Quantitative Easing (Federal Reserve buys US Treasuries, same as printing money) will make matters worse over time. Have you looked at the 30-year US Treasury Bond chart lately? It is a clear indication that investors are afraid of the massive debt burden and rampant inflation on its way. As bond yields rise, the inflationary pressures are weakening the US Dollar.
Many economists will argue we are in a deflationary period, however, inflation is rising along with interest rates. Our US national debt, approximately $11 trillion, must be financed somehow, and as interest rates rise, the cost to service this debt rises significantly. The US has little choice, it must print money and this will have a major impact on the dollar for years to come.
Many central banks throughout the world are also printing money at a rapid pace, to stimulate their economies. At some point, investors will lose all faith in paper money and will turn to gold as the “Preferred Currency”.
China is at the forefront, as it has already made arrangements to circumvent the US Dollar by making trade agreements directly with Brazil and several other countries. In addition, China has increased its gold holdings by 76%, buying gold not only in the open market, but also from central banks and the IMF. China gladly makes substantial gold purchases to replace its US dollars.
Russia questioned the future of the US Dollar at the St. Petersburg International Economic Forum last week and suggested an alternative. The IMF has proposed a new international “Super Currency”, the so-called “special drawing rights” or SDR could be used as the basis for this new currency. These SDRs would have to be delinked from other currencies and backed by something else, many speculate, it could be gold.
Hyperinflation occurs when a country prints an exurbanite amount of money. Throughout history, there has never been a country that has leveraged asset classes as much as the United States. We are the largest debtor nation in the world. This hyperinflation that will occur in the US will create a collapse in the US Dollar, faster than most economists can conceive and at some point, will tie gold to the dollar.
This period of time has created the largest influx of paper money in the history of the world and there has to be consequences. Most do not believe a “Super Currency” SDR as mentioned above will work for the mere fact that it has to be backed by something, other than paper. Gold is the logical choice.
The fundamentals of gold are strong and is considered extremely cheap in terms of inflation-adjusted dollars. Gold has outperformed the S&P 500 index by 500% so far this century. The US budget deficit to GDP is at the highest level since World War II. The political mentality is the more we stimulate, the better it should work, however, at what cost? At some point, printing all this money will have to be paid and the cost is Inflation, something every investor should protect against.
Gold is your insurance to preserve your wealth and purchasing power. Here are some facts:
The U.S. Dollar has topped
Commodities are moving higher
Deficits are triple digits and rising
Bonds are moving lower
Investors are losing confidence in paper assets
We look for gold to go to $1200, then $1600, then $3000, hopefully it will not go higher. The most important time period for a high in gold is between January of 2011 and June of 2012.
Gold trades just like a currency – you can bet on that.
Lannie Cohen, President
Capitol Commodity Services, Inc.
317-848-8050
800-876-8050
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