Gold – My Forever Love!

Washington doesn’t have the US$700bn and now the US government is even more broke and alternative would be a lot more painful and perhaps may take years to recover from. We are likely to see substantial devaluation of the US dollar, of course, as part of the trick, the government will inflation it away, through more smoke and mirrors, but eventually the end results still the same.

In the Great Depression, the dollar saga ended only after Roosevelt devalued the currency in January 1934 by raising its exchange rate with gold from $20.67 to $35.00 and that was a de facto 69% devaluation of the US dollar.

The same thing is going to happen this time around, even without the confirmation of any President or anyone in Congress or the Fed as the market will do it for us. The US dollar is toast and no ifs, ands or buts about it.

Issue at hand is that what can you do to protect your wealth?

First, get away from illiquid investments, especially real estate and long term government and corporate bonds. Forget about the yield and the most important thing right now is making sure you get back your money. Forget about increasing your net worth.

Second, hedge the value of money. Seek out tangible assets that thrive when the US dollar is sinking and inflation is rising. You bet – GOLD!

I was told recently that the US Mint is temporarily halted sales of its American Buffalo 24-carat gold one-ounce bullion coin as it simply ran out of inventory. Demand for physical gold and silver has been so strong that many coin and bullion dealers and wholesalers have had difficulty having any merchandise in stock or immediate delivery. Not only that we are seeing shortage in American Buffalo, also the South African Krugerrand and Mexican 50-peso. Premiums are up sharply.

I was told that global spending for the exploration of nonferrous metal, including gold, silver and other non-iron metals hit US$10.9bn last year, up from just US$5.2bn in 1997 and US$1.9bn in 2002. Many new deposits are smaller and lower grade and it can take seven to ten years to bring a new mine on line.

While it is true that the US dollar is rallied in recent months due to risk aversion, but eventually all countries that saddled with debts will come due. There will be a point that the Chinese and Saudis will get sick of underwriting Uncle Sam’s lifestyle. China has less than 1% of its reserves in gold and that is pretty low by international standards and likewise with the six oil-rich members of the Middle East.