Have you ever stopped to ask yourself why, if the economy is as strong as everyone claims it is, they’re still printing money in such large quantities and piling on the debt in ever-increasing amounts? This is not the sign of a healthy fiscal and monetary system. And it’s not just the United Kingdom. Consider the following:
• Since mid-2007, we’ve seen over 500 interest-rate cuts around the world.
• 36 countries now have negative real interest rates.
• As of November 2013, not one G20 country had a balanced budget.
• Over the past five years alone, the US Federal Reserve has created $1.7 trillion new debt as part of its economic stimulus. This is expected to reach $2 trillion by the end of the year.
Economic stimulus is, of course, nothing but deceptive code for money printing Quantitative Easing (QE). While mainstream money types declare that gold is dead and have been selling, the global monetary environment remains tenuous and reinforces the need to buy and hold gold.
Right now, in the US stock market, investor sentiment is becoming overly optimistic. And when you see that, typically the upside potential won't be good over the next few months. Stock markets have been on fire for the last few years, levitated to record breaking highs from the money printing by central banks.
The stock markets have gone so long without a correction, mostly due to the massive support they’ve been receiving, that now with the Fed tapering its monetary stimulus towards exit by October this year, many are left wondering if markets can stand on their own at these unprecedented highs.
We're in the sixth year of QE, going into the seventh, and still don't have economic growth pickup to a sustainable pace. We've seen QE pumping money into the markets for a long period of time and there's still no improvement for the growth picture. The first quarter of 2014 saw the US economy grow by only 0.1%. It’s no surprise that even with the stock markets look set to climb abit higher, it seems investors are reticent about buying more at these highs. At some point this inflated bubble will pop and leave many running for the exits at the same time.
There is a bubble forming in the stock market, taking advantage of QE to inflate historically above average price-to-earnings and price-to-sales ratios. With the Federal Reserve winding down their monetary programme, it’s only a matter of time before the bubble bursts. Creating more debt cannot buy your way out of existing debt.
It is widely accepted that the US has enjoyed an exceptional privilege having a world reserve currency. The endless printing of US dollars by the Federal Reserve has accelerated the debasement of the US dollar that has been declining for years. The US has been able to grow its debt mountain to a level never seen before in the history of mankind because it had a universally accepted currency which was used in the most traded asset classes, in particular oil (the petrodollar). Based on historical standards, world reserve currencies have lived on average 27 years. Note that the current dollar hegemony is ongoing for 43 years. However, the end of the dollar reserve currency seems to be imminent.
Last month, Russia concluded a raft of energy deals with its major trading partners, in particular China, to trade in non-dollar currencies. Other countries have been signing bilateral agreements to trade with each other in their own countries, a growing sign that people are losing faith in the dollar.
It’s hard to fathom how we’ll escape the dire fiscal and monetary conditions in many of the developed world economies without some serious fallout—and a strong response from gold. Never before has such an enormous monetary experiment taken place on a global scale. This isn’t 2007, the world has moved on from then, but in a direction that make conditions a lot more dangerous. If ever there was a need for monetary insurance, it is now.
It is thus imperative that investors have meaningful exposure to gold. As prices fall, I do not recommend to anyone selling their physical gold. Keep the big picture in mind. You’ll see a sell-off for what it is – a temporary drop in the price within the context of a bigger trend. Use these price dips to add to your holdings.
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