Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold to Benefit from Inevitable More Bailouts

Commodities / Gold and Silver 2010 Feb 07, 2010 - 07:19 PM GMT

By: Adam_Brochert

Commodities

Best Financial Markets Analysis ArticlePublic and private debt will be printed up out of thin air and used to replace the bad private and public debt plaguing the financial world. As the insanity progresses, more and more will turn to Gold. Whether we are headed for an implosion that is deflationary, inflationary, or both, confidence in our current financial system will become mortally wounded. This is why the Dow to Gold ratio will reach 2 and may even go below 1 this cycle. It's a confidence cycle as well as an economic cycle.


More bailouts are coming. More private debt will be switched to sovereign/public debt. If sovereigns can't take on more debt, which they obviously and unfortunately can, then super-sovereigns like the IMF and European Union central bank will mint new debt and pile more debt on top of old. This will continue ad nauseam with several blips along the way.

Because currency devaluations are difficult to achieve for governments that are all fighting to debase against each other, Gold will be the relief valve. Currencies will be devalued relative to Gold. In the 1930s, to fight the deflationary economic collapse brought on by a popped debt bubble, countries just left the Gold standard. The U.S. devalued its Gold standard into a watered-down, quasi-Gold standard and thus became the least ugly currency since it didn't entirely abandon Gold.

In the current ridiculous anchorless paper system, devaluations against Gold are a little less obvious because there are no longer any Gold standard promises to break. But without a doubt, further devaluations of paper debt tickets relative to Gold will continue as they have over the past 9 years. Governments will become a friend of Gold. It may seem hard to believe for Gold bulls, but central banks becoming net buyers of Gold over this past year is only the first step.

Ben Bernanke is a student of the last economic depression and has seen with his own eyes the inflationary jolt a currency devaluation against Gold can have. Gold no longer needs to be confiscated to be re-valued, since the sheeple have bought into the paper fiat world hook, line and sinker. Simply swap out paper Gold tickets (i.e. futures contracts, the GLD ETF, Gold certificates from pooled accounts) for debt tickets (i.e. paper currency units) and pay the paper Gold ticket holders a premium so they feel good about the deal because they make a profit. Now that you are done shorting Gold and silver and you hold a large position in actual physical metal, talk the precious metals up every day on CNBC and whip the herd into a frenzy. Never mind those kooky Gold and silver bugs that actually hold physical metal in the U.S., as they are too small a percentage of the population to worry about and they tend to be heavily armed.

Think about fiat masters buying instead of selling Gold. They are sending a not-so-subtle signal that the number of debt tickets (i.e. currency units) required to purchase Gold is going to go higher. This is not a one-time phenomenon. The Chinese, who seem to be able to muster a longer-term view than many other advanced economies, are encouraging their citizens to buy Gold and silver. This is unprecedented in a "modern" paper fiat world where Gold is ridiculed and denigrated on a continuous basis.

But Gold won't seem so ridiculous if desperate inflationary policies fail to take root and the next leg of the financial asset price decline gets into gear. For inflation benefits the bankers as long as it doesn't morph into a hyperinflation. Deflation is a scary beast for bankstaz, so they fight it tooth and nail with the only tool they have: more money/debt creation. What benefits the bankers will become policy, as governments and the majority of people who vote for them are more than happy to take on more sovereign debt. Since governments have no intention of ever paying the money back, why can't they just keep borrowing more and more despite the detrimental effect this will have? Of course, there is a mathematical limit in theory to what can be done, but I think we're going to test those limits this cycle.

A rising Gold price has been traditionally seen as a threat to the credibility of the current U.S. Dollar regime. But when inflation is desperately needed by those seeking to maintain nominal asset prices and/or their elected offices, Gold will become a friend. And even if it does not become a friend to those with their dirty little fingers reaching for the magic debt printing presses, Gold will become a safe haven of choice for an increasing percentage of the global herd. It doesn't take a genius to recognize an economic and monetary train gone off the tracks. Several thousand years of accumulated human experience and Gold wisdom won't be cast aside based on a 40 year global fiat experiment. Money has not evolved more over the past 200 years than humans have, trust me.

I am looking for an increasing number of highly publicized large Gold purchases by various central banks. For this is the stage when beggar-thy-neighbor policies will fail, the currency fluctuations will get more violent, and Gold will be seen as an ideal solution to achieve massive currency devaluation and stave off the deflationary debt collapse from completing. Whether it works or not remains to be seen, but Gold will enjoy large gains from current levels because of these pending "solutions" and the loss of confidence that will accompany them. This is not a happy message, but it can be a prosperous one if you are prepared.

As strange as it seems, the world's central bank pushers and their junkie government customers are going to become big Gold bulls before this mess is over. The following 1 year chart of the Greek stock market is a reminder of how fast the tide can turn in the current environment:


If you think the S&P 500 can't do the same thing, you are living in a fantasy world. Gold will not collapse. Gold didn't collapse in the Great Panic of 2008 (correction, yes, collapse no) and was back at $1000/ounce by February '09, at a time when stocks were in free-fall mode. This relative strength is but a taste of what's to come. Until the Dow to Gold ratio hits 2 or less, general stocks will continue to be a lousy investment. Buying Gold now while it is in a bottoming process is a way to play it safe and ride out the storm. Our first lost decade in stocks almost over. Don't get caught in the second lost decade that is dead ahead with a "buy and hold" general stock strategy.

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2010 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014