Commodity Trade Mantra

Avoid the Next Global Financial Crisis – Invest in Gold

Avoid the Next Global Financial Crisis - Invest in Gold

Avoid the Next Global Financial Crisis – Invest in Gold

The state of the world today requires one commitment from you — a commitment to gold.

When you look around the world, there is a hurricane of crosscurrents blowing across the investment landscape — the stock and bond markets, developed and emerging economies, monetary policies taking shape in various countries, what’s happening to oil and commodities, geopolitical machinations.

The ultimate conclusion to the events now unfolding will take the world in one of two directions: an economic meltdown, or a dramatic re-correction.

Indeed, we are on the precipice of a new global financial crisis, one that once again will be caused by America’s actions, as was the crisis of 2007/08. And, as with the last go ‘round, a crack in the system will see assets of all stripes struggle in unity, save for the U.S. dollar.

Gold, too, will struggle temporarily, if only because of the shock factor. But just as it did in the last crisis, gold will gather its bearings and prove to be a safe haven for shell-shocked investors and savers.

Then again, we could very well avoid the precipice all together if politicians and central bankers take certain actions. And if so, gold rallies hard as the dollar retreats.

Let me explain what I see and you will understand why investing in gold is mandatory in 2015…

A World of Turmoil

The U.S. reported 5% GDP growth for the third quarter. If you’re going to lie, lie big!

There is no possible way the U.S. economy honestly grew at 5%. It grew at that rate through data manipulation largely tied to explosive health care spending (i.e. Obamacare mandates) but that’s a topic for a different day.

Ask yourself this: How can America’s GDP grow at such an explosive rate when A) the strong dollar is hurting exports, B) our major trading partners — Canada, Mexico, Japan, Germany — are all growing at between 0.4% and 2%, and C) U.S. consumer spending — a proxy for the domestic economy — is largely flat?

Something is amiss.

And it’s amiss at a moment when the world in is political and financial turmoil, for several reasons:

  • Russia is on the brink of a crisis that, if the U.S. allows it to happen, will spin through the global economy like a tornado ripping through a trailer park. (And at this point, Russia’s direction is entirely a function of U.S. policy; even German leaders are worried about the unintended implications in Europe of the White House pushing too hard to bring an old foe to its knees economically.) The contagion will weaken European economies and rip apart emerging economies, which will haunt the U.S. economy and global stock markets.
  • Japan has reached its end game and is printing more money than God as it tries to (futilely) save itself from the deadly effects of having put its faith in Keynesian monetary beliefs over these last few decades. That excessive liquidity (along with Japan’s asinine cultural beliefs about immigration) is fueling a national crisis that, given Japan’s role as the world’s third-largest economy, will reverberate globally — and nastily.
  • The European Central Bank is about to launch a round of quantitative easing that will pour even more currency into a global system bloated with money. Bad bad bad.
  • The strong dollar is hurting emerging nations and their companies that have lots of dollar-denominated debt, and could cause a huge — huge! — currency crisis somewhere.
  • The Federal Reserve finds itself in an impossible situation as it looks to normalize interest rates: Raising rates even 0.25% would strengthen the dollar even more, hurting U.S. exports/the U.S. economy even more and risking that currency crisis somewhere else. Don’t raise rates, and the markets remain confused about Fed policy, while the easy-money stance expands the global asset bubble even more.

The list goes on — Greece is causing fears in European gains, China is (also) printing money like mad, oil has disconnected from reality…

If any one of those goes pear-shaped, it will knock over a string of dominoes globally. Investments around the world tumble as money rushes into the dollar … and gold. It’s the fear trade, potentially on steroids, depending on what event causes which dominoes to fall.

And if none of those go pear-shaped, if world leaders manage to navigate all those shoals … well, then gold rallies, potentially dramatically, because the dollar’s strength abates as global sentiment brightens.

Prepare Now for the Coming Crisis

I have written many times that gold is not an investment but, rather, an insurance policy protecting you from political and monetary stupidity. And if nothing else is true in the world, it’s this: Political and monetary leaders globally have spent the last three to four decades acting with the wisdom and acumen of roadkill.

The manifestation of any of the multitude of risks our world confronts now are globally destabilizing because of the interconnectedness of economies and investment markets, the unfathomably large quantity of currency that has been printed globally over the last decade, and global dependence on a single currency — the dollar — that is managed horrendously.

Gold is down because traders too often treat it as a commodity, and investors too often misunderstand its role in a portfolio.

Yet central banks around the world have continued to be large buyers of gold, regardless of price. They’re loading up on insurance. They’re preparing for a catastrophe that could shake the world far more violently than the global financial crisis.

Which is why I tell you at the start of the year: The state of the world today requires one commitment from you — a commitment to gold.

Until next time, stay Sovereign…

 

Courtesy: Jeff D. Opdyke

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