Tuesday, September 21, 2010

You Can't Keep Promises by Printing More Dollars!

By Peter Souleles B. Com. LLB., Sydney:

Forget what you hear and read in the press about a gold bubble. I can virtually guarantee that there will never be a bubble in gold for seven simple reasons:

  1. Buyers of gold rarely borrow to buy gold and hence cannot create the same fallout that over-indebted real estate is suffering from. Buyers of gold are gradually realising that gold is an inter-generational wealth asset that defies the quirks of politics, economics and human stupidity.
  2. The number of gold investors and their average investment is miniscule compared to the number of real estate and share market investors and the investments that they make. Moreover, gold is valued by everyone.
  3. The galloping deficits, the accumulated debt of the government and its unfunded liabilities cannot be reined in due to the fact that the compounding interest and demographic decline will outrun any meagre improvements in economic conditions. The bottom line is that the government will not be able to keep its promises no matter how many dollars it prints.
  4. The only collateral the government is left with is the printing press, as it is highly unlikely to either slash its spending or markedly increase taxes. The intrinsic value of dollars as a store of value (either as dollars or Treasuries) is therefore NIL NIL NIL in the longer term.
  5. Interest rates will remain at depressed levels to avoid a housing implosion. If a rate rise triggers an implosion, gold will still hold its relative worth, manoeuvrability and international appeal better than most assets.
  6. Then there is always the possibility that manipulation of the gold market either through one of the exchanges or the various ETF's might be proven and uncovered beyond dispute.
  7. Finally, if gold is in a bubble why do the Russians (publicly) and the Chinese (furtively) keep accumulating it?

The above arguments more or less hold true for silver investors as well.

On the other side of the gold owners are the "living dead". I hear you asking, "WHO, are they?".....read on

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