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Over past
years, we at Euro Pacific have taken an increasingly jaundiced view of paper
currencies and written repeatedly about gold as an alternative. Along the
way, we have urged investors to consider both the security and physical accessibility
of their gold investments, and have advocated for at least some holdings to
be in physical form. There are those who may have felt our views were overly
cautious, even alarmist. Now, however, it is increasingly clear that major
investors, including even central banks, are following our advice. Meanwhile,
we continue to set the curve by calling for an even greater share of
investors' portfolios to be in physical bullion or secure equivalents.
Despite the trials Western economies have already experienced, worse economic
times still lie ahead. The current administration appears unable to accept
the pain of deleveraging and has instead set upon a course of limitless
public-sector spending, financed by increased taxation, deficits, and the
covert debasement of the U.S. dollar. Obama's acolytes haven't acknowledged
the threat that their policies could cause the dollar to lose its privileged
position as the world's reserve currency, which would devastate the relative
value of the U.S. dollar and many paper investments denominated in dollars,
including Treasuries. Indeed, it would likely trigger a second financial
collapse, this time with accompanying hyperinflation.
To protect their wealth from inflation and financial panic, big players like
hedge funds, sovereign wealth funds, and central banks are turning not just
to gold, but to physical gold.
Many investors are demanding and prepared to pay for physical delivery. This
indicates an intention to remain invested for a significant period of time,
removing considerable selling pressure from the market. More concerning, the
willingness to finance physical delivery and storage indicates a fundamental
decline in the credibility of paper contracts.
For centuries, gold has been the bane of profligate governments. For decades,
Western governments, led by the U.S., have sought to demonetize the
'embarrassing' metal. Most recently, the U.S. led other central banks into
the secretive Central Bank Gold Agreements (CBGA). These were designed to
coordinate, through the IMF, the sale of some 500 metric tonnes
of central bank gold into the market each year. The covert aim has been to
make gold less attractive by concealing its appreciation and, simultaneously,
create maximum price volatility to destroy gold’s legitimacy as a
monetary instrument.
Since 1980, when gold reached $850 a fine ounce (or some $2,330 in today's
debased dollars), the CBGA has been successful at disparaging gold
investment. To this day, most Wall Street commentators reflexively opine
against gold whenever the conversation turns to it. Displaying staggering
ignorance or bias, they cite the lack of interest paid on gold and its
storage costs. They ignore completely gold's total return, through capital
gain, which is up by over 100 percent in the past five years.
In keeping with the CBGA, it has long been considered taboo for major central
banks to be seen buying gold. But the pacts are losing their grip.
China, now the world's largest gold producer, has quietly increased its gold
holdings by some 75 percent in just 7 years, while remaining a 'loyal' CBGA
player. Cleverly, she has sidestepped the unwritten CBGA non-purchase rule by
quietly diverting part of her domestic production into the central bank's
vaults before it enters the global marketplace.
Publicly, China has led international calls for the replacement of the U.S.
dollar as the privileged reserve currency by a basket of currencies and gold.
Unable to tolerate the continued debasement of their dollar reserves, other
developing countries are now taking defensive moves. Earlier this month,
India bought 200 metric tons of gold from the IMF at market rates, increasing
its reserves by 50%. Then, just today, Russia announced that it will be
shifting reserve ratios in favor of commodity currencies, like the Canadian
dollar, and gold.
Far more distressing than the flight of central banks from the paper dollar
are recent reports that certain governments, including Germany, Hong Kong,
and members of OPEC, are now removing their gold holdings from the Federal
Reserve and the Bank of England. If true, these reports could portend the
risk of a gold run on the world's two key central banks.
The actions of foreign central banks expose the most confidential views of
their top government officials concerning the outlook for the U.S. dollar and
the possibility of renewed panic throughout the global financial system.
Once again, I will go on record as saying that counter-party risk is rising,
and the safest metal investment is either to take physical delivery or hold
title to actual bullion in a stable country. Euro Pacific has long offered
the Perth Mint Certificate Program for investors that don't want the cost and
risk associated with keeping gold 'under the mattress.' By holding title to
gold in Australia instead of America, investors get better legal standing
than with an ETF and the added comfort that the regime securing their
holdings has among the world's longest track records of stability and
brightest growth outlooks for the next decade.
I hope – as we all do – that we are being 'too cautious.' But
most investors are erring on the side of caution after witnessing half of
their wealth disappear overnight. The problem is
that investments traditionally considered safe might not be so, as the very assumptions
built up over the last thirty years have been upended. During the October '08
crash, many fled into Treasuries and cash. All signs indicate that, in the
case of another crash, a repeat of that behavior could wipe out much of our
middle class. Those of us who still have doubts about this stimulus-laden
'recovery' are hedging our bets with history's ultimate hedge – gold
you can hold.
For a more in-depth analysis of our
financial problems and the inherent dangers they pose for the U.S. economy
and U.S. dollar, read Peter Schiff's 2008 bestseller "The Little
Book of Bull Moves in Bear Markets" and his newest release "Crash
Proof 2.0: How to Profit from the Economic Collapse." Click here to learn more.
More importantly, don't let the great
deals pass you by. Get an inside view of Peter's playbook with his new
Special Report, "Peter Schiff's Five Favorite Investment Choices for
the Next Five Years." Click here to dowload the report
for free. You
can find more free services for global investors, and learn about the Euro
Pacific advantage, at www.europac.net.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach,
CA 92660
Toll-free: 888-377-3722 / Direct:
203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
Also
by Peter Schiff
For a more in
depth analysis of the tenuous position of the American economy, the housing
and mortgage markets, and U.S. dollar denominated investments, read my new
book : The Little Book
of Bull Moves in Bear Markets" (Wiley, 2008).
More
importantly take action to protect your wealth and preserve your purchasing
power before it’s too late. Protect your wealth and preserve your
purchasing power before it’s too late. Discover the best way to buy
gold at www.goldyoucanfold.com ,
download my free research report on the powerful case for investing in
foreign equities available at www.researchreportone.com
, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
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