The following article by Peter Macfarlane appeared in this week’s Q Bytes, our free newsletter dedicated to international asset protection, offshore wealth creation, investing and private banking. We are republishing it here on the Q WEalth blog as we feel it is of general interest. If you would like to receive future editions of Q Bytes free of charge, be sure to sign up here.

Hardly a week seems to go by at the moment without Gold being a hot topic here at Q Wealth. But this last week has been an especially rough ride, with gold ‘pulling back’ quite substantially. Is this cause to start crying, or is it an opportunity to stock up on gold?

I thought this week I would briefly discuss some divergent opinions and strategies on gold, and propose a couple of solutions that I believe will put readers into profit.

A reader from California recently wrote me:

“Thank you, Mr. Macfarlane, for accepting my divergent opinion in good spirits….” he begins. Well, everyone is entitled to their opinion and as I always say, I may be wrong! I may be way off track. Maybe Bernanke and Obama will save the world shortly and we’ll all live happily ever after. I doubt it, but anyway I am one of the biggest believers in the world in free speech and liberty of expression.

May I add an additional comment related to gold ownership in ones portfolio?” continues our reader. “When the market price increases from one day to the next, the purveyors of gold advise purchasing the metal for its price is only heading higher. When the price declines from one day to the next, the decline is characterized as a ‘buying opportunity’. One thing is consistent among the purveyors of gold though, they never – repeat, never – issue a “_sell_” recommendation? It’s always buy, buy, buy.

And, least I forget, if one truly believes that the market price of gold is headed higher, why not purchase a gold futures on contract on the Chicago Mercantile Exchange? – which can be rolled over for a distant contract indefinitely. The CME affords the trader enormous leverage on such futures contracts, and there’s no applicable interest charge for the market price that exceed the initial “earnest money” deposit. And the traders’ earnest funds can be in the form of Treasury bills, which are segregated from the funds of the futures merchants account.

Well, I guess we are coming at this equation from polar opposite perspectives. This reader is clearly valuing his gold holdings in US dollars. I do the opposite – my base currency is gold, and dollars are a forex speculation for me, just like euros or yuan or Paraguayan guarani.

My reasoning behind this is that gold is the stronger currency, that has been around infinitely longer than the dollar. The dollar is ‘fiat’ money (see for example these earlier articles) that is created, figuratively speaking, by a printing press currently controlled by Bernanke and partners. The dollar can come and go, but gold won’t. The purchasing power of an ounce of gold has been pretty much constant for generations – whereas the same can certainly not be said for the dollar.

What is the dollar backed by?

One of the better arguments for the backing of the dollar that I’ve heard recently, is that it is backed by the work and entrepreneurialism of the American people. There’s some truth in that. Basically if they keep working hard and handing over the fruits of their labour to the government, there is something of value backing the dollar.

I’m just not sure that those hard-working American people really agreed to have their futures – and that of their sons and daughters and grandchildren – mortgaged in this way by a small subset of politicians and banksters. Maybe it was like the sub-prime mortgage borrowers who didn’t really understand what they were getting into. Cheap and plentiful short term money trumped long term prudence. And we all know how that ended up. Now we are just seeing a much expanded version of it.

I’m far from convinced that investing in the dollar is good business. If it were a case of supporting a stock of a company where the management were borrowing to the hilt for short term fun, while treating stakeholders reprehensibly and not giving a damn about the future, there would also be an ethical argument against getting involved. And I don’t see why governments should be treated any differently than companies. Abuse of the American people is not something I want to get involved in, any more than I would support abuse of cheap labour in Asian shoe factories.

Now I know this may be hard to swallow for people who have valued everything in one reference currency – be it dollars, or pounds or something else – for their entire lives. It is quite a leap of thinking. But it’s totally possible. You need to become a Sovereign Individual, not reliant on any particular country or currency. You need to think in different currencies and look at all currencies, including the one in common circulation in your home country, from the perspective of an outsider. If you were from another country, would you be investing in that currency right now?

Of course, I am not talking about day-to-day expenses. You certainly need some local currency on hand to buy the groceries. Multi-currency credit cards per se don’t exist, but you can easily, for example, obtain a regular credit card billed against a multi-currency bank account. You can sign charges in any currency you like, converting only what you need at that moment. You’ll find information on this, including how to open a foreign multi currency bank account in some of the world’s safest and best offshore banks, in the Practical Offshore Banking Guide 2010

The Dollar Bear Market Continutes

With that in perspective (that I value currencies against gold, not the other way around) let’s get back to the reader’s question. I don’t see so much of a gold bull market right now, as a dollar and euro bear market. My personal view (and there’s no substitute for taking professional advice here) is that this situation will continue as is for the foreseeable future.

Wild swings are caused by day to day speculations, but don’t affect the overall trend. So to turn it around, I believe the price of gold valued in fiat money will continue to rise, and will do so significantly. The more Quantitative Easing that takes place, the less the dollar will be worth. This is what I have written about in the past: stealth devaluation. If there’s more of something, it’s worth less. This logic is hard to argue with.

After all I’ve said above, you can probably figure that US Treasury Bills are the last thing in the world I would want to sink my money into. For me, that would be like buying bonds in a company that I know is about to go bankrupt. Unfortunately, as Ron Holland has explained in the report Are You Ready for the Coming Obama Retiement Trap (available in the Q Wealth Members’ Area) that is exactly what US retirement funds are being encouraged, even forced, to do. This is a seriously scary prospect.

As for buying contracts on the CME, well why not… I’m all in favour of speculation. There are lots of ways you can obtain leverage through brokerage accounts within the system. I keep a large portion of my personal wealth in physical gold, safely outside the financial system. I also keep a ‘play money’ account that I leverage to the hilt and buy financial contracts like this with. It’s doing rather well at the moment. But it’s money I know I might have to lose, for example if a sudden catastrophe hits and the financial markets are closed down. I would put the odds of something like that happening in the foreseeable future at perhaps 15% – 25%. Not a huge risk, but definitely not one I would bet my entire net worth on.

The fact that you can roll over CME contracts indefinitely is part of the problem, of course. It’s extremely likely that the counterparties would be completely unable to fulfill their obligations if everybody wanted to exercise their right to physical gold at once. The whole system relies on punters rolling over.

So, why I don’t like the idea of buying gold futures using T-bonds as earnest money? Because you are using one form of promise to buy another form of promise, when nobody – not even the people involved, I am sure, if you could talk to them and get a straight answer – would really earnestly claim that the promises are backed by anything of value. That is just unsustainable in my view. You might make short term paper profits, yes. Fine… I have nothing against speculation, just as I have nothing against casino gambling – but when I go to casinos I just enjoy the ambience, I don’t gamble.

If you want to use leverage to speculate on the price of gold, here’s what I would do. Get yourself a regular brokerage account that allows you to trade on margin. Get yourself a subscription to Casey’s International Speculator – they even have a 25% discount offer running at the moment. Casey’s International Speculator is one of the longest-running, most respected newsletter services of its kind anywhere, so it’s got a track record. It was founded by Doug Casey, self made international man.I have a subscription and consult it frequently. Then go speculate. That way you’re investing in companies that actually have intrinsic value, rather than pure promises.

At the end of the day, it’s big picture against small picture, short term against long term. We live in interesting times. Enjoy the rest of your weekend!

The $64,000 question now, is whether the powers that be can continue to play out the hard ball scenario to protect the dollar that we recently wrote about here: What they Don’t Want You to Know about the Euro Crisis. Whilst a reasonable analyst would conclude that they cannot – meaning that the US dollar is doomed long term – it’s looking like they can support it for a while yet. Germany, France, the UK and Switzerland are playing along.

Expect to see attacks on other currencies, particularly the yen. And, for the many readers whom I know like the Aussie dollar (AUD), I am none too confident in its future. I can tell you I wouldn’t put my money on a currency controlled by a government that just decided to kill the goose that lays the golden egg, by proposing a stiff extra tax on its mining industry.

• So you might want to keep short term funds in US dollars, always being aware that there will be ever more restrictions on what you can do with them. (In the wake of the HIRE Act, several countries, most notably Mexico, have introduced further restrictions on the use of US dollars in their banking systems)

• You definitely need a multi currency bank account, in a neutral private bank in a neutral country which is not likely to introduce exchange controls. A multi-currency account gives you flexibility to switch currencies quickly when the need arises, as it definitely will. You’ll find plenty more of information on some of the best offshore private banks within our Members Area. US citizens in particular should be aware that there are numerous signs of further restrictions on export of capital from the USA. So act now rather than later.

• You should keep substantial wealth in gold… physical gold bullion that is. Again, if you need independent advice on how to invest from people who know what they are talking about, Q Wealth is your source of information. Gold bullion is a non-reportable asset.

• And if your right to privacy is a concern to you – as it should be – hold all your assets through corporate entities like LLCs, corporations (IBCs), offshore trusts or foundations. There are good, inexpensive options out there that can keep your assets one step removed from you and anyone who wants to take them away from you, whilst allowing you to retain control, completely legally of course. Reporting requirements depend on your country of residence and citizenship.

• Finally, we live in turbulent times, and if you like what you read in Q Wealth, there is no substitute for coming to one of our live events. This will give you a chance to meet experts like Peter Macfarlane, Frank Suess, Richard Cawte and Thomas Bolther. For further details on upcoming events, visit our Offshore Events page.

Our next event will be in Ireland in late September. There is just time to get in on the early bird bonuses, enabling you to attend for well under $1000. For this event we are offering several different modules, depending on your level of existing knowledge, and the amount of wealth you manage. VIP Mastermind members receive a 50% discount on the event fees, so there’s another thing to consider.

What if you are not yet a member of Q Wealth? At just $87 for a year’s membership that gives you all these benefits, we think it is well worth your while join today. We will help you sort the wheat from the chaff by introducing you to the best offshore banks and international private bankers who can help you achieve your asset protection goals.

However, if you don’t have $87 to invest in a membership, there’s also a free option: try our five part Secrets of the Super Rich course absolutely free and without obligation.

Whatever you do, as the title of this article suggests, RIGHT NOW is the time to start protecting your assets internationally if you haven’t already done so. Don’t put it off!

A question that comes up frequently is why offshore account opening procedures require so much information. As an offshore banking consultant, I get to see the account opening processes of many different banks in different jurisdictions, and how widely they vary.

I can see both sides of the equation – the bank’s perspective, and the client’s… and my job is to act as intermediary and make sure both parties understand each other. I’ve become quite good at that over the years, if I say so myself.

So, how do you open an offshore bank account? You will typically need your passport, one or more bank reference letters, and proof of source of funds. More on the practical aspects of complying with these requirements in part 2 of this article that I will publish here on the Q Wealth blog next week. But first, let’s look at why all these questions are necessary…

I can fully understand that if clients are seeking privacy, they may not feel comfortable baring their financial souls to their bankers. But there are good reasons why banks need to collect so-called ‘Know Your Customer’ information. And there are steps you can take as a client to manage your banking and to protect the confidentiality of information you hand over.

• The first and foremost reason is because the law dictates it. In all reputable jurisdictions, banks are required to collect certain information. Failure to comply would have absolutely dire consequences that may include closure of the bank and/or prison for its managers. You are looking for security – and dealing with banks that are prepared to bend, break or flout laws is not the way you are going to find security. There are only a few places in the world left where you can still open accounts without ID and – trust me – you don’t want to be banking in those places!

• Secondly, banks also have to protect themselves and their reputations, in order to protect their honest clients. If they take on clients who bring heat to the bank, it is bad news for you. So you should really be happy to deal with a bank that is quite picky about the clients it takes on. For example, if it turns out later that you were involved in white collar crime like running a ponzi scheme or any kind of unlicensed offshore investment activity, the bank will almost certainly be on the receiving end of a lawsuit from people who lose money. Sometimes scammers are very good at hiding their activities, and they look like honest, respectable business people. If the bank has never met you before, they really need to check you out.

• Thirdly, many people compare offshore account opening procedures to opening an account in their home country. This should be obvious, but it’s not the same thing. One thing that might have escaped your attention, though, is the extent of Big Brother databases that exist in your home country. Banks will automatically run a credit report when you open an account, even if you are not applying for credit. They can check you out online. Offshore banks, however, cannot run online credit checks. To do so would leave an electronic footprint that would generally be a breach of confidentiality laws. That is why they have to ask new customers for a lot more paperwork. Of course, it’s more convenient for the customer that the bank can verify everything online and doesn’t have to ask the customer for so many documents. But such online checks completely nullify any expectation of privacy in the relationship.

• Finally, it’s just good business for banks to know their customers. If they know a bit about who they are and where you are coming from, they can give you better quality advice and they can respond more intelligently to your requests. They can be proactive in offering services you might need, that you might not even know existed. Having a good relationship with your private banker is absolutely beneficial. That banker will be more motivated to look after you. Try to be a ‘perfect client’ for the bank – that way, if for some reason you really need a special favour from the bank at some time in the future, you are much more likely to get it.

Banking secrecy, as I’ve often said, is far from dead, despite the propaganda that would have you believe otherwise. I even believe now that the tide has turned. Bank secrecy is a basic human right, and is more necessary than ever. What is rather passé is trying to use bank secrecy for illegal tax evasion, by holding undisclosed accounts. By taking good advice, choosing the right banks, using international asset protection structures, and carefully managing your residence and citizenship, always staying within the law, you can still keep your finances completely and utterly private. Nobody is saying it’s easy… but you can do it, and it’s worth it.

So, as one of my banker friends is fond of saying, if you unilaterally choose to waive some of the account opening requirements, you will just be causing delays for yourself. Clients who try to avoid complying with requirements will be viewed as suspicious right away. Then, trouble ahead is almost a self-fulfilling prophecy.

Bottom line? If privacy is a concern to you (and it should be) do your homework and choose a bank where you can be confident that your information will remain private. Do your due diligence on the bank first. You should only do business with people you feel 100% comfortable with, and this applies to banks and any other business relationships. Anything less than 100% and you won’t sleep soundly at night. The Practical Offshore Banking Guide 2010 can help you do this due diligence. Once a bank has passed your own due diligence smell test, then be prepared to give them the truth, the whole truth, and nothing but the truth.

Legendary Swiss market pundit Marc Faber recently advised a group of high flying investment managers to ‘buy farmland and gold,’ reports the Times of London.

Dr Marc Faber is an interesting and often controversial commentator. His greatest claim to fame is having advised investors to pull out of the stock market a week before the 1987 crash. Now his belief, he reportedly told an assembled group of pension and sovereign wealth fund members in Tokyo the US is going to go bankrupt. The best way to achieve international asset protection and diversification is to buy physical gold and farmland, he believes.

So who is Dr Marc Faber? Dr Faber moved to Hong Kong in 1973 and – although he still keeps an office there – he resides in Chiang Mai, Thailand, along with a number of our subscribers and friends. As well as having penned several books, Faber has his own monthly investment newsletter The Gloom Boom & Doom Report.  Faber has been long term bearish about the American economy for a number of years and continues to be so.

According to Wikipedia, he concluded his June 2008 newsletter with the following:

The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I’ve been doing my part.

The reporting in the Times also offers insight into Faber’s way of thinking:

His investment advice, which was the first keynote speech of CLSA’s annual investment forum in Tokyo, included a suggestion that fund managers buy houses in the countryside because it was more likely that violence, biological attack and other acts of a “dirty war” would happen in cities.

He also said that they should consider holding part of their wealth in the form of precious metals “because they can be carried”.

One London-based hedge fund manager described Mr Faber’s address as “excellent, chilling stuff: good at putting you off lunch, but not something I can tell clients asking me about quarterly returns at the end of March”.

Needless to say, we agree with Dr Faber’s predictions. We have been telling people for several years to get out of the financial system by buying physical gold, as well as diversifying with multi-currency offshore bank accounts.

We also recommend purchase of productive and useful real estate, as opposed to real estate held for speculation. Farmland in countries like Paraguay, Uruguay and Brazil, for example, has proven to be an excellent investment over the past few years, but will only show its true value in the future. Our planned Paraguay Citizenship and Real Estate Investment Tour has been delayed somewhat due to pressure of work, but we are still planning to go ahead with it, now probably in early May. Anyone interested in coming along is more than welcome to contact us.