In this piece we
are looking at some critical fundamental features of precious metals that are rarely considered or accepted in the developed world markets. Expert
investors like Warren
Buffet look at inactive, buried
gold with amazement, because he is
focused on companies that produce things and earn money. And most of us wish we had his
skill and money behind
us.??
?
George Soros and the like
invested in gold as an anti-deflationary
measure. Most analysts appreciate the anti-inflationary
value of gold and silver. The protection of gold
and silver in stagflationary
environments are a combination
of both abilities.
?
But why are
gold and silver capable of giving
such protection in bad
times as well as good times?
They have certain qualities
that shine forward at times when other investments
fail.??
?
The Limitations of
Cash
?
In times of monetary stability
and soundness, safely-stored
cash never fails. Most consider cash in the bank to be the safest conservative investment, and in the distant past,
the days of our grandfathers, this was largely true.
?
But that horrible word,
inflation, came into
being where prices kept on rising and cash saved would buy less-and-less. Interest rates compensated for this inflation,
but then interest rates stopped rising. When interest rates did rise, it
was at a slower pace than inflation.
Cash lost its buying power as time went by.
Bank charges would eat away any gains that might be
made. At first inflation would
occur one country at a
time, and the exchange rate on those currencies fell, hurting international buying
power even more. Today
inflation is a global phenomenon.
?
Investors would have
to move out of cash and into businesses or other investments that offset the cost of
inflation.?? This was not easy unless inflation happened while growth was vibrant. And this benefitted those middle classes
that enjoyed such growth. The poor, whose income
rises slower than inflation, feel the pinch.
?
Suddenly, booms turn
into busts and businesses
don?t do well. The
value of businesses and its shares
fall, losing investors money. Even self-managed businesses fall in
value, putting rich people into
bankruptcy. This is deflation, a monetary mood that causes values to shrink. In deflation the value
of cash grows as prices fall.??
?
Those who believe they are skilled investors answer, sell, then cheaply buy back. We look at that timeless
story of an investor who did that just
before the Wall Street Crash. His
friend did not do so well selling
only when the fall was half
way down. But our hero who sold
at the top, overwhelmed
by his own skill bought back in, when the fall was half way
down. His friend did not buy back in, but stayed in cash. It?s not so easy!
?
Then you get a situation when the bust happened and all of the markets plummet because forced selling drives investors out. Interest rates fall to negative levels. If cycles are
consistent, there should
have followed a boom period.
But growth was so anemic that
stagnation set in. Businesses and the economy
struggle to find small amounts of growth and some cut back, turning over at survival level.
?
Suddenly, something that shouldn?t happen in a downturn happened. It was inflation, driven by factors no government can control. It came
from energy and food and became uncontrollable. This type of inflation is deflationary. Businesses covering expenses suddenly found their costs ate
away at profits much the same as deflation and inflation would
have done. This is
?stagflation?, a climate where stress levels steadily eat away at sanity.??
?
Surely bills and bonds are a way out of the hole, as they pay an interest
rate, while being almost like cash?
The trouble with this
thinking is that interest rates have fallen so low
that the bill and bond markets
are so high as to be heading for a fall, far worse than any Wall Street Crash.
?
Next interest
rates rise to stop negative
interest rates from rising higher. Then the prices of fixed interest securities have to fall, while their yield rises. Investors rush to exit those markets the moment that happens.
?
Surely there is no escape from these three economic
ailments?
Well, there is?.
?
For a long time, our Asian
friends have suffered through poverty, hard times, government corruption and mismanagement.
They have found refuge in
good times and bad times. They
want financial security and their investments to last for more than
one generation. Correctly
invested, their savings provide financial security for many generations.
?
You would have thought
that Europe in particular
would have learned the same lessons with their history
of currency collapses and wars.
?
Why Precious
Metals?
?
Gold (and to a lesser extent,
silver) is more than a barbarous relic from yesteryear.
Its rising price is telling
us that it is a very modern investment preference because
?
It is both cash and
an asset.
?
?
In the long term, it
outperforms cash because
of these qualities?
?
v? It has all the features that makes cash valuable, even capable of earning an income(when lent out).
v? It is
an enhanced version of cash, in that
it is not subject to the vagaries of interest rates solely dictated by central banks and banks.
v? It carries no national
obligations. It does not rely
on nations to supply collateral
to honor payment. If you ask the Fed to honor the value of your dollar,
they will simply exchange it for another.?
v? It is
not dependant on the creditworthiness
of the nation issuing money.
v? It has the same
value in Mongolia as it
has in the U.S. or Europe.??
v? It is collateral in any transaction
and of greater value than
the price it can be exchanged
at.
v? It cannot
be issued at will, with
the intention of being withdrawn
from the system later.
v? It does
not decline when an individual currency declines (and does not rise when that
currency rises in value).
It is a ?counter to
currencies?.?
v? This century
it has moved away from the control of the
U.S. and Europe to global control. In the years to
come, rising Asian demand will dwarf
demand from the developed world, making it a fully internationally-valued
asset again.
v? In a deflating
global economy (just as
cash is a national protection) gold is better than
cash even when local currencies are not deflating.
v? In an inflating
global economy, gold acts
as an asset, when currencies are cheapening.
There are no other currencies
that are deemed as assets, like gold.
v? In a stagflationary
economic environment,
gold acts both as cash
and an asset.
?
?
Julian
D. W. Phillips
Gold/Silver
Forecaster ? Global Watch
GoldForecaster.com
?
??Is
your wealth effectively structured to avoid the pernicious effects of the regulatory
climate that we have moved into? It should be and we can help you to do so
professionally and within the law. Please contact us for any help regarding
this at: gold-authenticmoney@iafrica.com.
?
?Subscribers
will be briefed again on this subject in our weekly newsletter. For our
regular weekly newsletter, please visit www.GoldForecaster.com
?
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.