The price of gold is unparalleled from any other time in the nation’s history and is only expected to continue this upward trend. As much as the gold bears are expecting a price correction with gold I feel the yellow metal is only going to become more and more valuable. A copious amount of investors are treating gold like it is a mutual fund or stock not realizing it is an asset more than anything and is used as a storehouse of value. Globally we are in an anomalous time that surpasses any investment wave or price correction. We are in a time where all of the currencies globally are suffering and if not attended to could collapse. It would take a true historian to understand the present circumstances we are in because history truly repeats itself. I am far from a historian but based on my considerable research of past economic events I have come up with a serious case pertaining to where things are heading.
If we were to look back over 5000 years and see all of the monetary systems and how they operated we would see a similar trend take place. For centuries there have been 2 basic forms of monetary systems. Systems that were backed and had limitations on the production of the money supply and systems that were not backed which were essentially useless pieces of paper or fiat currency endorsed by the ruling class. Many are unaware but one of the numerous reasons the American Revolution took place was to break away from a fiat system. In the 1700’s Britain was on a completely fiat currency and many in that period including the founding fathers of the United States were trying to use gold and silver as a monetary exchange. It is not by chance that the first monetary system put into place within the United States was a bimetallism system. All currency in circulation within the U.S. up to 1933 was backed by gold and silver and at anytime you could trade your $10 bill for a $10 gold piece. With the help of FDR and Richard Nixon the U.S. was officially off of this standard on April.15, 1971. Since turning over to a completely fiat currency the U.S. dollar has lost more than 85% of its buying power and has no signs of recovery. Unfortunately most of the established countries globally are operating on a similar fiat system. Many countries are starting to wake up to the reality of things and are now making an attempt to protect themselves against the inevitable.
Recently India made the largest purchase of gold in over 30 years acquiring 200 metric tonnes of gold in a two week period. Not long after a fairly unknown country by the name of Mauritius purchased 2 metric tonnes of gold adding to the global demand. Last month Russia purchased over 15 tonnes of gold increasing their already plentiful reserves and since 2006 have purchased over 180 metric tonnes of gold. For the last six months Sri Lanka has been increasing their gold reserves and the estimated amount they have acquired is 5 tonnes. The largest advocates of gold these days is none other than China who have publicly announced that since 2003 they have secretly been buying gold and have increased their reserves over 600 tonnes since. In addition last year alone China produced 288 metric tonnes of gold which is equivalent to 12.2% of the global output making them the world’s largest producer of gold. The amount of gold buying that is taking place with countries globally is nothing but a sign that once again we are moving away from fiat currency. When asked during a Reuters interview to comment on India’s recent purchase, Xia Bin, the chief of China’s Financial Department of the Development and Research Centre stated, “India’s okay with it, why shouldn’t we be? What’s the use for so many dollars, whose purchasing power is weakening anyway? With so many foreign reserves in hand, I think China should buy gold, without doubt.” Ronald Fricke president of Regal Assets in response to the central bank’s recent interest in gold stated last week “As the United States dollar continues to plummet more and more countries are heading into gold”.
Central banks globally are purchasing gold at astounding amounts and are racing to back up their monetary systems. This amount of buying is guaranteeing the rise in the price of gold and if purchasing continues it could make gold one of the most difficult assets on the planet to acquire. Gold has out valued any currency ever created by man and as the global economy starts to shift back to gold it could very well become one of scarcest metals.
Disclosure: I own Phsyical Gold