Sometimes you don’t have to drop a quarter to see the monkey dance.
Yesterday’s announcement from Federal Reserve Chairman Ben Bernanke caught us all off guard.
Instead of the ho-hum, “we’re going to keep buying bonds for infinity” – we actually got a rather strange, out-of-the-blue declaration. Today I want to take a look at the details (in as quick a manner as possible) and see what this means for our economy, our currency and, of course, our old pal gold.
With gold, I also want to share the perfect time to buy…
But first, let’s analyze the Fed’s latest dance.
In short, the Fed will continue its monthly asset purchase totaling $85 billion (a combo of bond purchases and mortgage-backed security purchases.)
But here’s the kicker, the Fed will continue its monetary monkeyshines until “the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
Ha! We traded one arbitrary, wand-waving set of monetary policy in for another. You and I would be hard-pressed to figure out which made-up government statistic we should follow – in other words, whose word is more reliable, the Fed number-crunchers that make whimsical monetary judgments, or the BLS number-crunchers that change the rules to the unemployment and inflation calculations at will?
Either way, dear reader, you me and the monkey are stuck using the same paper dollars. Paper which, I don’t need to remind you, continually loses its purchasing power.
Dollars in your pocket not buying what they used to? Let’s discuss…
The World Is Catching On: U.S. Cash Is Cheap
With each turn of the calendar month, the U.S. dollar loses its value. That is, with more stimulus hitting the market – to the tune of $85 billion a month – there are more dollars flooding the market. With more dollars hitting the market, each dollar loses its par value.
I see this….you see this…and you better believe dollar-holders, like China, see it.
Indeed, China is getting increasingly antsy when it comes to their large stash of U.S. dollars. And unless you’ve been hiding under a rock, you know that China has been doing whatever it can to diversify out of the dollar.
You name it, China buys it. Energy resources like oil, coal and natural gas – to keep the houses heated, the lights on and the vehicle wheels spinning.
China also buys building-block resources like iron ore and copper. Heck, China buys so many of these resources that it builds towns that no one lives in! [If you get a chance google “china ghost town” and you’ll see what I mean.]
China is also in the sneaky business of hording precious metals. With the writing on the wall about the U.S. dollar – and Ben Bernanke re-emphasizing that text with every announcement – China looks to gold to preserve its purchase power.
But China isn’t the only kid on the block doing this. It’s a global, precious metal trend that you’ll want to keep an eye on.
Indeed, a lot of other emerging market players are, well, emerging in the gold market. Nations like South Korea, the Philippines, Kazakhstan, Ukraine – along with big players Brazil, Russia and India – have been ramping up gold purchases.
In fact, according to the World Gold Council, central banks for the first three quarters of the year purchased over 370 tons of gold. With a little boost in the year end numbers we could see purchases totaling over 500 tons in 2012. That’s a lot of central bank buying, up over 10% from last year.
Listening to what we squawk about here day-to-day, you’ll see that this central bank action portends the larger trend of wealth protection. Many emerging markets use the U.S. dollar as their de facto reserve (they don’t call the U.S. dollar the world reserve currency for nothing, eh?) So in an attempt to protect their nations purchase power, emerging markets are loading up on the de facto wealth protector: gold!
Gold Protects Wealth – When Should You Buy It?
The central bank buying spree portends a larger trend, which we squawk about here often: to protect your wealth with gold.
Stated simply: you can’t print gold.
So when Ben Bernanke and the Fed reduce the value of the dollar by printing as many billions as they choose, you can rest assure that they (or anyone) can’t create gold out of thin air. That’s why gold and silver, as a currency, have withstood the test of time. After all, gold is “the once and future money!”
So is now the time to load up the truck? Well, instead of just running out and grabbing gold with both hands, we should take a detailed look at the best places to buy gold.
Tomorrow, we’ll stop back in with a guide to buying gold on the cheap. Stay tuned!
Keep your boots muddy,
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