Gold, today, is performing its traditional function.
Gold's price is trending upward as the currencies of the world are being devalued.
Gold, for thousands of years, has effectively preserved the wealth and prosperity of its owners.
Before going further on this topic, however, it's important to remember two facts:
First,
gold is a commodity and one does not invest in commodities. One
speculates on commodities. If you buy it and it's price goes higher, you
gain. If it's price goes lower, you lose.
Second,
no one knows what the price of gold is going to do. We can only
evaluate the probabilities and make trading decisions based upon what we
think is probable.
Here are the top five reasons why gold's price will probably go higher:
1. The US dollar is temporarily strong rendering gold's price temporarily weak.
At the moment, the US dollar is enjoying the fact that fear grips
investors worldwide. Presently, only the US dollar and the Euro have the
capacity to serve as the global "reserve currency." With the financial
crisis in Europe continuing, the US dollar looks pretty good and money
managers all over the world are seeking refuge in U.S. Treasury bills
and US dollars. This is temporary due to the fact that both the European
Union nations as well as the BRICS nations (Brazil, Russia, India,
China, and South Africa) are working diligently to get their financial
houses in order. As soon as the Euro and the currencies of the BRICS are
healthier, the US dollar will decline drastically as global investors
flee the dollar for the relatively greater safety elsewhere. The US
dollar is presently strong because it is the nicest looking house in an
ugly neighborhood. At some point in the future, perhaps the near future,
the dollar will probably fall and gold's price will probably continue
higher.
2. Government debt is out of control and growing.
The US government debt is now well over $15 trillion and nearing $16
trillion. That includes only the balance sheet items! When you add in
the unfunded entitlement programs, the total debts facing the United
States government are nearer to $100 trillion. Few people, if anyone,
will claim that our economy will ever be strong enough to pay off that
debt. Only through continued currency devaluation and the ensuing
inflationary spiral can we ever balance our budget. Again, because the
dollar will probably fall in value, gold's price will probably continue
higher.
3. Governments are "printing money" instead of controlling spending.
As stated above, the US government debt is out of control and cannot be
paid off by "growing the economy." Instead, the currency must be
devalued. How is this done? It's done by "printing money." Today,
however, this is not done with the traditional printing press. It is
done with various Federal Reserve policies and actions. With euphemisms
such as "quantitative easing," they cleverly disguised the fact that
they are simply "printing more money." It is easy to see, by simply
evaluating the government's own money-supply statistics, that they are
increasing the money-supply and thereby devaluing the US dollar. Gold's
price will probably continue to rise because the value of your dollars
will probably fall.
4. Central banks are buying gold. It is
easy to verify, through various sources, that the central banks of the
world are stocking up on gold bullion. More than anyone else, the
central banks recognize that currency devaluation is almost inevitable.
Additionally, the global banking rules may soon change the asset status
of gold on a bank's balance sheet. Presently, gold is classified as a
"Tier 2" asset. That means when calculating its value on a bank's
balance sheet, gold bullion can only be recorded at 50% of its value.
There is talk and credible reports that gold will be reclassified as a
"Tier 1" asset. This is planned not only for central banks, but for
federal, state, and private banks as well. What this means is that banks
can trade their deteriorating currencies for gold and this gold can be
counted at 100% of its value on the books. This is huge. In addition to
the current state of gold-buying by central banks, we may see every bank
on the planet entering the market as buyers. If this happens, gold's
price will probably rise drastically.
5. The supply of gold may be shrinking.
Gold can be found all over the world. It is not, however, economically
feasible to mine a gold deposit unless there are at least 1 million
ounces of gold available. There are only 439 discovered gold deposits on
Earth that are believed to contain more than 1 million ounces of gold.
Only 189 of those deposits are being mined. The global production of
gold is approximately 2500 metric tons per year. It is an almost
constant supply that is unlikely to increase for two reasons. The large,
major-deposit mining operations are being depleted, and the newer
discoveries are deeper and more expensive to mine. The constant and
possibly shrinking supply of gold contributes to the probability that
gold's price will go higher.
Again, we are talking about
probabilities. No one should liquidate their assets and pile into gold
believing that they're going to get rich. That would be foolish.
It would be wise, however, to consider these five reasons why the price of gold will probably go higher. If you agree, buy some gold coins, small gold bars, and/or stocks that give you exposure to gold.
CAUTION:
Events and market conditions that are presently unknown can cause gold
prices to decline before moving higher. It is safer to accumulate gold
in small amounts each month instead of making a single bulk purchase.