Markets hate uncertainty and climb a wall of worry. Why? Markets are made up of people, and prices are predicated on human emotions — primarily fear and greed. Not financial theory or economic rationale. Investors ignore the old stock market adage, “markets can remain irrational longer than you can remain solvent” at their peril. Impulse or procrastination is often the reason for failure to achieve desired outcomes. The stock market is an expensive place to learn about yourself.
With this said, the main challenge facing investors in the stock market today is not the uncertainty of the geopolitical landscape, the wars in Ukraine and Iran or the threat of China invading Taiwan, as real as they are, but the deliberate policy of the main four central banks to devalue your currency. This coupled with the ravages of inflation, a government tax, should be your concern.
The congressional budget office in the US predicts that the USD will devalue by 75% against an ounce of gold in the next decade. The US Dollar, which is the world’s reserve currency, accounts for 80% of world trade financing and 88 – 90% in foreign exchange transactions.
As the interest rate is the cost of money, so the US 10-year Treasury Bond is the cost of global credit.
Central Banks have been aggressive buyers of gold bullion since the great financial crisis of 2008. Why? They understand that as they print money it devalues. This allows them to pay off their public debt in nominal terms with devalued dollars, Euros or other FIAT (created by decree currencies). Gold is now unofficially the de-facto global reserve currency.
What will the currency that we work for or invest capital to protect, buy in a decade from now? The CBO has given us a clue.
So, if this is an accurate diagnosis, what is the cure? To own gold bullion. JP Morgan, the founder of the leading family bank, said in 1912, “Gold is money; everything else is credit”. True in 1912 and even more true today with spiralling public debt and a highly leveraged, and an increasingly fragile private credit market.
Gold is the only traded asset which is not someone else’s liability. Recognised universally as a means of payment, it is sound money. It cannot be printed or copied. Its unique chemical and physical qualities give it longevity more than any other precious metal.
But not all agree. The famous economist Maynard Kenynes during the Bretton Woods conference in 1944 called to elect the global reserve currency to replace the British Pound Sterling, called gold a “barbarous relic”, a term Warren Buffet has repeated. Sterling like other reserve currencies before it was pegged to gold. The conference chose the US Dollar as the worlds reserve currency, which successive US administrations have been weaponizing ever since.
However, I return to my opening question. What is the reason that central banks are aggressively buying gold, an asset that does not yield anything? Could it be they know something you don’t?
Every investor wishing to grow capital and protect against the devaluation of purchasing power of their currency should own gold. I have owned gold bullion for my family and clients for many years and have successfully diversified market risk and protected purchasing power. Write to me if you wish to learn more about acquiring Gold bullion and holding it in your portfolio.
Jeremy Blatch TEP