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"The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value..." (Alan Greenspan, former Chairman of the Federal Reserve)

The continual and increasing issuance of U.S. dollars has steadily eroded its value. This has been particularly pronounced since abandoning the final vestige of the Gold Standard some forty years ago.

John Maynard Keynes, perhaps the single most influential economist of the 20th century, said that, "by a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

The following chart shows the value of the U.S. dollar in terms of gold.

As you can readily see, the dollar has depreciated over time. With the Coinage Act of 1792, the dollar was officially defined in terms of silver. The nominal gold price at this time was equal to $19.39.

The first devaluation occurred during the War of 1812. After hostilities ended, the pre-war convertibility was restored. Following the Coinage Act of 1834, the dollar was revalued and one troy ounce of gold had the nominal price of $20.67. During the U.S. Civil War, convertibility of the U.S. dollar was suspended. But again, as with the War of 1812, the pre-war convertibility was eventually restored. The Gold Standard Act of 1900 officially defined the U.S. dollar in terms of gold instead of silver.

The next drop in the value of the U.S. dollar came as a result of the Gold Reserve Act of 1934. This act was part of the measures put forth by the Franklin D. Roosevelt administration during the Great Depression. This act set the nominal price of gold at $35.

After the Second World War, the dollar continued to be convertible to gold at the pre-war rate, but was the only currency in the world to be so. Through the Bretton Woods Agreements of 1944, all other currencies were to be held within tight trading bands to the U.S. dollar.

In 1971, it was feared that the United States Treasury would be unable to continue its obligation of redeeming dollars brought in by foreigners for gold. On August 15th of that year, the so called "gold window" was closed.

The severing of this last connection between gold and paper money meant that all the world's currencies now "floated" against one another. Gold soared from $35 to $195 an ounce by the end of 1974.

With some notable ups and downs, U.S. dollars have continued to buy less gold. As of November 2012, it now takes over $1,700 to purchase one troy ounce of gold. This represents more than 98% loss of purchasing power in just under 40 years.

The following chart super-imposes the amount of currency in circulation.

As we can see, there is an expected decline in the value of the U.S. dollar as greater amounts are produced. If this trend disturbs you, then you would find it prudent to transfer a sizeable portion of your wealth into something that has a proven history of being a store of value - such as gold.

Obama's Budget Continues Unprecedented Deficits

The President is responsible for submitting an annual budget to Congress and has the authority to veto legislation, including irresponsible spending. Most Administrations have run small but manageable deficits, but President Obama's unprecedented budget deficits pose serious economic risks.

Rising Deficits Drive U.S. Debt Limit Higher, Faster

The Budget Control Act, a result of the contentious 2011 debt ceiling debate, increased the debt limit by $2.1 trillion, but failed to rein in the key driver of spending and debt: entitlement spending. Congress first placed a statutory limit on the national debt in 1917, in the Second Liberty Bond Act. It has been raised 13 times since 2001.

Interest On the Debt Will Nearly Double Over the Next Decade

As the publicly held debt grows, net interest payments will increase dramatically, even assuming that interest rates remain low. Under current projections, real net interest costs would more than double over the next decade.

Gold's reclassification as a Tier 1 asset

Regardless of how the central banks wish to classify gold bullion, it is the market that will eventually decide the value of gold bullion, which has retained its value and played a significant role as a monetary asset for 5,000 years.

The central bank in the U.S. - the Federal Reserve - has recently released a memo to possibly change the status of gold bullion in this country. (Source: Federal Deposit Insurance Corporation, June 18, 2012.)

Currently in the U.S. and in many parts of the world, gold bullion is classified as a risk asset on which banks are allowed a 50% weighting. This means that for every $1.00 of gold bullion held, $0.50 worth is recognized as value on the books of the banks or central banks. The whole $1.00 is not recognized, because there is a risk, according to the classification, that gold bullion could lose its value rapidly.

Again, these are classifications created by central banks and have no bearing on the true value that the market will place on gold bullion.

Still, it is significant that the U.S. is proposing to reclassify gold bullion as a zero-risk asset as early as January 1, 2013. This means that gold bullion will join the very short list of assets considered zero-risk by the Federal Reserve: U.S. Treasuries; the U.S. dollar; and assets and/or claims with the International Monetary Fund.

So the central bank of the U.S. has joined the BIS in raising the status of gold bullion. Should the reclassification indeed be instituted in 2013, it should increase demand for gold bullion by the banks here in the U.S., as gold bullion would be worth dollar-for-dollar on the balance sheet what a particular bank paid for it.

Furthermore, there is new legislation for banks around the world with Basel III. Basel III requires banks to increase their holdings of Tier 1 capital. If gold bullion is reclassified as Tier 1, then the banks can now use gold bullion as a diversification from other assets on their balance sheets.

Central banks around the world are taking steps to reclassify gold bullion to the status that is has held for 5,000 years: money. The proposed and very significant change by the Federal Reserve here in the U.S. should increase the demand for gold bullion and subsequently the price for the yellow metal. (Also see: "Japanese Pension Fund Buys Gold as Currency")

GOLD

The U.S. stock market has seen a sell-off since President Barack Obama's election win, but gold and silver have held up well and that's a good sign for the metals' prospects.

"Gold is outperforming and may continue to decouple from the equity markets," said Steve Roy, Chief Technical Analyst for Equity Management Academy.

Now that we got the uncertainty of the election process out of the way, we can focus closer and examine what the price of gold has done during Obama's first administration and what the price forecast looks like over the next four years.

Gold made a low of $766 per ounce on October 1, 2008. This was during the period of the first Obama administration and the beginning of the world economic collapse. Since then, the price of gold reached a high of $1934.6 per ounce as of August 1, 2011. This makes the price of gold up more than 250% during the first Obama Administration.

If we use the same ratio of appreciation over the next four years of the Obama administration, we can calculate the price of gold to be worth more than $4200 per ounce!

As we look back at the price of gold since the election results, it appears the market made a bottom on the tail end of the Presidential results as Obama got his second term confirmation.

The price of the yellow metal came down to a low of $1672.5 as of November 5, 2012. With the market testing the long-term 200-day moving average of $1672.38 successfully, it made an upswing bullish reversal from the long-term uptrend channel support levels made last summer to close at $1752 per ounce during the Thanksgiving Holiday abbreviated trading session on November 23, 2012.

Let's take a look at the Daily, Weekly and Monthly technical charts on gold and see what the price forecast for the yellow metal looks like.

GOLD CHART DAILY

The December (Comex) electronic gold contract closed at 1752. The 52-week Range is: 1535 - 1800.

The market closing above the daily 9, 18 and 36 day MAs is confirmation the short-term, intermediate and long-term trend momentum is bullish. With the market closing above the VC Daily Price Momentum Indicator of 1745, it confirms the price momentum is bullish. Look to take some profits, if long, as we reach the 1762 and 1772 levels early next week. If stops are taken out here, we could see a rally up to the 1800 weekly resistance levels.

Buy corrections at the 1735 to 1717 levels to cover shorts and go long on a daily reversal stop. If long use the 1717 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

GOLD WEEKLY

The December (Comex) electronic gold contract closed at 1752. The 52-week Range is: 1535 - 1800.

The market closing above the daily 50, 100 and 200 day MAs on a weekly basis is confirmation the short-term, intermediate and long-term trend momentum is bullish. With the market closing above the VC Weekly Price Momentum Indicator of 1740, it confirms the price momentum is bullish. Look to take some profits, if long, as we reach the 1767 to 1782 levels early next week. If stops are taken out here, we could see a rally up to the 1800 weekly resistance levels.

Buy corrections at the 1725 to 1698 levels to cover shorts and go long on a weekly reversal stop. If long use the 1698 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Click here to enlarge

GOLD MONTHLY

The December (Comex) electronic gold contract closed at 1752. The 52-week Range is: 1535 - 1800.

The market closing above the daily 9, 18 and 36 day MAs on a monthly basis is confirmation the short-term, intermediate to long-term trend momentum is bullish. With the market closing above the VC Monthly Price Momentum Indicator of 1727, it confirms the price momentum is bullish. Look to take some profits, if long, as we reach the 1780 and 1809 levels early next week. If stops are taken out here, we could see a rally up to the 1825 monthly resistance levels.

Buy corrections at the 1698 to 1645 levels to cover shorts and go long on a monthly reversal stop. If long use the 1645 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Click here to enlarge

Source: The U.S. Dollar, Obama And The Gold Standard

Additional disclosure: TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.