Thursday, March 26, 2009

Why invest in Gold?

In the opinion of many of the worlds leading financial and economic experts, gold is in the early stage of a massive, long-term bull market. If gold were to reach, in real dollar terms, the price it reached in 1980, it would get to over $2000 an ounce.

To understand gold's future, you have to look at the past.

As the chart shows, from 1971 to 1980, gold skyrocketed from $40 an ounce to a high of $842. The main reason that happened was a loss of faith in the US dollar. No one wanted to hold dollars.

Price of Gold from 1970 to 2005

As you can see in the chart below, the value of the dollar has plummeted by over 30% in the last few years.

The US Dollar from July 2000 to November 2006

Why is this happening?

All you have to do is look at the overall picture. The US has . . .

a) A record budget deficit
b) A record trade deficit
c) A record national debt
d) A record credit card debt
e) A record consumer debt
f) A record mortgage defaults

And for the first time since the great depression, a negative rate of saving. That means people are borrowing to survive. Add to all this . . .

a) Millions of lost jobs in the manufacturing sector
b) Unfunded US federal pension and Medicare liabilities of $43 trillion
c) A housing bubble about to burst
3) A true inflation rate of 6% to 8%

And there's much more trouble on the horizon, like higher and higher oil prices, an unregulated $170 trillion unregulated global derivative market, described by Warren Buffet as "financial weapons of mass destruction" and trillions of dollars of unfunded corporate pension liabilities.

All of this has led to what we've seen . . .

The US dollar from July 2000 to November 2006

Which resulted in this:-

Spot Price of Gold July 2000 to November 2006

These are the indicators that serve as the foundation for our belief in a bullish gold market.

1 comment:

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