Gold is the best hedge against a falling Dollar.
The world’s premier monetary and chaos hedging asset is gold. In times of economic and financial turmoil it gives a direct response, also to geopolitical tension, war time and to virtually any global uncertainty.
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.
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 1-2trillion 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 is 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 rate 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 by the same amount of goods or services than in 1971 and now since 2001, the US Dollar has dropped 32% and gold has risen 173% which is roughly 29% every year.
Source is internet
