The world's premier monetary and chaos hedging asset is
gold. In times of economic and financial turmoil, to
geopolitical tension, war time and to virtually any global
uncertainty it gives a direct response. Gold is heading
much higher in the future because there is too much
spending in the US and globally, to much money is being
printed by the banks and the Federal Reserve, other factors
are rising global inflation and a very weak US Dollar,
International tension such as in the Middle East and the
explosive growth of China's and India's economy too has a
direct effect.
If you watch the markets then you will see that gold,
silver, oil, commodities and other tangible assets tend to
rise together, they're contra-cyclical to paper financial
assets for 2/3 of a cycle. When stocks are doing well, then
gold prices don't move and when stocks are flat to negative
on their rate of return in other asset classes, gold
performs very well. People tend to step back from other
financial assets and say, until the risk reward
relationship is fair and even, I'd rather protect than
speculate. That's why, for 2/3 of the business cycle it is
contra-cyclical.
In the past six years, gold has risen roughly 158%, silver,
a bit stronger, has risen roughly 246%, Gold stocks 300%
while the Dollar has dropped roughly 32%. The Dollar today
is worth roughly 1cent in comparison to the Dollar of 1870,
2cents to the Dollar of 1919 and the Lion's share of the
Dollar decline has been since the 1970's when the
relationship between gold and the Dollar was unhinged.
There has been a long term decline of the Dollar since the
birth of the Federal Reserve in 1913, ending over 100 years
of Dollar price stability. The US is now running a total
annual budget and trade deficits exceeding $1.5trillion
Dollars and the Federal Reserve is creating annually 1-2
trillion Dollar liquidity out of thin air which has a
phenomenal effect on things like the DOW JONES INDUSTRIAL
AVERAGE, the DOWN JONES TRANSPORTATION AVERAGE and the DOW
JONES UTILITY AVERAGE which have all been moving well
since 2001 -2002 but if you divide their price performance
by the price of gold, which is in my opinion real money,
you have declining trends in all three averages of the DOW
JONES.
So here we have it, US debt has grown 5.5 times, roughly,
since 1980 from $8 trillion to $44 trillion which is the
biggest debt explosion in world history.
How do we deal with this massive debt? One way is to raise
taxes so it can be paid off. WE have seen that before and
we will see it in the years to come. They can print money
as in Weimar Republic Germany after World War II. They
could sell off by privatizing National assets such as
telecommunications, transport, water systems or real
estate. They could repudiate debt as Russia did in 1917
with $110 billion. Finally, they could simply resort to
plunder by launching wars to acquire wealth such as the
Roman Empire did, the Spanish Empire did, the Nazis did and
the Japanese.
Large Dollar holders are now beginning to exit the Dollar
since the latest decline. The Dollar became the world's
reserve currency in 1944, everything had to be related to
Dollars, most international transactions were denominated
by the US Dollar for the next 62 years giving America huge
financial power economically and politically. The United
Arab Emirates announced that it would cut its Dollar
holding in half in October 2006 and Japanese life insurers
with $1.6 trillion in managed assets announced they were to
diversify out of their Dollar holdings. Central banks all
across Asia (South Korea, China, Japan, Taiwan and Hong
Kong) have all started to diversify out of Dollars. China
with $1trillion in foreign currency reserves has begun to
diversify out of its $700billion and to cut back on its
purchases of U.S. Treasuries. Russia too has cut its Dollar
holdings from 70% to 40%; Italy cut its dollar reserves by
21%, Sweden from 37% to 20%. China is pushing the world to
rely less upon the Dollar for world trade.
If foreign banks holding roughly $2.94trillion of U.S.
Dollars were to diversify even 10% of their assets, you'd
see $294 billion dumped into the market. 20%
diversification would make $588 billion thrown out there
which has a very negative effect on the Dollars value and
of course interest rates would rise.
Foreign commercial institutions like insurance companies,
banks, hedge and pension funds hold between $7-8 trillion
in U.S. Dollars. Again any diversification away from the
Dollar will have the same effect of rising interest rates
and inflation through the roof. The Euro is now taking the
place of the Dollar, many of the world's oil transactions
have begun to be made in Euros. In mid 2006, the IMF
director for the Middle East and Central Asia urged Persian
Gulf countries to peg their currencies to the Euro instead
of the Dollar. There is now more Euros' in circulation
worldwide in currency and bonds than Dollars and so the
Euro is now big enough to become the new world reserve
currency. Foreign Dollar holders are now switching to
Euros, British pounds, Swiss Francs and other strong
currencies, into gold and other commodities such as oil and
minerals.
So as the Dollar collapses, gold has risen. They tend to
move in the opposite direction if they aren't attached.
Over the last 36years, the US Dollar has declined 80%,
while gold has risen 1900%. Today it takes five times more
of the Dollar to buy the same amount of goods or services
than in 1971.
We can conclude here that gold is a perfect hedge against
the depreciating dollar.
----------------------------------------------------
In these time of a failing Dollar, reaching to something
solid like gold, silver or platinum is a great way to
secure your future. Visit my website at
http://www.wheretobuy-gold.com for resources and
information. Also my new blog which is at
http://howtobuy-gold.blogspot.com/
Thank you for your time!
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