Is Gold or GLD Better for Your Portfolio With Runaway Government Borrowing Now?

Last week the facade that all is well with the economy of the U.S. continued to be ripped away. Sales of longer-term American debt have jumped to a point that has not been witnessed since the peak of the Great Recession and Global Financial Crisis. The Treasury Department is so desperate to keep the debt-financed money flowing into the national coffers that it has developed a new benchmark in the form of the two month Treasury bill.

This reminds you that you need to learn what assets go in a Regal Assets Gold IRA while there is still some time left before the safe haven metal takes off. Gold offers insurance and protection during market turbulence. When the government is massively borrowing like there will be no tomorrow, as if the country is suffering though the middle of a deep and painful recession, then it is time to head for the exits. You need to start thinking about storage rules for your treasure trove of gold.

American National Debt Completely Out of Control Now

Only a fool would think that the U.S. national debt of over $21 trillion will somehow work out fine. America is in the midst of a last great debt binge. The ride does not end well. The federal deficit will sharply rise to $833 billion this year. That is up over $666 billion last year. It is thanks to the Senate and House that the debt was allowed to widen so significantly. They pushed for aggressive spending bills. Since then, the American government has been rapidly ramping up its higher spending plans that the Congress has increased.

At exactly this time in the U.S., the country is quickly spiraling out of control toward more than $22 trillion in debt. The Treasury Department is moving down the path to issue more debt. They have already floated $329 billion in just the months of from July to September according to their auction lineups.

Reuters states that the estimate for Treasury borrowing for the third quarter equals the same time frame in 2010. This was during the peak of the infamous Great Recession. It amounts to the fourth highest amount of U.S. borrowing, according to the official records for all July-September quarters.

Treasury stated that it will:

“Increase the sizes of the 2-, 3-, and 5- year note auctions by $1 billion per month over the next three months. [It] will also increase auction sizes by $1 billion for each of the next 7- and 10- year notes and 30- year bond auctions in August and hold auction sizes steady at that level through October. [It] will also boost the auction size of its next 2-year floating rate note issue by $1 billion.”

It may be that the growing Federal borrowing trend does not surprise any market observers. Yet it has “rekindled concerns” that the effects on the bond market will be substantial. The yield for the 10-year Treasury has again crossed the three percent once again. It means that bond prices will be falling and interest rates simultaneously going up as supply outpaces demand.

Chinese and Japanese Governments Dumping their U.S. Treasuries

The scary thing is that even as American debt float levels are growing alarmingly, the two largest international buyers of this same debt have turned their backs on it. The Chinese and Japanese have changed from buyers to net sellers and are dumping them now. Keep in mind these are the first and second largest U.S. debt holders.

Now the Federal Reserve is also dumping its own government’s bonds in an effort to restore its balance sheet to historically normal size. When the U.S. previously sold Treasuries at this radical pace, the Federal Reserve were net buyers. The Fed has been slowly unloading its $4.2 trillion sized massive treasury bonds (as well as mortgage-backed securities) that it purchased during the 2007-2009 Global Financial Crisis and Great Recession.

Now the Treasury will be able to lure in more buyers, but they will probably have to float them at higher interest rates than they would like. The problem is that higher interest rates now mean that the enormous pile of U.S. government debt financing will rise substantially. Already the price to service the debt pile has reached a decade old high. The current pace means that the cost to finance the yearly interest for U.S. debt will be as high as the yearly cost of the entire Social Security program in only 30 years or less. Higher interest rates will mean that practically every element of the U.S. (and world) economy will be massively affected.

This is because a great number of asset prices fall as interest rates increase. Not only does this cost corporations and companies more money to borrow, but it leads to their stock prices similarly falling. More ominously still, in the past half decade that saw interest rates near zero, American companies took advantage and borrowed huge amounts of money so that they could re-purchase their own stock shares. This magic money has now come to an end with rising interest rates. Now it is time to pay the piper.

Does GLD or Gold Better Protect You in Times of Runaway Debt Spending?

So now you know that you need to have some form of protection for your portfolio in the debt bomb that is ticking away for the U.S. Where can you turn to so that your retirement and investment portfolios do not get blown up in the impending crisis? To the historically proven safe haven that has never yet failed mankind throughout five thousand years of known and recorded history— Gold.

You need to know which kind of gold to buy though. Many big time investors swear by the Exchange Traded Fund GLD. There are pros and cons to this means of owning gold, starting with the fact that you do not actually own any gold. Rather, this vehicle was created to follow the price of gold. Some analysts will try to tell you that owning physical gold is a tedious and expensive way of acquiring the safe haven metal.

They neglect to tell you that there are ETF management fees involved with GLD. These add up quick at .40 percent per year. That may not sound like much, but multiply it out over five years, and now you are talking about serious money at 2.00 percent in fees. That exceeds the transacting costs for purchasing gold in bullion form from most reputable dealers.

Another issue is: will you be able to take delivery of the GLD if you need to? The simple answer is no. The fund rules do not allow for redemption. Even if it did, the gold they own is held in 400 ounce gold bars kept in an HSBC Bank vault found in London. Should you convince the management of GLD to somehow let you take gold, you would need a half million dollar stake in it to draw out a single gold bar. It is surprising and interesting to find out how many investors are under the misconception that they own some real gold by having their money in GLD shares. It is simply not true.

As for other differences between owning real gold and an ETF that holds gold, consider this graphic below:

Your Best, Last, and Only Historically Proven Line of Portfolio Defense is Physical Gold

A dramatic change in national interest rates is coming. The only question to answer now is this: Will you be prepared for higher interest rates and falling bond and stock market prices? Or will you lose sleep in fear, wishing you had known why you needed a Regal Gold IRA in the first place? Now is the time to seriously consider the rollover rules and regulations while you still have some time.

Will your portfolio weather the next financial crisis?

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