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
