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Gold: the first and only safe haven

For most investors, the primary reason for buying gold is to hedge against currency debasement, which, of course, comes about because of excessive money creation by central banks and via fractional reserve banking.  At times, gold investors stand alone, even being ridiculed by mainstream investors.  Now, though, one of Wall Street’s famed names, Merrill Lynch, has turned bullish on the “barbarous relic.”

Titled “The US $ is in trouble,” a recent advisory by Merrill Lynch proclaimed that “Global financial and commodity markets are warning that the US $ is in for a bout of trouble.” The report went on to note that gold was the first to make a low against the dollar.  Interestingly—at least it should be to most gold investors—is that the report said that the “. . . second market to turn against the US $ was US Treasuries. . .”

So, the markets are concerned about the dollar, and dollar-denominated US Treasuries are a safe haven.  More than interesting.

The thought process seems to be that although the dollar is in trouble, it is safer than the other major currencies.  Further, buying Treasuries thinking seems to go along the lines that they are a temporary safe haven.  Park your money in Treasuries while you figure out what the real safe haven is, which, of course, is gold, where the smart money went first after recognizing that the dollar is in trouble.

The ML report noted gold has now broken above its 150-day moving average, which ML sees as an “excellent barometer of the medium term trend and points to further gains.”

Meanwhile, the euro—the dollar’s major competitor—has troubles as the markets seem to be questioning some banks in the European community.  Mario Draghi, European Central Bank president, recently reiterated that the ECB stands ready to do “whatever is necessary” to save the European Union.  This may mean the ECB developing its version of quantitative easing, with some members already calling for the ECB to purchase sovereign debt.

On the other side of the globe, Japan’s adventure with “Abenomics” is being questioned as the Japanese economy continues to sputter.  Abenomics is what Japan’s scheme to reinvigorate its economy by money creation and massive government spending has been dubbed.  The last quarter saw GDP there expanding at 1 percent, only a third of what economists had predicted.

In the UK, the Bank of England is keeping interest rates at record low levels because, as the central bankers put it, the economy has “spare capacity.”  Actually, one policy maker at the BoE asserts that there is more spare capacity than the bank’s main calculations show.

In spite of all the gloomy economic outlooks around the world, which could portend massive money creation and/or continued loose monetary policies, the markets according to Merrill Lynch are saying the dollar is in trouble vis-à-vis other currencies.

Looking at the situation, it appears that all creators of fiat money are prepared to create more if necessary, and it certainly appears that the stage is set for that to happen.  Somewhere in here, it will be recognized that gold is not only the first safe haven but the only safe haven.

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