Gold is a viable substitute currency in the world today! That´s all there is to it, when the value of paper currencies are worth less, then gold dramatically increases in value. And right now currencies across the developed world are in fact becoming worth less and less because of their deficit issues and the amount of money that is being printed in order to try to support their economies. This of course is eroding the value of fiat currencies, and now we are seeing gold become a more attractive option, hence the rising prices. I know it sounds simplistic, but just as I tell my clients, there is no need to suffer paralysis by analysis, just view gold as an alternate currency, and remember, when the value of paper currencies fall, alternate currencies rise.
Right now, Europe is suffering a crisis of debt and it´s only a matter of time before the focus shifts to England, Japan, and eventually the U.S. Along with a host of many other countries, virtually every nation in Europe has racked up tremendous debt. The way each of these countries could keep accumulating this debt was by having other investors, governments, and banks invest in their bonds. If these entities continued buying their bonds (which is essentially a loan) then they would continue spending like crazy. One thing that this housing/banking crisis did was that it seriously damaged each one of these country's abilities to generate tax revenues. When this happened those entities that were funding each of these countries spending binges started to rethink whether or not these countries would have the means for repayment and when that began, these bond holders began to sell their bonds, but at a loss. Remember, when there are more sellers than buyers in the bond market, rates go up, and when there are more buyers than sellers, rates go down. Considering that the selling was at panic levels, interest rates soared in these countries, and when interest rates go up it makes it that much more difficult for these countries to repay their debt, hence the downgrades from the ratings agencies in these countries. The reality is that the aforementioned countries will probably never be able to repay their debts, and they will either default at some point in the future, or the (ECB) will print more money to support these countries. As a condition from the (ECB) and European Union to aid in support to these countries, they have to make very painful cuts in their spending to receive this money, which signifies that wages will fall, people are losing jobs, and pensions are being reduced, which is why you are seeing all these Unions riot as in the images we saw coming from Greece. So therefore you can pretty much bank on Europe going through a protracted downturn for quite some time, and it´s not just these countries that are making cuts, but all of Europe is following suit and this will negatively affect the Euro for quite some time.
Of course this is causing the value of the EURO to go down, and by default the dollar to go up because after all the Dollar is still the Reserve currency in the world and just as I tell my clients, the Dollar is basically the prettiest house in ghetto, so there is a lot of money flowing back to the States. But all of the preceding demonstrates the strength of gold and even though the value of the dollar itself has been strengthening; the value of gold is strengthening even more. Why? It isn´t just gold vs. the dollar, but more so gold vs. paper currencies, and at the present time the world's paper currencies are becoming debased, and you can pretty much expect this to happen for a protracted period of time.
Right now the focus is on Europe, and again, it´s only a matter of time before Japan, England, and the U.S. go through their debt crisis. The U.S has a $13 Trillion national debt and is expected to grow by another $10 Trillion over the next 10 years, projected by our own experts in the W.H. This is unsustainable, according to the best and brightest experts in the field who are warning of our own oncoming debt crisis, and once the bond vigilantes (bond investors) deem U.S treasury bonds too risky to hold, then our rates will soar, and our dollar will free fall. If you think gold is moving high now, just wait around a while and you will be really be surprised!
I advise investors to allocate a portion of their reserves into an asset which almost certainly will not lose its value, and that is precious metals, and I urge you to do it soon. You do not want to wait to make your investment until after the focus of our National Debt shifts from Europe across the ocean to our shores. There are many ways to invest in gold but I believe that the best way is to invest in physical gold.
GOLD-OBSERVER.COM
Matthew Goldfuss
The bond vigilantes have called interest rates higher …. and currency traders have called the Euro lower in response to the Federal Reserve’s QE 2.
ReplyDeleteThe “bond vigilantes” took action on October 7, 2010 and called the Interest Rate on the 30 Year US Government Bond, $TYX, higher, resulting in the 10 to 20 Year Govenment Bonds TLT falling lower.
It was later on the October 15, that the” currency vigilantes” came to the market, and called the Euro, FXE, lower, in response to increasing concern over the Death’s Star Debt Monetization.
The 10-22-2010 chart of the Euro, FXE, shows a broadening top pattern with close at 138.78, down from its October 14, 2010 high of 140.22. It’s like Street Authority communicates: When you see the broadening top, the market will eventually drop.
QE II is Debt Monetization and that is destructive to stock wealth.
Yahoo Finance shows the EUR/JPY traded up slightly to 113.38.
I provide the chart of FXE:FXY trading up to fisish in a black lollipop hanging man candlestick. One can see the red lollipop hanging man candlestick on October 6, 2010 at 116; this was the euro yen carry trade setting up to move the Euro lower on October 7, 2010.
It was an unwinding euro yen carry trade that moved the European Shares, VGK, lower on October 15, 2010 form 51.59 to 51.35.
Neoliberal economist Milton Friedman introduced floating currencies. The era of profiting from borrowing at 0% interest from the Bank of Japan, and investing long in carry trades, started to be over April 26, 2010 with the onset of the European Sovereign debt crisis. October 6, and October 15, are simply nails in the coffin of a previous prosperous age. We have entered into an age of austerity and hardship.
Setyo Wibowo, of the Forex Instructor, relates: ”The EURJPY attempted to push higher yesterday, topped at 113.92 but found resistance at the upper line of the bearish channel as you can see on my h4 chart below and closed lower at 113.05″. The ActionForex.com report reads bearish at 113.27: “EUR/JPY’s recovery was limited at 113.92 and weakened again. Intraday bias is turned neutral for the moment. Fall from 115.56 is viewed as a correction in the larger rally from 105.42 only and hence, even in case of another fall, we’d expect downside to be contained by 111.44 support and bring rally resumption.”
Of significant note, this week’s Yahoo Finance value of the EURJPY 113.92 is less than the Yahoo Finance Value of 114.40 of 10-15-2010 suggesting that the currency traders are selling the euro yen carry trade in response to higher sovereign interest rate on the US 30 Year Government bond and falling 30 Year US government bond values and falling 10 to 20 Year US Government Values, TLT.
The primary reason the US Federal Reserve is coming out with QE 2 is to sustain the value of the US Government Notes, SHY, and the value of the shorter duration US Government Bonds, IEF. And so far, its efforts have seen success as the Interest Rate On The 2 Year US Government Note, $UST2Y, has fallen to 0.35%.
The Fed’s QE, communicated through Fed Governors, and through Pacific Investment Management Company, and presented in summary form by EconomicPolicy Journal, has maintained the value of Pimco’s Mint, MINT, Mortgage Backed Bonds, MBB, the Intermediate Bond Funds, GSUAX, and Annaly Capital Management, NLY, as well as distressed investments, FAGIX.
Note the contrast seen in the chart of the longer out US Government Debt, TLT, and its October 7, 2010 fall.
Theyenguy says: “The US Federal Reserve and the currency traders have scorched the Investment Skies, welcome to the Investment Desert Of The Real, we ain’t living in Kansas no more, we are living in a new Investment Matrix, and I hope you interpret the code correctly, and invest in gold, its one’s only protection one has in a debt deflationary bear market.”