Gold and other commodities continue to be safe havens for investors. As the European debt crisis continues to escalate, and the US stock market performance remains uncertain, many analysts believe that the price of gold and other commodities will continue to push higher. See the following article from Money Morning for more on this.
With so much uncertainty in the U.S. stock market - not to mention the debt-contagion concerns emanating from Greece and other European Union (EU) countries - it's more important than ever for investors to hold "hard assets," such as gold and other commodities.
In my view, what's happening in Europe is particularly important for investors to be aware of and understand. The so-called "shock-and-awe" bailout strategy undertaken by the EU and the International Monetary Fund (IMF) - which establishes a $1 trillion rescue package for member-countries facing financial crisis - will not be the answer.
The Looming Inflation Contagion
When it comes to sovereign-default concerns, Greece has so far been the chief culprit. The rescue plan is meant to "scare off" would-be speculators looking to short the euro currency and the bonds of afflicted nations. That may work for a time, as some doubt has been removed by this backstop bailout.
The economies of the more fiscally responsible nations are themselves not back to full health: Many of these nations are also saddled with large debts and ballooning deficits. Economic growth is near - or at - zero. Unemployment is high. And the prospects for a major near-term improvement just aren't that strong.
The bailout plan may provide reassurance for now, but what will happen when the next euro-member country shows up - hat in hand - looking for a loan?
Any funds to be provided to cash-strapped nations unable to refinance their maturing sovereign bonds are likely to come from printing more currency, leading to rampant inflation. Even if governments find ways to underreport inflation, it will nevertheless show up in our outlays for rent, food, fuel, and other daily expenses. The typical consumer will come to doubt the very fiat money he uses daily, as well as the official inflation statistics reported by his government.
Economic weakness tempts nations to devalue their currencies in order to make their exports cheaper in the eyes of consumers in other countries, as well as to stimulate business. The problem is more and more nations have the same goal, simultaneously leading to a "competitive devaluation."
When fiat currencies lose value because there's more "paper" in circulation, that's always measured against something. If they're racing each other to the bottom, then it's the "tangibles" that gain in value, as it takes increasing amounts of paper currency to buy a unit of a given commodity. If you add to that a scenario of serious inflation or even hyperinflation, then hard assets could exp... |
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