Why Gold Keeps Rising

Saw this story in the Daily Reckoning and wanted to pass it on, as it says something important, something I haven’t been able to put into words.

We don’t expect the gold price to soar because gold is such a great thing; we expect it to soar because the world’s major currencies are notsuch great things. A dollar bill looks good, only when you place it next to a euro or a yen. But all three look sickly when you place them next to a bar of gold.

In other words, all fiat currencies eventually assume their intrinsic value – zero.  Gold – and other “hard” assets – naturally gain value over time when measured against worthless pieces of paper.

The value of a dollar, on the other hand, is backed by the full faith and credit of the United States. The problem is, there’s too much credit and not enough faith.

The only thing I can add is that faith may sustain you for a while, but eventually you need real food, real water – and real money.

Moody’s has already put the US on notice that it’s highly touted AAA credit rating may soon go to a “negative outlook”, which simply means that Moody’s doesn’t think “the full faith and credit” of the US is going to pay back all the people the US owes money.  Is that really news to anyone?

I posted this a while back, and while the specific percentages have changed, the main thrust of the story and the facts haven’t changed one iota.  Nothing – absolutely nothing – has performed better than gold since Nixon removed the last link between gold and the dollar.

I see nothing on the horizon to change that opinion.  Congress and Obama (I’m going to start calling him “Dubya with a tan” or “Dark Dubya” or maybe just “D2” since his policies are the exact same as GWB) are talking about $2 to $4 trillion in debt reduction – over the next 10 years.  The problem is that even AFTER these “reductions” (why does no one call them on this BS?) the debt will still increase by at least $8 – $12 trillion over the next ten years.  This is insane!

The Euro-trash debt problem is simply the beginning.  Greece will default no matter how much Germany and France bitch about it – they simply don’t have the money or resources to pay back their debt. So will Portugal. And Ireland.  And Italy.  Spain has some breathing room but I highly doubt that it will ever recover enough to pay off their debt either.

And here’s a breaking news story for all you ostriches – the US will default as well. The ONLY possible way we’ll avoid default is inflation.  Print up more and more dollars until the value plummets 2, 5, 10, 100, 1000, or a million times.  The current $14 trillion dollar debt will seem minuscule  when it costs $1 million for a single cart of groceries.

But guess what?  When that happens, one ounce of gold could still be exchanged for the same 10 or 20 carts of groceries you can get for it today.  (Of course you’ll probably convert the gold into the local currency before buying the groceries, but that doesn’t change the underlying value one bit.)  That highlights the real value of gold – it’s not that gold is gaining in value – it’s that the dollar is worth less.

Gold (and other metals that don’t disappear) retain value. As opposed to fiat currencies which always, ALWAYS, eventually lose value until they are worthless.

My biggest regret is that I have been preaching this for almost 10 years now, and I wish I had taken more of my own advice.  This isn’t rocket science, anyone who can read history can see this crash coming.

Got gold?



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