Gold is the Safehaven, Bonds are the Bagholders
With the recent price explosion in gold, it is becoming evident to many that precious metals (physical gold & physical silver) are a safe-haven against the cancerous monetary system that plagues the world. As the world stock markets have plummeted in early August on systemic risk, the market has chosen to flee for safety once again. While many financial analysts, including the Ben Bernanke himself, argue that gold is merely tradition instead of a monetary metal, the market is signaling a very definitive answer to critics.
Gold is Money, has been money, and will be used as money as long as we do not live in a harmonious universe where money is not needed. Ben Bernanke is either lying or severely incompetent, as Gold has been linked to the dollar from 1913-1971 under the Federal Reserve, as only recently between 1971-2011 has the US Dollar been "off" the gold standard, dangerously entrusted among the hands of a few private bankers, with no representation from the Public.
Most are wondering how high can gold reach, and how fast? $2000? $2500 (By the end of 2011 as JP Morgan suggests)? $5000? $10,000? $20,000? Who knows, and to be honest, the number itself is of little importance, gold is going up for the foreseeable future until we have a new monetary system. The trending markets are showing that gold (the physical asset) is one of the only safe-havens to the western world fiat currencies and economies, as the major central banks are now "printing money" at an alarming rate to cover the unfunded obligations accrued.
Countries such as South Korea, Mexico, Russia, China, India, and many others have all been major buyers of physical gold in 2011. As if these headlines were not enough, it has been capped off the recent news that Venezuela is nationalizing their gold industry, and demanding the physical delivery of nearly 90 tonnes of physical gold from the Bank of England and JP Morgan vaults. This will undoubtedly prove to be a catalyst in a coming major event, in which in short time we may know. This is the quote from the Veneuzuelan Foreign Minster in response to their action.
Foreign Minister Nicolas Maduro said the world's financial system, based on the dollar, had entered into a crisis of uncertainty and we are planning to construct a new international monetary system, and especially in South America, protect ourselves from this situation. (Source Here)
In just the last 6 months, Gold has made new all time highs against the US Dollar (USD), The Euro (EUR), The Canadian Dollar (CAD), The Australian Dollar (AUD), The Great Britain Pound (GBP), and now even the safe-haven currency (amongst other currencies), the Swiss Franc (CHF). With the recent ascent of the Swiss Franc Gold Prices to new record highs, it may very well mark the start of the great super-cycle in gold, in which all currencies fall against gold. This Gold breakout to highs in all major currencies at roughly the same time with the backdrop of a worldwide sovereign debt crises seems to be the perfect scenario for a swift gold appreciation, and subsequent currency devaluations (inflation).
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Meanwhile, the US Bond market (debt market) has also been catching the "safehaven bid." With the Federal Reserve recently guaranteeing rates to stay low through 2013, investors, institutions, and algorithms drove various durations of US Bonds to record low yields (yield = rate of return on money invested).
Despite the growing concerns worldwide about sovereign debt problems, including the white elephant in the room, the US Debt increasing exponentially while growth stalls (see previous post), the market still suggests that US Debt is one of the safest places to be through surging demand at lower yields. However, I doubt the bond market will respond kindly to rising inflation (evolving into higher inflation), or the eventual higher interest rates that will inevitably be coming, as it is an inevitable consequence from the monetary policies implemented by the reckless central banks.
The day the market fully understands the fallacy of buying debt as a safe-haven, is the day that we the people of the world can start to rebuild on a foundation of stability. Until then, there are many reasons for US Treasuries to hold their perception of a safe-haven, as the world-wide economic system is currently pegged to the United States markets.
Peter Schiff has recently pointed out that investors buying a 10-yr treasury note with an annual yield around 2% are willfully locking capital up at a negative real interest rate with respect to inflation, nonetheless government reported inflation. Even according to the Beuraue of Labor Statistics (government agency in who are "master accountants" to find the numbers in which they wish to present), the yearly overall inflation index is now well above the rate of return on US Treasury Bonds maturing in 10 years or less. (Click here to see treasury yields)
The 12 month change in the all items index remained at 3.6 percent for the third month in a row. The
change in the index for all items less food and energy continued its upward trend, rising to 1.8 percent in
July, with the shelter and apparel indexes contributing notably to the acceleration. The energy index has
risen 19.0 percent over the past year. (Source Here)
Image cannot be displayedEven more stunning than investors, institutions, and algorithms lining up to secure negative real interest rates is how people have faith that the US will be able to repay the principle in 10-years, let alone 30 years. How can anyone soundly invest in long-term bonds when the debt levels have increased exponentially over the past 10 years. Those looking for this to turn around only have to look so far as those in political offices ensuring the debt process does not stop, going so far to calling those who wish to cut spending as "Financial Terrorists."
But who knows, maybe the "Committee of 12," will get their act together. After all, consolidating an already unpopular and inefficient congress in a dictatorship fashion by creating a "budget team" may very well be the solution that America has been waiting for... Our future lies in the hands of a group of arrogant men who refuse to deal with the truth, because they do not know the truth for themselves, or are unwilling to share it with others. This is unacceptable.
So the question becomes, which is the bubble? The physical asset with no counter-party risk in which has been a store of wealth for thousands of years and is making all-time highs against most major currencies, or the negatively yielding treasury bonds in which the Federal Reserve has just finished its second round of emergency & exotic bond purchasing policy called Quantitative Easing in order to "stimulate" the economy, which we all know how that is going?
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And if you decide like me, you may find yourself agreeing with a certain Politician who has been gaining a lot of momentum. Then start spreading the message, because time is not on our side, and the people in power will not do it themselves.
The gold (and silver) mania is only beginning. Have sympathy and compassion for all of those around you, as we are all in this together. If we divide from one another, we will be conquered as individuals.
$300-$500+ Physical Silver in 2012 article coming soon to follow this article up. The paper markets are full of deceit.
Buying emergency food/water should be on your mind, as the dollar devaluation will not treat people kindly.
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Scott J
