Gold’s Positioned for a Very Long Run – and We’re Going to Need It

Previously we’ve discussed the possibility that the world is moving toward some type of gold-backed exchange for settling trade debts. Exactly what form that might take is hard to say. It doesn’t necessarily have to be an actual international currency, although it might be. The gold-backed medium of exchange could be as simple as a store of gold somewhere that insures the debts of a nation or individual. Not only is that idea not as far-fetched as it sounds, it may be closer than you think.

The value of gold comes from the fact that it can’t be manipulated. Currency, on the other hand, has now become a global game of Cheat Your Neighbor. Countries compete to create the weakest currency to make their exports and manufactured goods more attractive on global markets. The problem is that game theory will tell you when everyone cheats, everyone loses.

Gold Can’t Be Cheated

We may be looking at a very long upward price trend for gold for the simple reason that you can’t devalue a precious metal by creating more of it out of thin air. Gold has to be mined, extracted, assayed and securely stored, all of which comes at a price.

Currency Follies Like This Have Just One End

You don’t have to be a financial wizard to see the end game for currency devaluation; look no further than Japan. Their central bank, the Bank of Japan, has flooded their economy with cash, and when that didn’t work the bank implemented negative interest rates on cash deposits. The yen is up and down against the dollar like a yo-yo. Holding Japanese currency when the country floods the market with cash is a guaranteed way to lose money. With many countries doing the same, and worse, currency becomes essentially worthless in global markets. After all, would you sell something if you didn’t know whether how much the cash you’re paid would be worth tomorrow?

Experts Agree

Commodities and global markets expert Jim Rickards sees gold becoming a larger part of global commerce in the years ahead, particularly after the next global economic meltdown. He expects gold could go as high as $10,000 an ounce when the value of chronically manipulated currency ultimately crashes as central banks finally run out tricks to keep the game going. Rickards also makes the point that, in such a global currency meltdown, only the IMF will be left to bail out central banks.

China Sees it Coming, Even if We Don’t

China is the world’s leading expert when it comes to currency manipulation. The massive nation has been manipulating its currency to its own advantage in the manufacturing sector for decades. So when the undisputed world champion of currency manipulation starts a massive stockpile of gold, sets up a global gold exchange and buys one of the largest gold vaults in the world, it’s time to pay attention. China likely still does not have as much gold as the U.S., but it’s positioned itself better to broker a coming gold-based trade medium.

The bottom line is that all the cash flooding the global economic system is no longer having the desired effect. Central banks are discovering we can no longer devalue our way to growth, especially now that everyone is playing the same game, and with interest rates at lows not seen in thousands of years, time’s running out.

Maintaining a fixed percentage of your personal wealth in high quality physical gold and silver is a reassuring hedge against an increasingly near and certain future in which our central banks finally hit the wall.  When that happens, the value of the currency in your wallet, your savings account, and your retirement accounts will collapse.