There has been an unprecedented attack on gold and mining shares over the past three years emanating from financial institutions in order to support the government’s supposed success in bringing the economy back to health. And even though gold mining shares are down 85% during this tenure, the case for owning gold-related investments have never been more compelling.
The reason to own gold is the same today as it has been for thousands of years: it is the perfect store of wealth. Gold is portable, divisible without losing its value, beautiful, extremely scarce, and virtually indestructible. It is simply the best form of money known to mankind.
The case for keeping your wealth in gold only becomes more bolstered when real interest rates are negative, faith in fiat currencies is crumbling, and nation states are insolvent. The massive and unprecedented Quantitative Easing programs and Zero Interest Rate Policies among the Bank of Japan, Peoples Bank of China, European Central Bank and Federal Reserve clearly show that Central Banks have no escape from manipulation of their bond market, currencies, equities and economies. Ms. Yellen’s recent tacit admission that the Fed Funds Rate must remain at zero percent for at least a full seven years was a clear validation of this premise.
For example, if the BOJ were to stop buying every Japanese Government Bond issued; interest rates would skyrocket, the stock market would crash and the economy would melt down in a matter of days. This is because any nation that has a debt to GDP ratio of 250%, over a quadrillion yen in debt, and is in a perpetual recession should never be blessed with a 0.3% 10-Year Note yield.
Turning back to the Fed’s recent decision to hold rates at zero, its inaction should lift the veil on its omnipotence. As Clark Kent can attest, being “Superman” is easy; returning to normal can be awkward.
With $44 trillion in total non-financial debt, which is up $12 trillion in the last 10 years alone, we have also become a highly indebted nation that has become completely addicted to lower rates. The U.S. high-yield bond market, which was the catalyst of the 2008 financial crisis, has grown to $2 trillion in size–a full $1 trillion of these new loans have been added since 2009.
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