Gold Hard Money Wins Out!
Commodities / Gold & Silver 2009 Nov 17, 2009 - 08:43 AMBy: Larry_Edelson
They called it “a relic of the past.” They described its last major bull market surge as an “anomaly.” They said it was a dinosaur of an investment, never to return to the arena of modern finance.
Even The Wall Street Journal recently said it’s an investment that pays no interest or dividends and implied that owning it was as good as having a lump of coal in your backyard.
They were all talking about gold. Including The Wall Street Journal’s inane comments of just a few weeks ago.
And they were — and are, and will be — all dead wrong. Because just over a week ago, on November 8, at precisely 2:30 P.M. Eastern Time, an event took place that even the most skeptical of investors cannot — and must not — ignore:
The December Contract for Gold Closed above the $1,100 Level For the First Time Ever.
A few days later it soared to as high as $1,122.50. And now, within a time frame that could come a lot sooner than anyone now dreams possible, the yellow metal could surpass $1,500.
Suddenly and inexplicably, the skeptics are gone. Suddenly, everyone is starting to talk about gold again.
Only this time, they’re believers. This time, they’re not calling it gold; they’re calling it “hard money.”
This time, they say, is different from past gold rallies.
And this time, on that score, they’re right — this rally in gold has a different face.
It’s much stronger … and more enduring. And this time it will continue much higher. My forecast: Expect a rise of at least another $1,200 higher — to more than $2,300 per ounce!
Why am I so confident? Because the Fed remains so committed to printing money ad infinitum … to devaluing the dollar … to inflating away the country’s debt problems … and reinflating assets as if there’s no tomorrow.
The Reasons for Gold’s Explosive Rally Are Not All That Different From The Forces behind Its Past Rallies.
They’re Just 100s of Times More Powerful!
For the last 5,000 years, gold has been propelled higher by many of the same causes. Today, the reasons are …
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1. Paper money is being systematically devalued by central bankers and politicians, especially in the U.S.
2. The private sector and investors are losing confidence in governments all over the world.
3. Geopolitical strife is more prevalent than it has been in the last 30 years.
4. The wild, out-of-control spending and debt accumulating that’s ingrained in today’s culture, especially in the U.S.
5. A massive explosion in income growth in other parts of the world. In the 19th and 20th century, that was the industrialization of Europe and the U.S. In the 21st century, it’s the same industrialization, but of Asia, and nearly 60% of the world’s population — and where more than 80 million new middle-class families are being born each and every year!
But one of the keys to understanding gold today — and indeed, virtually all natural resources — is to understand how the public has gotten burned by paper in the past. So let’s take a walk into just the recent past and look at some recent examples …
The Time: The Middle of 1998 The Places: Thailand and the former Soviet Republic
Strange bedfellows you might think. But not really. Moscow was reeling under an estimated $150 billion worth of publicly issued IOUs, debt they had accumulated when the Berlin Wall fell and the former Soviet Republic turned into a splintered group of free-market Russian states.
The debt, mostly issued with the intent of building infrastructure for the new Russia, was for the good of the country’s new 146 million capitalists.
However, corruption at so many levels in the government resulted in waste and bureaucratic nightmares. Projects either never got off the ground or ended up lining the pockets of the oligarchs who effectively printed their own money with assets previously owned by the state.
End result: The sovereign debts of the new Russia quickly went bad, and for the next five years Russia collapsed into turmoil.
Though almost a world away, it wasn’t much different in Thailand. The country’s economy was cooking in the earlier part of the 1990s. Gross domestic product was jumping at an average rate of 9% a year.
So the country borrowed money, lots of it, to expand even more. Public officials and those quickly getting wealthy in Bangkok were all thinking the same way.
In fact, so much money came into Thailand that the Thai baht was strengthening quickly in local markets. Yet it remained tied to the dollar, which at the time was also rising in value. So with a currency too strong, the economy suddenly became uncompetitive in the region.
Billions of dollars borrowed and bet on the future were suddenly at risk. The economy continued to slow to such a point that there was only one option for authorities and regulators: Bust the Thai baht loose from the dollar and let it float freely on foreign exchange markets.
Give the system some flexibility and let market forces take over.
It was good thinking and the only choice the authorities really had at the time. But what they didn’t realize is that confidence in the government had already been lost. Investors felt insecure about debt issued by the government.
End result: The baht collapsed, soaring from 28 to the dollar to 58 overnight. Capital stampeded out of Thailand like there was no tomorrow. The economy collapsed, shrinking almost 50% in no time at all. Bonds and other debt offerings went bust. And the International Monetary Fund had to step in and bail out the country.
Moscow and Bangkok … strange bedfellows no doubt … totally unrelated at first glance. But in both cases, simmering below the surface, were excessive debt levels going bad. Paper assets went up in smoke. And investors got burned. Big time.
Another example from just a few years ago …
The Time: 2000 The Place: New York
The Nasdaq hit 5,132 in March 2000, up 1,489% from its low of 322.93 in October 1990. Dotcoms were everywhere, all the rage. Investors couldn’t care less about brick and mortar companies with real assets, with real three-dimensional products for sale.
All they wanted to know was how many eyeballs are looking at a web page at any given moment. All they wanted to know was how many clicks a link on a website got. And all they wanted to know was the latest dollar figure being assigned to such numbers. They multiplied them out and got the stock price. Forecasts kept getting raised and share prices kept going up.
But suddenly reality set in and investors took a breather. They thought about what they were doing. They woke up and smelled the coffee, prodded no doubt by disasters such as Enron and WorldCom. They started to ask themselves what the heck they were really buying.
And voila! The assets suddenly collapsed virtually overnight, in the worst stock market crash since the Great Depression. Paper, in the form of stock certificates, crumbled in value.
Now, fast-forward to today …
The Time: 2009 The Place: All over the U.S.
The problem: Subprime mortgages … prime mortgages … bad real estate … corporate debt to the tune of $7 trillion … Federal debt to the tune of $125 TRILLION.
It’s not so much that real estate prices collapsed under the sheer weight of the debt. Believe it or not, that was only the trigger and prelude to a much deeper debt crisis that is now beginning to emerge.
And it’s not so much that we have to compete with Chinese products when it comes to manufacturing and exporting our own goods. Or with Japan. Or Vietnam.
It’s not any one single cause that has led the U.S. to where it stands today.
It’s a series of blunders made by all of us … from Washington to Main Street. And it’s created a debt pyramid that is now the largest that civilization has ever witnessed … and, it’s crumbling before our very eyes.
Is it any wonder that the U.S. dollar, once the most respected currency in the world, has been losing its value virtually non-stop?
Is it any wonder that December gold has now pierced the $1,100 barrier?
Is it any wonder that gold is now being rediscovered as the hard currency it has always been?
Is it any wonder that virtually all natural resources under the sun are acting like tangible assets should … rising as the dollar crumbles … and as investors start to shun paper assets?
I don’t think so. Not in the least.
Remember, virtually all natural resources are in strictly limited supplies … under intense demand pressures … and they are real assets — hard money that almost always act as hedges in an environment where paper money is becoming worth less and less.
So I suggest staying the course with the natural resources you’ve been reading about here in Uncommon Wisdom. They are real assets … real, tangible goods … creating REAL WEALTH for you!
Best wishes,
Larry
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