TIP OF THE WEEK - Gold is a crisis hedge. Own some before the next crisis.

Gold is a crisis hedge.  Own some before the next crisis.

Jason Brizic

October 14th, 2011

Gold is a crisis hedge.  Rich people buy gold when they are fearful.

There are several good reasons for the wealthy to be fearful right now.  They own more that 80% of all stocks and bonds.  The European sovereign debt crisis is real, the USA will be bankrupted by welfare and warfare programs, and the Chinese economic bubble is going to pop.  Bonds aren’t safe, stocks aren’t safe, and interest rates are at historic lows in many economies.  Gold is a refuge from these crisis events that will not be solved through political means.

The gold price will continue to go up so long as central bankers run their printing presses.  Central bankers such as Ben Bernanke believe in Keynesian economics.  Keynesian economics can be summed up in four words: “Deficit Spending Overcomes Recessions”.  It doesn’t work, but they is what they believe and they are in charge of governments and central banks.

The Federal Reserve under Ben Bernanke has tripled the monetary base since 2008.

Most of this money is being held by the large commercial banks as excess reserves.  It is not being loaned into the economy.

Despite gold’s price increases it has not increased in proportion with the inflation of the monetary base.  It has not risen as much because most of the money created by the Federal Reserve has not flowed into the economy to increase the prices of everything.  The newly created money is locked away in the excess reserves of the large commercial banks.  If they were to lend it out, then prices would rise more than the 300% increase in the monetary base due to fractional reserve banking process.  Basically, one dollar added to the monetary base could become 7-10 more dollars in the M1 money supply (depending on how profligate the bankers loans are).

These are the best gold prices since the July-August 2011 timeframe.  Take this opportunity to make your first purchases of some gold coins.  Politicians will announce solutions to the sovereign debt crisis, the FED will announce better economic numbers, and the Chinese will deny they are in a bubble until it obviously pops.  Don’t believe them.  Greece will default.  They are the first domino to fall.  Nobody talks about the Medicare and Social Security unfunded liabilities.  They are too huge.  They are dozens of trillions of dollars.  The Chinese mercantilists have been inflating they currency and their economy.  When they stop their will be a severe recession in China.

Go to www.apmex.com and take a look at the one ounce gold coins from your country’s mint.  Then buy one if you have none already.  I had a good experience with American Precious Metals Exchange in the past.  I get no commissions or anything from them.

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