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Catching a Falling Financial Knife

Silver And The Shift To Measuring Wealth In Ounces Instead Of Dollars

Commodities / Gold and Silver 2012 Feb 02, 2012 - 11:17 AM GMT

By: Hubert_Moolman

Commodities

Best Financial Markets Analysis ArticleThe debt-based monetary system creates an illusion of wealth. It allows for claims on real goods to significantly exceed the actual amount of real goods. You then have a number of people believing they have wealth, since they have claims (pieces of paper or tokens) showing that they have these real assets, whereas, in reality, if everyone was to claim the real goods, there would not be enough to go around.


The high debt levels, in some way, represent the extent to which there are more claims than the actual underlying real assets.

During the period of credit extension - that has been for at least 80 years - most businesses are set up to take advantage of this system. The system allows for an easier way to increase wealth (illusionary), since only claims on real assets need to be increased, instead of the actual real assets.

As you come to the end of the credit extension cycle, most businesses are dependent on this credit extension, either directly or indirectly. When the debts become too heavy to bear (no one knows the day or the hour, but there are signs), the debt bubble will burst, and over time eliminate all those business opportunities brought about by the debt-based system, as well as the businesses dependent on it.

When this process reverses, there is little opportunity to trade the claim on an asset instead of the actual asset, and also few opportunities to increase the amount of real assets. Furthermore, instead of measuring wealth in terms of claims on real assets (as is now the case), people are more likely to measure wealth in terms of real assets, especially gold.

Today, after a consistent period of credit extension, we have exactly the situation where most businesses are dependent on the debt-based monetary system. I believe we are moving past the point, where any benefit can be achieved from credit extension; therefore, we have the ideal set up for a massive collapse in the world economy.

The increase in the gold price, in real terms, is the clearest signal that it is becoming more and more difficult to increase real wealth (wealth in gold ounces). It will become even more difficult as the economic decline sets in; eliminating businesses very dependent on the debt-based monetary system. Financial institutions like banks would be at the top of this list, but will not be the only ones.

The shift from measuring wealth in terms of paper claims (dollars) to gold ounces, and the limited means to increase gold ounces, will change the business and investment world significantly, and will create a massive rush into those opportunities that increase gold ounces. The shift is already evident, with some countries possibly trading oil for gold.

Currently, in my opinion, silver bullion and gold miners present some of the best opportunities to increase the amount of real wealth as measured in gold ounces.

Both, silver bullion and gold miners are still trading lower or at its 1980 high, and also at relatively historic lows against gold. Silver offers the best opportunity, at the moment, since it offers less risk than shares in gold miners. However, as the gold/silver ratio falls (which is expected), gold miners will become more and more attractive.

Silver Chart Update:
Below, is a 6 year silver chart:

Silver is making its intention to pass the $50 level clear. It is continuing in a pattern similar to gold did, before it cleared its 1980 high (see here). The next important obstacle is to get out of the flag (at about $35 currently). If it continues the pattern that gold made, then it will blast past $50.

Warm regards and God bless,

"And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved"

For more detailed analysis of gold, silver and the Dow, you are welcome to subscribe to my free or premium service.

Warm regards and God bless,

Hubert

http://hubertmoolman.wordpress.com/

You can email any comments to hubert@hgmandassociates.co.za

© 2012 Copyright Hubert Moolman - 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.


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Catching a Falling Financial Knife