If you seriously study
financial markets: futures, stocks, currencies, bonds and etc. you will notice
that there are cycles in those and they are repetitive. Just by understanding
this one can use opportunities to invest into securities that start on a bull
market and sell those that enter a phase of a bear market.
There has been a lot of talk
(more and more) about gold and urgent necessity to invest into this commodity.
A lot of what has been said has been fluff and I do not agree with much what
has been said. Some people are simply crazy about investing into gold and say
this is the only one and it has been the best one for a long time. It is not
true. Since the financial monetary system taken a path of fiat (paper) money
gold hasn’t been an asset for a long time and it stagnated for decades while
other securities were rising. This choked off many investors from owning gold.
It wasn’t logical to invest
into the commodity twenty years ago. The commodity went nowhere. So, we must
admit that it hasn’t been the best place to invest all the time. However, as I
have said there are various cycles in markets and just before gold went into
stagnatory phase in 1980s it had experienced a huge bull market (the era of
brother Hunts cornering silver market). Those that invested then had created
fortunes for themselves and those they invested for. Those that did not get out
in time lost a lot of money though.
Another important rally in
gold took place 2005-2008 and 2011 up to now. There were some corrections along
the way, but the security has awakened and seems to be ready to continue
climbing upwards. We are in a major bull cycle for commodity and it will
definitely continue in year 2012-2013 too. Let us try to look at the reasons
for that in the article.
- Printing of money
Somehow most central bankers
facing crisis of 2008 and seeing other problems in economy chose the path of
solution by means of printing money. You should understand that by doing this
they devalue money. When there is a significant increase of money in the market
money starts losing value. Your money starts losing value. Maybe you do not
like the idea, but it is true. You go to the shop and you see how prices are
rising. Why? One of the reasons is that printing of money has done its’ ugly job
and what you have in your hand can buy much less that it used to.
Since the establishment of
FED (kind of American central bank) the printing of money has been on the rise.
So has been inflation. Since that time US has seen less and less deflation and
more and more inflation. Deflation has been non-existent since 1973 (the time
when US abandoned Gold standard) when printing of money sharply accelerated. Two
last chairman of FED board have been notorious inflationists. Ben Bernanke
would probably be number one of all times. Always ready to print as much money
as necessary.
That of course, enters economy with interest attached to it. And
this ends up with more inflation.
Now, what do smart investors
do when they see that their money buys less and less of valuable things? They
put into places that preserves and creates their wealth. For thousands of years
(since the times when Roman emperors inflated their money) it has been gold.
Don’t you believe those that
present statistics on inflation. It is all wrong. Look at real inflation that
happens in daily products and services you pay for on daily basis. That’s where
real inflation is. And it is big! Good reason to buy gold!
- Turmoil in currency markets
We see that debt loads of
the nations are on the rise too. This causes currency markets to become more
volatile than before. All the commotion about Greeks sent Euro to hell and it
has hard time of getting out of there. So, if you own Euros and start
travelling around the world you see that it has immensely lost value. The same
happened to other currencies. Commodity currencies: AUD, CAD, NZD seem to be
doing better, but for how long? If uncertainty prevails in some market
investors start getting out of it and investing elsewhere. Gold seems to be a
good choice.
- Global imbalances in the world
If you look around the world
you see a lot of chaos, turmoil and insecurity. Some countries experiencing
revolutions: Syria, Egypt, Libya and etc. This creates a lot of problems for businesses
and investments as these countries become a problem to travel to. Other
geopolitical conflicts and tensions: Iran, Venezuela, and etc. add to the
tension as these countries are big exporters of oil and if war conflicts start
in the area the world could see serious disruption of oil supply and this as
you may understand would push the price of oil to the sky.
I do not have to explain
what will happen to inflation if that happens. That is another good reason to
put your money to gold and to protect yourself from money devaluation.
- Oil prices are rising
Oil is often regarded as a
global currency. It has direct effect on prices you see in your stores. Most
industries use oil and the higher the price of it becomes the more production
of goods costs, the more you start paying for services. You start seeing domino
effect in practice. Everything becomes more expensive. How do you protect
yourself? Investing into gold (and possibly oil)!
- Giving money to the wrong guys and taking it away from the right guys
The last crisis of 2008 saw
an unprecedented event. Well, it had been done before but on a much smaller
scale. Governments of the world were trying to save banks and companies that
found themselves on the verge of bankruptcy. They took tax payers’ money and
gave it to those who were not able to do business properly. Who’s problem is it
that you are on the verge of bankruptcy? It is your problem. And the right type
of capitalism should allow people to go bankrupt.
Why everybody should suffer,
because of some irresponsible top managers (or share holders) were doing their
business recklessly. Why take away money from good guys who were working hard,
saving and give it to those who are not able to manage their businesses! Nobody
puts good money and puts it together with bad money. This is a crucial
investing mistake. This is perverting economic and financial principles. This
is perverting market. It will have serious consequences long term. But this has
been done and putting your money into gold is another way to preserve it from
inflationist governments and reckless short sighted corrupt politicians.
- It will never go bankrupt
Have you ever thought about
it? Any company (even the best of the best), government (the best of the best)
can go bankrupt. This would mean you would lose all of your investments if you
did not manage to get out of your position in time. Companies come to stock
exchange and they go out of it. It takes a lot of time to do an individual
company analysis to verify whether it is good to invest in or not.
Gold, on the other hand,
will never go bankrupt. It is a commodity that we will always need. The only
possible negative scenario is that we can consume all of it and there will be
no more of it left on the planet earth. It may happen at some point. However,
we still have it and the price of it is going north.
- Demand for gold as well as for other commodities is growing
For over four or five years
demand for gold has been surging. Suppliers are not able to satisfy the demand.
They have orders for months ahead and it is becoming more and more difficult to
order large amounts of bullions or coins and get it fast.
Emerging markets: China,
India, Brazil and others are buying gold in huge quantities. Chinese have a
huge stack of US dollars hanging on their shoulders and they do not feel secure
about it. Therefore, government of China has been encouraging its’ citizens to
buy precious metals to protect their wealth.
India has also been
importing fabulous amounts of gold over the years. Most of it goes to jewelry
production, but it is also used as a source of investment.
You might wonder why the
price has been stalling for so long if the demand for the commodity is so high.
Banks have been selling ‘paper gold’ for
- Gold mining is decreasing
Gold mining is becoming more
and more difficult as old gold mines are being depleted and new ones are not
found. It is becoming more and more difficult to extract and produce gold at
such conditions gold miners are today. If you dug deeper into subject you would
see what I am talking about.
The same can be said about
oil. Arabs used to take it from the surface of the earth very easily. Now, they
have to go deeper and deeper. It requires better technology and not everybody
has it these days. So, it is becoming more and more expensive to take gold out
and this causes production of gold to decrease. Now, with a great demand and
weak supply you will definitely have gold prices surging sooner rather than
later.
- Global economic collapse is coming
Recent events in Europe
(Greece, Spain, Italy, and Ireland) cause serious concern for most investors.
There have been a lot of talks about Greece default. If you dig deeper into the
question you will see that quite a few nations of the world are sitting on the
threshold of default. It is only the question of ‘when’, not of ‘if’.
Look at Greece. They were
given money more than a year ago. Where are they know? In much deeper problems
then they were before money was given. You cannot solve the problem of debt
with more debt (imagine solving a problem of adultery with more adultery). If you
want to get out of a pit, stop digging. However, governments did just the
opposite. They decided to get out of the pit by doing more digging. Ok, now
they will have to dig more and faster! The end is clear.
Economy will collapse and
some countries may start coming back to their regional currencies rejecting
Euro. The change will be very painful as the governments will have to devalue
their money to get rid of debts. Who will suffer? Ordinary people! Gold will be
the safe haven for most. The sooner one understands that the better it will be.
The second wave of crisis is
on its’ wave and it will probably happen this autumn (Fall). Hope we will not
be found unprepared.
- Trust in gold is coming back
If you browse internet and
even listen to mass media you will find that more and more people get
interested in other type of safe investments than governmental bonds or share
of such huge corporations such as Microsoft. Even very famous investors such as
Jimmy Rogers or Marc Faber are talking about diversifying your portfolio with
gold and silver.
Seeing that you should not
doubt about your long term choices as far as safe investments go. Gold should
be number one on the list.
- It is not overbought yet
You may hear a lot of voices
about ‘bubble’ in gold. There cannot be any sound reason for a bubble. If we
take into account annual inflation and the peak of gold that was made in 1980’s
we could clearly say that the price of gold should be around 5000 dollars per
ounce and it would still not be a ‘bubble’. The price of it has always been suppressed.
And it still is by huge market whales that manipulate financial markets. It is
not a bubble. It has not reached its’ real value in terms of inflated dollars
yet.
Conclusion
So, as you may see there are
a lot of reasons to buy gold. It does not mean you will always carry a
profitable trade, but in times like these you will surely protect your capital
and in the long run you will preserve and create wealth. Good luck in making
your own investment decisions. Hope the article was helpful. If it was I
would be grateful if you tweeted it, liked on Facebook or any other social
media. Thanks for reading.