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If the stock
market was a coal mine, and investors the miners, gold would be their
canary. A sharp increase the price of gold is a warning signal
that all is not well. It is a precursor to rising inflation, higher
interest rates, reduced profits, and a general loss of confidence in
financial assets.
One of the more
astounding aspects of the recent gold rally, which has brought it
to fresh eighteen-year highs, is the extent to which excuses have
been made to minimize its significance. It’s as if a
group of coal miners is casually standing around the body of a dead
canary, confident that the bird met its demise due to natural causes.
As the third
quarter draws to a close the S & P 500 has managed a 3% gain,
despite gold’s 8.5% rise.
Some of the popular excuses offered to “explain”
gold’s gain are “increased jewelry demand in India”
“momentum buying from hedge funds and other speculators,”
“rising demand in China,” “short-covering,” and
“demand outstripping supply.”
While all of the
above may in fact be true, they are merely the result, not the cause of
gold’s rise. Gold is rising for one reason and one reason only,
which is the same reason that gold has always risen-- INFLATION.
Gold, unlike national currencies, has no yield, so its rising popularity
reflects the increased perception that interest rates are not high enough to
compensate for inflation. Gold’s new found strength is a sign
that the world’s misplaced confidence in central bankers, and their
alleged commitment to limiting the issuance of currency, is finally coming to
a long overdue end.
For fiat money
to maintain its value there must be a general consensus that its issuers will
keep it scarce. Without such a perception, all fiat currencies
will eventually decline to their intrinsic values, which is zero.
Gold, on the other hand, will always be scarce, as its supply is limited by
the cost to mine it. As inflation accelerates, and the world’s
major central bankers look the other way, or worse deny its existence through
slight-of-hand statistics, more people are re-discovering the value of
gold.
Unfortunately
the vast majority of investors have been lulled into such a false sense of
confidence that they are oblivious to the warning that gold is
providing. Rather than admit the unthinkable, they find it far easier
to rationalize and deny. The result, as would be the case for coal
miners ignoring the lifeless body of canary lying at their feet, will be the
financial equivalent of death.
For
those who prefer life, heed gold’s warning and get out of the one
currency that has the most to lose.
Learn how to protect your wealth through international
diversification, Begin by
downloading my free research report “The Collapsing Dollar: The
Powerful Case for Investing in Foreign Equities” available at www.researchreport1.com
Peter D.
Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA
92660
Toll-free: 888-377-3722 / Direct:
203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
 
For those of you still holding dollars, time is
running out to protect the wealth to which those dollars current represent
claims. A good first step is to
down load my free research report “The Collapsing Dollar: The
Powerful Case for Investing in Foreign Equities” available at www.researchreport1.com
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