Gold is a viable substitute currency in the world today! That´s all there is to it, when the value of paper currencies are worth less, then gold dramatically increases in value. And at the present time currencies across the developed world are in fact becoming more and more depressed because of their deficit issues and the amount of money that is being printed in order to try to support their economies. This of course is eroding the value of fiat currencies, and now we are seeing gold become a more attractive option, therefore prices rise. I know it sounds simplistic, but just as I tell my clients, there is no need to suffer paralysis by analysis, just view gold as an alternate currency, and remember, when the value of paper currencies fall, alternate currencies rise.
Right now, Europe is suffering a crisis of debt and it´s only a matter of time before the focus shifts to England, Japan, and eventually the U.S. Along with a host of many other countries, virtually every nation in Europe has racked up tremendous debt. The way each of these countries could keep accumulating this debt was by having other investors, governments, and banks invest in their bonds. If these entities continued buying their bonds (which is essentially a loan) then they could continue with their reckless deficit spending. One thing that this housing/banking crisis did was that it seriously damaged each one of these country’s abilities to generate tax revenues. When this happened those units that were supplying the funds to each of these countries spending binges started to rethink whether or not these countries would have the means for repayment and when that began, these bond holders began to sell their bonds, but at a loss. Remember, when sellers outnumber buyers in the bond market, rates go up, and when buyers outnumber the sellers, rates go down. Considering that the selling was at panic levels, interest rates rose considerably in these countries, and when interest rates go up it makes it that much more difficult for these countries to repay their debt, hence the downgrades from the ratings agencies in these countries. The reality is that the aforementioned countries will probably never be able to repay their debts, and they will either default at some point in the future, or the (ECB) will print more money to support these countries. As a condition from the (ECB) and European Union to aid in support to those particular countries, they have to make very painful cuts in their spending to receive this money, which signifies that wages will fall, people are losing jobs, and pensions are being reduced, which is why you are seeing all these Unions riot as in the images we saw coming from Greece. So therefore it seems clear that Europe will suffer an economic downturn for quite a long period, and it´s not just these countries that are making cuts, but all of Europe is following suit and this will weigh on the value of the Euro for quite some time.
Of course this is causing the value of the EURO to slide in value, and by default the dollar to go up because after all the Dollar is still the Reserve currency in the world and just as I tell my clients, the Dollar is basically the prettiest house in ghetto, so there is a lot of money flowing back to the States. But this shows you how strong gold is, and even though the value of the dollar itself has been strengthening; the value of gold is strengthening even more. Why? It isn´t just gold vs. the dollar, but more so gold vs. paper currencies, and at the present time the world’s paper currencies are becoming debased, and you can pretty much expect this to happen for quite some time.
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