Reality Dawning... For Gold
Despite the fact that the governments of the G-7 nations have injected some $3.5 trillion into their financial systems to prevent a meltdown of the world's financial system, stock markets are still reeling. With some stocks down by over 60 percent, many investors already have been through a disastrous erosion of wealth. The declines have not occurred in just a few days as they did in 1929. Rather, Government interventions, regulatory changes and bailouts have drawn out the fall in prices over a long enough time period to make it feel like a slow water torture.
Nonetheless, the reality is that there has been a dramatic fall in the price of stocks, precipitated by a massive sub-prime induced deleveraging and the opening salvos of a credit crunch that will likely be with us for some time. After years of misplaced optimism, market participants are now coming to grips with some rather unpleasant recessionary prospects. So, despite government rescue measures around the world, markets continue to sputter.
Worse still, as America is perceived as the engine of the fading economic order, the looming recession appears increasingly to be both worldwide and potentially severe. Indeed, it looks likely that, if badly handled, the recession could easily slip into a depression, based on a far more highly leveraged base than in the 1930's.
Therefore, the sad conclusion of the current stock market crash is that it appears to be anticipating an economic crash, just as bad as that of the 1930's.
For a moment at least, attention is focused increasingly on economic recession and diverted from the risk of financial panic. Temporarily, this is reducing the upward pressure on the price of gold. At the same time, recessionary influences are pressing the gold price down, like other more conventional commodities. Therefore, gold continues to trend downwards, possibly even towards $600 an ounce.
In addition, as the risk of recession appears to gaining international perspective, the strength of certain non-U.S. dollar currencies, including the Euro are eroding and driving the U.S. dollar upwards. This, in turn, is bringing yet further downward pressure on the U.S. dollar price of gold.
Regardless of which candidate the United States selects, the next President will face the prospect of severe recession and be forced to "spend, spend, spend" in an effort to avoid an international depression. In the meantime, a second tsunami of credit card, auto, personal and business loan defaults is heading for the banking industry.
Investors are sensing the approaching storm. On January 12, 2009, General Motors Automobile Credit Corporation (GMAC) is due to redeem $1 billion worth of bond issues. Just three months from redemption, these GMAC bonds are trading at a massive discount from par. In today's climate, three months can feel like an eternity. It is a finite measure of only a small part of the financial storm ahead.
In the third weekend of November, leaders of the G-20 nations will assemble in Washington for urgent economic talks. There may even be calls for a new Breton Woods to discuss a revised world monetary order. Key will be China's role. It is likely that a major debasement of all currencies will be undertaken to rescue the global economy and with it, the world's politicians. As this proposal gathers momentum, gold is likely to explode in price.
However, with the possible exception of countries like Switzerland, politicians the world over are likely to create international rules designed to preclude the holders of gold from making "windfall profits."
Therefore, holders of gold should renew their efforts to ensure their holdings of gold are as isolated as possible from the long, greedy arm of the law.
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 denominated investments, read Peter Schiff's book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to buy a copy today.
Also, for an updated look at his investment strategy, you need to get his new book 'The Little Book of Bull Moves in Bear Markets." Click here to buy a copy now.
More importantly, don't wait for reality to set in. 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 our free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to our free, on-line investment newsletter.
Browne is the Senior Market Strategist for Euro Pacific Capital,
Inc. Mr. Browne is a distinguished former member of Britain's
Parliament who served on the Treasury Select Committee, as Chairman
of the Conservative Small Business Committee, and as a close associate
of then-Prime Minister Margaret Thatcher. Among his many notable
assignments, John served as a principal advisor to Mrs. Thatcher's
government on issues related to the Soviet Union, and was the
first to convince Thatcher of the growing stature of then Agriculture
Minister Mikhail Gorbachev. As a partial result of Browne's advocacy,
Thatcher famously pronounced that Gorbachev was a man the West
"could do business with." A graduate of the Royal Military
Academy Sandhurst, Britain's version of West Point and retired
British army major, John served as a pilot, parachutist, and communications
specialist in the elite Grenadiers of the Royal Guard.