Buy gold to side-step the collapsing US dollar!

But how can a responsible central bank cut interest rates and pursue an expansionary monetary policy when the stock market is close to an all time high and when it is faced with a weak currency and soaring food and commodity prices?

‘Only in America’ one should say because the US-infected IMF and World Bank would advise any country under these conditions to ‘tighten’ monetary policies and to raise interest rates. But since the Fed’s only objective today is to ‘inflate’ asset markets further at the expense of totally debasing the currency we need to look at a new currency as a ‘unit of account’ and as a ‘store of value’.

Gold rules

In my opinion, the world’s new currency with the qualities of being a ‘unit of account’ and ‘store of value’ will be gold and to a lesser extent other precious metals.

Let me explain! In an environment of monetary debasement – that is when cash loses rapidly its purchasing power – all goods, services (R&D, patents, etc.), and assets become currencies as investors and savers realize that the only way to protect the purchasing power of their money is to move from liquid into ‘illiquid’ assets.

Consequently, money is no longer just dollars, Euros, Yen and Chinese RMB, and short dated bonds but also real estate, stocks, commodities, paintings, and even collectibles.

Now, the same way as in a free market economy currencies fluctuate in value against each other (so far the US dollar mostly down), the various asset classes, which have increasingly become ‘money’, will also fluctuate against each other.

And the way sound currencies tend to strengthen and currencies with poor fundamentals tend to weaken, the various asset class monies will, depending on their fundamentals, either appreciate or decline against each other.

Cash unsafe

Simply put, whereas in the past cash could be perceived as ‘reasonably’ safe, today cash may, courtesy of modern central banking under the auspices of the US Fed, actually have become quite a dangerous asset class due to its depreciation not only against asset prices but also against consumer prices, if these were measured properly by government agencies.

In short, the problem an investor is facing is the following: In the past, savers who wanted to avoid the problem of taking investment decisions and allocating their funds to different asset classes could keep their money in short term deposits.

But in today’s new monetary regime – characterized by massive monetary and debt growth and central banks that seem to be perfectly happy at ‘printing money’, which leads to a loss of money’s purchasing power – savers are almost forced to invest into ‘something’ in order not to end up as ‘penniless billionaires.’