A) War in Syria, Ukraine, Middle East, South China Sea and other places seems more likely each month. History shows that wars are inflationary, commodities increase in price, and governments finance wars with debt and fiat currency. We want higher gold prices and no war, but the “powers-that-be” will do what is necessary to increase their power and wealth, and if that requires war, then expect more war.
When armies invaded other countries throughout history, were they more interested in confiscating gold or paper currencies? Who wants fiat currency when it is circling the drain on its way toward zero? In troubled times the preferred asset is gold, not devaluing paper currencies issued by insolvent countries and central banks.
B) Central banks will lose control over interest rates and that will pose a huge risk to the global financial system. Expect much higher gold prices as rising interest rates force insolvent governments to more aggressively monetize debt and devalue their currencies.
Unless you believe that central banks can hold interest rates low for decades, regardless of what markets, investors, and individuals believe is appropriate, there is significant risk of rising interest rates.
C) A derivative disaster as a consequence of rising interest rates – is a bomb waiting to explode. The fuse is probably burning at this moment…
From Daniel Ameriman:
“One could even say that by having created such a fantastically large level of risk the financial firms are effectively blackmailing the governments to make sure they never have to pay out, and the governments are allowing this because 1) so much money is being made by connected insiders; 2) it hasn’t actually blown up yet; and 3) the voters have no clue about what is actually happening.
There is an elaborate vocabulary and mathematics for derivatives that goes well beyond the knowledge of most financial professionals, let alone the general public. They are created by the largest and most prestigious financial firms in the world. Yet, once the veneer of these layers of impenetrable mathematics, jargon, “expertise” and the perception of overwhelming financial authority is pierced – what is left is nothing more than a basic form of insurance scam, i.e. collecting premiums for policies that can’t be honored. And if something does go wrong with that scam – then it is all of us who are the ones who will pay together, as taxpayers and investors.”
When gold prices rise in earnest (ask the High Frequency Traders for a precise date) they are likely to rise rapidly and cause financial media comments such as, “Nobody saw that coming…”
Courtesy: Gary Christenson – The Deviant Investor
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