm has spoken and has decreed bitcoin to be property..... and thus any value gained can be taxed as such. But, they have to maintain the monopoly on currency.

By Simon black

Bitcoin tax rules finally came to the Land of the Free yesterday. And I have to imagine there are some not-too-happy campers this morning, if they even know about it.

Bitcoin taxes were inevitable. I’ve written about this numerous times, and have even gone so far as to predict that the government will probably mandate special Bitcoin reporting on foreign disclosure forms.
A number of other countries, from Germany to Singapore, have already issued their own tax rules on Bitcoin and related virtual currency transactions. And yesterday the IRS finally issued their own.
Here’s the quick summary:

1) While a number of governments (including the United States to a degree) have officially pronounced Bitcoin to be a ‘currency alternative,’ the IRS disagrees.

2) According to the IRS, Bitcoin is -property- and should be taxed as such… similar to, for example, a piece of rental property or collection of fine wine.

3) This means that the sale of Bitcoins is taxable based on capital gains. If you bought Bitcoins at $1 and sold them at $501 several years later, you would have to pay long-term capital gains tax on the $500 difference, currently 23.8%.

4) If you hold Bitcoins for shorter periods of less than 1-year, you can be taxed at ordinary income tax rates on your gains.

5) To the extent that you mine Bitcoins as a trade or business, the Bitcoin income from mining activity is not only subject to income tax, but also self-employment tax.

6) If you trade your Bitcoins for some other property that exceeds your cost basis, you are subject to tax. This is a huge ruling that effects all the ‘Bitcoin millionaires’ out there– early adopters who purchased Bitcoins at a dollar or less.

So let’s say you were one of the first Bitcoin adopters and bought 5,000 bitcoins at $0.05. Last year when Bitcoin was valued at roughly $1,000 in paper currency, you traded 250 of them for a brand new Lamborghini.

The IRS would say that you had a cost basis of $12.50 for those 250 coins. But you traded them for other property with a fair market value of $250,000. This means you have a taxable gain of $249,987.50.
Naturally, the US government is happy to go back in time and thrust all sorts of interest and penalties upon you if you didn’t comply with the law.

According to their ruling, “failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722.”
What’s most interesting about this new set of rules is what they might mean for gold.

If you’ve ever read Currency Wars (a fantastic book by my colleague Jim Rickards), you may recall early in the book when Jim suggests a potential outcome for gold.

Imagine– paper currencies go into freefall. Gold soars. Anyone who bought gold early sees sizeable profits (in paper currency)… at which point the government steps in after the fact and sets up new tax rules to confiscate a substantial portion of those gains.

Think it can’t happen? These Bitcoin rules certainly establish a precedent.

The Psychology of Money

If you have never heard of or listened to Stefan Molyneux, I think you are missing out. Regardless of your general persuasion, his thoughts and comments will make you think and isn't thinking one of the highest virtues a person can strive for? In any event, the below video is from a speech he did in Texas recently discussing the qualities and exploits of money.

Gold Entering a Two-Year Super-Cycle..... Possibly.

I am a bit skeptical, but I would not fret being long gold and the miners.

The Crisis Is Not Over- Rogers