Clearly a reckless Federal government is good for gold – or more accurately – our collective can kickers in Washington DC are very bad for the dollar. Take a look at the very telling graph below.
Contrary to the disinformation campaign of Wall Street, and their Federal Reserve sponsored economists, gold is not a bubble. Central banks are now net buyers of gold, and not because of tradition, as Mr. Bernanke would have you believe.
They are buying gold because it is the foundation of the global monetary system. It is the only form of money that can extinguish debt. Paper money that is piled up in foreign reserves is simply an IOU that may or may not be good in the future. Gold held in foreign reserves has no such counterparty risk.
The bottom line is that we are heading into a period where the seemingly endless expansion of paper, be it debt instruments or fiat currencies, can no longer be sustained. Short term machinations aside, the relative value of gold will continue to increase until the unsustainable levels of debt have been cleared from the system.
Gold recognizes the fact that our debt levels have past the point of no return. The current “debates” over the debt ceiling in the US and bailouts for the PIIGS in Europe are just noise. In the coming storm of debt destruction, wealth will continue to seek safe harbor in the form of gold.
A client took umbrage with an editoral that recently appeared in the “Wall Street Journal” and copied “Gold is a port in the debt storm” to the writer. He forwarded his comments to us with approval to post here.
Ms. Strassel:
Your July 29, 2011 Wall Street Journal column ( http://online.wsj.com/article/SB10001424053111904888304576474563657202494.html) touting the joys and “advantages” of Mr. Boehner’s fiscal cave-in is, to say the least, rather misleading. We, the people, want an end to Federal government deficit spending, an end starting right now. This can easily be accomplished: just cut all Federal salaries by 20%, abolish the Departments of Education (which educates no one), of Energy (which produces no energy), and of the Interior (after a final role for it of auctioning off government lands). Additionally, the supposed role of the Commerce Department and U.S. Trade Representative in negotiating so-called “free” trade agreements, which as currently constituted and negotiated are just government-promoted collusive agreements between U.S.-based and foreign-based cartels, should be ended, and TRUE free trade instituted, which can only happen if individual citizens have their rights to do their own free trade restored to them, without interference by such Federal cartel-corporatist favoritist requirements such as export or import licenses. It would also greatly help the U.S. budget-wise if the U.S. government were to cease entering wars and regions of the world where it has no intention of prevailing! World War II should be the correct model here, not Vietnam or Korea. Even that Communist-accomodator, Dwight D. Eisenhower, who was forced by a national groundswell, against his will, into signing the only balanced Federal budget in the past 60 years during the final year of his administration, 1959, even he knew how to avoid wars he couldn’t win!
Ms. Strassel, surely you know that the market has blinked for at most just a millisecond at Congress’s (and Obama’s) claim that “all is well”, while the ink is not yet even dry on a budget “limit” deal that will lead ultimately to an increase of at least $10 trillion in stated Federal debt by 2020, EVEN IF the Bush tax cuts are repealed on schedule. Ms. Strassel, the relevant market that has blinked for just one day is the gold market. It is the only market that is currently telling, with almost no time lag, the underlying truth about this deal. As I write this note now, gold has just stopped it’s 1-day blink, and is looking upward and forward to the future, achieving a new high of $1640 as we speak. As the passage and graph below from Bill Haynes’ blog (of CMI Gold and Silver in Phoenix) shows, the long-term strong positive correlation between Federal government debt and gold’s price is irrefutable.