Agoracom Blog

Why Gold Record High? Gold Is Now Being Silently Recognized As The World’s Reserve Currency

Posted by AGORACOM at 9:04 AM on Wednesday, May 12th, 2010

Spot Price Of Gold

There is a risk in thinking that everyone understands this headline.  However, the fact of the matter is that gold is still misunderstood by most investors, especially in the United States.  Much of that has to do with the fact that gold gets very little respect from US financial media because most “guests” on these shows don’t generate revenue from gold.  Fund managers and brokers typically make their money by selling you stocks, bonds, mutual funds, etc.  because they provide the seller with an easy way to make commission.

Gold and for that matter, real estate, don’t provide financial advisors with an easy way to make commission.  Hence, when you hear advice about asset allocation in your investment portfolio, you always hear it in terms of stocks, bonds and cash.  No gold, no real estate.  You need to understand this if you are to truly understand why gold should be a part of your portfolio (we can talk about real estate another time).

Gold Is Now Being Silently Recognized As The World’s Reserve Currency

1-Year Gold Price Chart

What does this mean? The good people over at Technical Indicator Index summed it up as follows:

Gold hit a new all-time high Tuesday, both on an intraday and closing basis. Why? Gold is now silently being recognized as the world’s reserve currency. Fiat currencies are being printed at will with no accountability. This paper inflation is weakening the purchasing power of world currencies, and the risk of rendering them worthless is rising. Nations have elected to print and spend instead of stimulate economies through investment, tax reductions, and technological advances. Gold is now seen as a safehaven. Our conservative investment portfolio has a concentration in Gold, Mining Stocks, and Silver in anticipation of this fundamental expectation, and in response to technical analysis charts. We believe Gold is going much higher over the coming years.

Bottom line? Most world Governments are broke. Their broke at the Federal, State and Local levels.  The response has been to print and borrow more money.  You don’t need a fancy graph or chart to tell this is going to end badly.  Rather, just imagine what your grandfather would say if he was sitting beside you right now. When you’re broke, you cut spending, stop borrowing and sell assets to pay down your debt.  You make sacrifices and start all over again as best you can. As an individual or small business, this is what your lenders would force you to do.

Governments are no different except for the fact they can photocopy as much money as they need.  That’s fine and dandy in the short-term – but how much confidence would you have in the long-term prospects of someone that kept handing you photocopied IOU’s?

If you understand this concept, then you now understand why investors are losing confidence in currencies and turning to gold.


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