Gold News
- Initial drill results drive gains for gold explorer | smallcapcenter March 10, 2010 Smallcapcenter
- Initial drill results drive gains for gold explorer | Pink Sheet ... March 10, 2010 admin
- Gold Retreats as Dollar Gains, Silver Rises Slightly March 9, 2010 Bullion Prices Staff
- Dollar Gains Hurt Gold Prices | Debate America Online March 9, 2010 kfallon
- Dollar's Gains Hit Gold Prices | USA News March 9, 2010 USA News
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Hyperinflation in the US – Just Around the Corner?
Published on October 23, 2009 · Filed under: Uncategorized; Tagged as: hyperinflation, national debt, national debt clock, us national debt, Weirmar GermanyComments
Is the US Government intentionally creating inflation? One French official thinks so. He also happens to be a top financial adviser to French President Nicolas Sarkozy. Henri Guaino essentially told reporters this week that the US is trying to get out of their debts by “flooding the world with liquidity.”If the government is planning to devalue the dollar (which, their actions suggest they are already doing), it is not something they will tell us in advance on the evening news.
Yet daily we are seeing more and more signs that the US is heading into a currency crisis. First the talks of China, Russia and oil countries plan to move away from the dollar to a basket of currencies, and now it looks like some Latin American countries are actually doing just that. Nine left-leaning nations – Dominica, Venezuela, Ecuador, Nicaragua, Honduras, Saint Vincent, Antigua, Bolivia and Barbuda – are officially switching their trading currency to the Sucre, which will be rolled out in 2010. This action echoes the European Union’s move to the Euro, and merely solidifies the worries most other nations have about the dollar’s strength. What could happen to the US in a currency crisis?
A Case Study in Hyperinflation: the Weimar Republic, Germany in the 1920s
After World War I, Germany was saddled with massive debts as the cease fire treaty signed held Germany responsible for the entire war. Kind of like when someone loses on Judge Judy and they have to pay the other person’s court fees. Then England issued the “London Ultimatum,” which totaled Germany’s debts at 269 billion gold marks (about $393.6 Billion 2005 US Dollars). It was estimated that it would take all the way until 1984 for Germany to pay off all that debt. And no foreign investors had any interest in buying German’s government bonds as the nation was a bit of pariah after the war. The only way they could pay the debt off was to print more money! In the first half of 1921, 60 German marks were worth 1 US Dollar. By November of that same year, 330 German marks were worth 1 US Dollar. Eventually, the inflationary index went from one to 726 billion. Need to buy a loaf of bread? Too bad, your entire life savings wouldn’t be able to cover it. Trying to leave the country and exchange your money for something else? Tough luck, it’s practically worthless. But you wouldn’t have had a problem trading gold for other currencies.
What is the US national debt right now? Check out the US National Debt Clock which gives the outstanding debt by the minute. As of this moment, the current debt is $11,900,391,120,818.06. The site points out that “the estimated population of the US is 307,154,816. So each citizen’s share of this debt is $38,743.95.”
Scary hyperinflation scenarios have happened to many nations. It’s even happened in the US a couple of times. Those who have been able to prepare have been able to ride out the storm. Gold can protect American from hyperinflation just as it protected citizens of Weirmar Germany in the 1920s, Mexicans in the 1990s, the Vietnamese in the 1970s, and millions of others who have been at the mercy of irresponsible government policies. As, Charles DeGaulle, another famous French leader once stated:
“Indeed, there can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence.”
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8 Reasons to Own Gold
Published on October 3, 2009 · Filed under: Economy, Gold, Gold Coins; Tagged as: dollar weak, hyperinflation, inflation, weak dollarComments
Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of Lydia about 300 years later. Throughout the centuries, people have continued to hold gold for various reasons. Below are eight reasons to own gold today.1. A History of Holding Its Value
Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.2. Weakness of the U.S. Dollar
Although the U.S. dollar is one of the world’s most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices. The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008. The decline in the U.S. dollar occurred for a number of reasons, including the country’s large budget and trade deficits and a large increase in the money supply.3. Inflation
Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Since World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979 and 1980 (as of 2008). During those five years, the average real return on the Dow Jones Industrial Average was -12.33%, compared to 130.4% for gold.
4. Deflation
Deflation, a period in which prices contract, business activity slows and the economy is burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s. During that time, the relative purchasing power of gold soared while other prices dropped sharply.
5. Geopolitical Uncertainty
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the “crisis commodity”, because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some of their largest recent movements during periods of tension with Iran and Iraq in 2007 and 2008. Its price often rises the most when confidence in governments is low.
6. Supply Constraints
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008.
At the same time, production of new gold from mines has been on the decline since 2000. According to BullionVault.com, annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices.
7. Increasing Demand
Increased wealth of emerging market economies has boosted demand for gold. In many of these countries, gold is intertwined into the culture. India is one of the largest gold-consuming nations in the world, and gold has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold. In China, where gold bars are a traditional form of saving, the demand for gold has also shown rapid growth.
Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, the largest gold ETF, StreetTracks Gold Trust (PSE:GLD), became one of the largest ETFs in the U.S. and one of the world’s largest holders of gold bullion in 2008, only four years after its inception.
8. Portfolio Diversification
The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
- The 1970s was great for gold, but terrible for stocks.
- The 1980s and 1990s were wonderful for stocks, but horrible for gold.
- As of 2008, this decade has been a good one for gold, and an unfavorable one for stocks.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
Conclusion
Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, gold has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering. -
Where is the Dollar Heading
Published on October 1, 2009 · Filed under: Economy, Gold; Tagged as: dollar, hyperinflation, inflation, u.s. dollarCommentsFresh off my post on where gold is heading I’d like to write a post on the very correlated… dollar. That’s right, the U.S. Dollar.
Where is the dollar heading?
Great question. But, why do you care. You need to care because if the dollar’s value declines, prices correspondingly go up. The dollar’s value is inflation/deflation. You see, inflation is typically thought of as a seperate entity, one of the two demon’s of an economy. Inflation as stated in Wikipedia is:
a rise in the general level of prices of goods and services in an economy over a period of time
But, what this doesn’t tell you is that inflation is ACTUALLY, very simply, a decline in the purchasing power of a dollar. The rise in prices is simply a symptom. The cause, the disease, is a weakening currency, a weakening dollar. Put another way, if you used to be able to purchase a cup of coffee for $1 and the dollar’s value drops by half, you now need $2 to buy that same cup of coffee. In extreme cases, where the value of currency drops drastically, and to insanely low levels, it may take tens of thousands of dollars to purchase that same cup of coffee (hyperinflation).
It is very hard to say where the dollar is heading. But one thing is clear, the bubble is bursting (that’s right it’s not over – read the following bullets for more information), and so we’re still resetting or rebooting. This means more pain. So, the dollar’s value will be based on two things:
- How quickly we feel the (negative) effects of the recovery packages (and other moneys pumped into the economy)
- How the government, the fed, and banks react to the second wave of bursting
The Negative effects of the recovery package – As Peter Schiff eloquently put it… bursts aren’t the problem. The bubbles are. The bursting of bubbles are simply systemic resets of money and assets occurring shortly after a hysterical wave of erratic, soundless investing. The list of problems in ONLY the real estate market is very long. We were buying homes we couldn’t afford, that were being over-valued by the system, funded by companies that didn’t watch fundamentals because the loans were repackaged and resold. And to top it all off, it was all based on the “fact” that real estate NEVER WENT DOWN. A bubble that lasted a couple of years, peaking around early 2005. Regardless of what happened, the truth is our response was to through gobs of money into the system, to save banks, to save consumers, tax credits, cash for clunkers, etc. all in the hopes of “restarting a failing economy.” Unfortunately this has just increased the money supply, diluting the value of the dollar. It’s affects are starting to creep in.
Since May we’ve seen an overall drop of nearly 15% of the value of the dollar, meaning that your dollar now purchases 15% LESS than it used to.
Reactions to Continually Declining Economy - The rate of recession has admittedly slowed – for now, but for reasons listed it may continue to go down. If this happens will we infuse another large sum of cash into the economy? Trying to print our way out? Or will we hold steady on the amount of money in the economy and eventually balloon interest rates in order to pay off our debts to other countries? The latter will be more painful in the beginning, but it may just save our country.
In 1980 when Reagan came into office, the dollar had just lost 2/3 of it’s value. They were able to rebound from this by putting short term interest rates up to 20%! That number is crazy. If we raise rates to that rate, how many people will be unable to afford their mortgages or credit cards? Odds are that won’t happen, and unfortunately that means a declining dollar.
Speaking of all of this, I highly recommend you check out the following video. Peter Schiff presents his argument on where the economy and mortgages were heading (back in 2006) and nails it right on the head – before any of this stuff started happening! At around 50:00 minutes (it’s a little long) he describes what will happen to the dollar and how to fix it. But do we really want it fixed?