They knew economic freedom was in tangible assets

Written by Andrew Henderson
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Reporting from: Kuala Lumpur, Malaysia

It wasn’t until only 160 years ago that this capital city of Malaysia was founded. Unlike many cities in the region, it was only a muddy estuary – the source of its name in Malay – until tin was discovered here in the 1850s.

The city went through quite a number of struggles. Frontier justice was the norm. Conditions in the tropical climate were difficult. The city practically burned to the ground at one point. If it weren’t for tin, the place would have never taken off.

A lot of things have changed since then, but one thing has remained the same: people appreciate the real value that tangible assets bring. And they realize the intrinsic value.

Take the Australian dollar. A commodity-rich nation, the Aussies have been riding the boom here in Asia by supplying much-needed commodities to China. Gold and other resources have helped drive the Australian dollar as high as US$1.08 against its US counterpart.

The Australian dollar is perhaps the world’s best yield currency. Banks in Australia are paying as much as 5% on deposits. It’s tougher to open an account there, but you can get slightly lower returns on Aussie dollar deposits at banks in Hong Kong or Singapore.

I spoke to a few of my contacts with expertise in currency matters over the weekend, and while they concede the current level of about US$1.03 may be a bit rich, they believe the roller coaster ride the Australian dollar has historically been on may likely have come to an end. They see a long-term support level for the currency at parity with the US dollar or slightly below.

But they agree on one thing: commodities will become more important in currency in the future. And the US Federal Reserve churning out Federal Reserve Notes with more and more quantitative easing can only help those with something tangible behind them.

Sure, the US has resources of its own, but it has been hesitant to exploit many of them. Oil, for example, is a rich commodity on US lands and waters, but has been shut down. Only projects on private lands like in North Dakota are moving forward. Somehow, the government doesn’t get it. They want to ride the fiat currency train all the way to the end of the station with nothing behind them.

What’s interesting about much of Asia, as well, is the unadulterated love of gold. Walk around town here in Kuala Lumpur and you’ll see banks fighting with each other to offer gold-denominated bank accounts. This is a trend I’ve spoken about before: even countries like Mongolia offer gold-denominated bank accounts, where instead of a fiat currency balance, you hold your account in precious metals.

Because Asians are ga-ga for gold. Just like the Chinese love real estate, they and much of the rest of the continent love gold. Why? Because they can put their hands on it. They can see it, feel it. They know all too well how far trusting your government will get you.

The history of Kuala Lumpur and so many other number throughout the world can teach us an important lesson today. At the end of the day, people want something of real value, not just a promise to pay them later.

I’m working with a banker here in Malaysia to offer information about gold-denominated accounts or other types of accounts to foreigners. Malaysia is opening up economically but typically doesn’t open bank accounts for non-resident foreigners. I’ll let you know what I find. As always, none of this is specific financial advice and you should always do your own research.

Andrew Henderson
Last updated: Dec 30, 2019 at 1:08PM

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