Saturday, June 21, 2008

Setting a gold standard

When the gold standard was set in place, the price of gold remained a constant $20.65 per ounce and only fluctuated by $0.01 from the year 1833 to1890. So for fifty seven years as the US Dollar was attached to this gold standard, it remained un-fluctuating along with the gold standard. That is how it was designed to be from the founding of the country.

The constitution states that the currency of the country is to remain that way to maintain the Dollar and protect against what is exactly happening to the currency today.

From the years between 1891 and 1930, the price of gold per ounce remained relatively stable. The lowest it went was $20.58 and the highest it reached per ounce was $21.32 and so, for a total of ninety seven years between 1833 and 1930, the price of gold only moved $.74 cents from high to low.

The price of gold hit an all time low during the depression year of 1931 since then the US slowly removed the Dollar from the gold standard until August 15th 1971; President Nixon announced that the US government would no longer redeem US currency for gold. This was the last step in departing from the gold standard. The demise of the Dollar can be seen since it was removed for the gold standard.

Keep in mind that the Dollar has historical value and therefore is extremely consistent, even though it looks as though gold price is rising; it is actually the Dollar that is dropping. It has been as high as $1,030 per ounce, down to $830 per ounce.

So interestingly, if you wanted to buy a new car that cost $55,000 in 2008 and in gold, that would cost you roughly 60 ounces of gold at the spot price of $930 per ounce. So, if the Dollar was never removed from the gold standard and all the inflation that has occurred because of the removal from the gold standard, that same car today would only cost you $1,200. Remove the $1,200 from $55,000 and you get $53,800 which is how much inflation this $1,200 item has risen by over the last one hundred years.

The original Dollar value is roughly $.02 cents in today’s money. It’s astounding to realise how much the Dollar has dropped in value. I will try to explain further. In 1964, $.25 would buy you roughly a gallon of gas because a quarter in 1964 were made from 90% silver and 10% copper. Silver costing $17.20 per ounce makes the quarters value $3.11 so that same quarter from 1964 could still buy you a gallon of gas today. This shows that the value of gold and silver has hardly changed and that it’s the currencies that are not tied to god and silver that are fluctuating drastically.

This was the warning of the founding fathers and why they tied the Dollar to the gold and silver standard at the founding of the constitution. The excess printing of money by the Federal Reserve is just another tax on the American people, it takes the value of the Dollar that you have in your pocket and makes them worth less and less in the long run. While you are making roughly the same amount of money, the price of goods and services are going up but really, it’s the value of the Dollar or any currency really, that’s value is going down.
I hope that I have made it clear to you that you need to make a move on this problem, be it investing your money as soon as you can into precious metals or by even taking a stand against the governments position on a detached Dollar from the gold standard.

Monday, June 16, 2008

Devalued Dollar, no match for gold

Suppose I say to you, there is no difference between a $100 Dollar bill and a $1 Dollar bill except the way the ink is printed on them. It cost exactly the same amount of money to print each of them. Ultimately they are practically worthless in what they are physically. If you however take a $.50 piece from the year 1880 which was made from 90% silver, that had value in and of itself. The Dollar had twice as much silver in it as the $.50 and so twice as much worth. It was the silver that gave it its value.

Can you see what I am saying? No? Well, today, one of those $.50 cents coins with the 90% silver content is worth $5.00. How can that be? I hear you say. Well, they hold there value and always will, inflation will make sure of that. As the Dollar gets less and less, silver & gold will rise and rise. If you buy it now, you can be sure it will rise within in a few years time and keep on gong for years to come.

In 1964, three silver dimes would buy you a gallon of gas; gas cost roughly $.27 cents. Those silver dimes today are worth a $1.00; those three silver dimes would still buy you a gallon of gas. That's three dimes from 1964.

So what is happening is this, the price of gas hasn't gone up, it's the value of the paper Dollar that is going down. Inflation is causing deflation to the paper Dollar. Why? Because the government is printing more and more paper money from their own printing press we call the Federal Reserve, which in turn devalues your Dollar every time they do this.

Its like this, if you have 10oz of gold and 100oz of gold exists in the whole known world, well then you own 10% of the worlds gold. Let us say that 10% gold you have is worth $100.00 and that is the world recognised value for 10oz of gold. Now let us say a huge amount of gold was discovered equalling to the same amount already in existence. That would devalue your 10oz by half of its price. The more you have of something, the less worth it becomes. There is only so much gold in the world that has been found, this is why it is called a precious metal. There is so little in fact, that you could fill an average size house with the gold in existence which is roughly 20x20x20 yards when combined to make a cube.

This is exactly what is happening to your Dollar. The Federal Reserve has a licence to print money whenever the government needs debt paid off and so dumps more paper money onto the market and devaluing yours. Only 5% of the money created is in physical paper money, the rest is in digital format. That's how easy it is, a few pushes of a button creates millions of Dollars.

This method of creating money whenever we feel like it is unsustainable. Eventually the Dollar will go to zero; it is on an uncontrollable inflation course straight into the ground. To protect yourself I will tell you this, go and buy gold and silver bullion. It doesn't have to be in coins and you don't have to store it a your home or business, you can buy online and have the gold never leave the vault where you buy it from, they can store it for you and I guarantee you this, gold is an investment product that can not just be created out of thin air like paper money can, it will hold its value in times of uncertainty and it will be worth more and more as time goes on.

Why settle for paper when you can have gold.

Thursday, June 12, 2008

Gold is the best hedge against a falling Dollar.

The world’s premier monetary and chaos hedging asset is gold. In times of economic and financial turmoil it gives a direct response, also to geopolitical tension, war time and to virtually any global uncertainty.
Gold is heading much higher in the future because there is too much spending in the US and globally, to much money is being printed by the banks and the Federal Reserve, other factors are rising global inflation and a very weak US Dollar, International tension such as in the Middle East and the explosive growth of China’s and India’s economy.
If you watch the markets then you will see that gold, silver, oil, commodities and other tangible assets tend to rise together, they’re contra-cyclical to paper financial assets for 2/3 of a cycle.
When stocks are doing well, then gold prices don’t move and when stocks are flat to negative on their rate of return in other asset classes, gold performs very well. People tend to step back from other financial assets and say, until the risk reward relationship is fair and even, I’d rather protect than speculate. That’s why, for 2/3 of the business cycle it is contra-cyclical.
In the past six years, gold has risen roughly 158%, silver, a bit stronger, has risen roughly 246%, Gold stocks 300% while the Dollar has dropped roughly 32%. The Dollar today is worth roughly 1cent in comparison to the Dollar of 1870, 2cents to the Dollar of 1919 and the Lion’s share of the Dollar decline has been since the 1970’s when the relationship between gold and the Dollar was unhinged. There has been a long term decline of the Dollar since the birth of the Federal Reserve in 1913, ending over 100 years of Dollar price stability. The US is now running a total annual budget and trade deficits exceeding $1.5trillion Dollars and the Federal Reserve is creating annually 1-2trillion Dollar liquidity out of thin air which has a phenomenal effect on things like the DOW JONES INDUSTRIAL AVERAGE, the DOWN JONES TRANSPORTATION AVERAGE and the DOW JONES UTILITY AVERAGE which have all been moving well since 2001 -2002 but is you divide their price performance by the price of gold, which is in my opinion real money, you have declining trends in all three averages of the DOW JONES.

So here we have it, US debt has grown 5.5 times, roughly, since 1980 from $8 trillion to $44 trillion which is the biggest debt explosion in world history.

How do we deal with this massive debt?
One way is to raise taxes so it can be paid off. WE have seen that before and we will see it in the years to come.
They can print money as in Weimar Republic Germany after World War II.
They could sell off by privatizing National assets such as telecommunications, transport, water systems or real estate.
They could repudiate debt as Russia did in 1917 with $110 billion.
Finally, they could simply resort to plunder by launching wars to acquire wealth such as the Roman Empire did, the Spanish Empire did, the Nazis did and the Japanese.

Large Dollar holders are now beginning to exit the Dollar since the latest decline. The Dollar became the world’s reserve currency in 1944, everything had to be related to Dollars, most international transactions were denominated by the US Dollar for the next 62 years giving America huge financial power economically and politically. The United Arab Emirates announced that it would cut its Dollar holding in half in October 2006 and Japanese life insurers with $1.6 trillion in managed assets announced they were to diversify out of their Dollar holdings. Central banks all across Asia (South Korea, China, Japan, Taiwan and Hong Kong) have all started to diversify out of Dollars. China with $1trillion in foreign currency reserves has begun to diversify out of its $700billion and to cut back on its purchases of U.S. Treasuries. Russia too has cut its Dollar holdings from 70% to 40%; Italy cut its dollar reserves by 21%, Sweden from 37% to 20%.
China is pushing the world to rely less upon the Dollar for world trade.

If foreign banks holding roughly $2.94trillion of U.S. Dollars were to diversify even 10% of their assets, you’d see $294 billion dumped into the market. 20% diversification would make $588 billion thrown out there which has a very negative effect on the Dollars value and of course interest rate would rise.

Foreign commercial institutions like insurance companies, banks, hedge and pension funds hold between $7-8 trillion in U.S. Dollars. Again any diversification away from the Dollar will have the same effect of rising interest rates and inflation through the roof.
The Euro is now taking the place of the Dollar, many of the world’s oil transactions have begun to be made in Euros. In mid 2006, the IMF director for the Middle East and Central Asia urged Persian Gulf countries to peg their currencies to the Euro instead of the Dollar. There is now more Euros’ in circulation worldwide in currency and bonds than Dollars and so the Euro is now big enough to become the new world reserve currency.
Foreign Dollar holders are now switching to Euros, British pounds, Swiss Francs and other strong currencies, into gold and other commodities such as oil and minerals.

So as the Dollar collapses, gold has risen. They tend to move in the opposite direction if they aren’t attached.
Over the last 36years, the US Dollar has declined 80%, while gold has risen 1900%.
Today it takes five times more of the Dollar to by the same amount of goods or services than in 1971 and now since 2001, the US Dollar has dropped 32% and gold has risen 173% which is roughly 29% every year.

We can conclude here that gold is a perfect hedge against the depreciating dollar.

Buying gold as an investment online

More and more investors in the US and Europe are turning from the securities of shares and currency to a more solid investment, privately owned gold bullion. Buy gold though, is not as easy as one might think and securing it prevents more of a challenge.
The ways most people buy gold are in the form of physical gold coins like the American gold eagle or the Canadian coins, there are gold mining shares and mutual funds and there are certificates where you can buy gold but what I want to talk about here is owning it directly and not through intermediaries, in the form of gold bars.

Research today indicates that about 1,000 people a day are searching the internet for ways to buy gold. There are two big trends that have been found and the first which is common to all the trends is a lack of trust in major currencies, in particular the Euro and the Dollar respectively and so people are adamant to have physical gold stored securely within a vault.

Physical bullion trading cost have come down in recent times because for a long time the bars of bullion have always been to large for the average private investors and in the professional bullion market it is required that each bar has a history for right at the time it was manufactured into a bar and that they have always been stored within a vault. When a private investor takes a small bar out from the vault into a private storage place, it immediately loses its integrity and in turn devalues it by somewhere between 3-5% compared to the professional bars on the market.
Now with the aid of the internet, retail buyers and sellers can cut out the middle man and meet up directly cutting the costs down. This method is appealing to a lot of investors as they know exactly how much they own and are comfortable that they feel in control. Some people might want to hold the physical coins still but as I said, this devalues the gold by a few percent and holding it in a safe storage on a permanent basis is the most secure method.
Within the UK, a company called “bullion vault” use Brinks allied for safe keeping and with a company like Brinks holding your investment, you can be assured that your investment is safe.
This method of buy online is very liquid and the gold you bought one day can be sold over the internet just as quickly. In this fast paced world, real spending power with real currency such as gold can prove useful for years to come.
When it comes down to it, gold is the ultimate security investment. As seen with its recent growth from early 2006 to 2008, it can’t be over looked when it comes to building and investment portfolio. Investment and financial analysts agree that between 15 - 20% of investments should consist of the most hard of all assets, precious gold bullion.