| There is
a major change coming that will catch most investors by surprise: the end
of the U.S. dollar as the de-facto world reserve currency.
Play it right and you can make life-changing
returns.
Central Banks Looking to Exit the
Dollar
In the International Speculator,
we’ve often mentioned the inevitable move by central banks to diversify
their reserves out of the U.S. dollar. We’ve noted that, apart from the
current situation, there is no precedent for any non-redeemable paper currency
being held as the primary reserve of the world’s central banks.
That diversification out of the dollar,
with a lot going into gold, has begun. A regime change is afoot—though
few have yet recognized it.
Recently, Russian President Vladimir
Putin ordered the Russian central bank to raise the gold share of its foreign
reserves from 5% to 10%. That’s no small matter, given that Russia's reserves
have surged to $247 billion—the world's fourth largest.
Accomplishing the shift to 10% gold
would require purchasing 21 million ounces of bullion, which is about one-quarter
of the world’s annual mine production. And thanks largely to oil exports,
Russia is accumulating additional foreign currency reserves at a rate of
about $100 billion per year. With reserves growing so rapidly, just keeping
the gold portion at 5% would require Russia to absorb a big slice of the
world’s mine output.
Meanwhile, in China, Monetary Committee
member Yu Yongding is not alone in calling for Beijing to diversify its
$875 billion reserves into gold to protect against a tumbling dollar. We
quoted him last month, saying: "We need to use some of the reserves to
buy other assets such as gold and strategic resources such as oil." More
recently, Zhao Qingming from the Chinese central bank's Financial Research
Institute and Luo Bin from its accounting department wrote in a note published
in China Money Market that using some of China’s forex reserves to buy
gold could "maintain and raise the value of China's dollar holdings."
That conclusion seems questionable,
but the important thing is that more Chinese officials are jumping on this
bandwagon. It’s an idea whose time is coming—soon.
Given the trillions of U.S. dollars
washing around the world’s monetary system, these are not inconsequential
developments. Quite the contrary. They greatly favor gold and other tangibles.
What’s the alternative for a dollar-heavy investor or central bank? The
Who-Owes-You-Nothing euro? Or the yen, which is the proximate cause of
the current bubble? How about the Zambian kwacha or the Vietnamese dong?
I think not.
What’s Next? - As explained
in the April 2006 International Speculator article “Seasons of Gold,” thanks
to the traditional seasonal pattern, buying will pick up in August, which
should kick gold solidly back into gear. After that, as the wheels start
to come off the global economy, I expect gold to gain serious upside momentum.
That’s not to say there won’t be corrections, even substantial ones, along
gold’s trek to $2,000 and beyond. There will be. But the trend for higher
gold prices is firmly entrenched.
While there are many reasons for
that trend to accelerate, the most important is the desire to hold the
metal. That’s why it’s so significant that investment demand for gold is
up 37% over the past year, much of the latter flowing into the more easily
accessible and convenient Exchange Traded Funds.
Demand will only rise as the months
go by and everyone from central bankers to oil sheiks to hedge fund managers
to everyday Joes piles into gold out of distrust of the U.S. dollar… and
of the government that purports to stand behind it.
And pile in they will, because money
debasement is still very much the name of the game. If you were one of
those resource stock investors who started to panic at the depths of the
recent gold correction, take heart: the big-picture, fundamental reasons
for holding gold—and especially high-quality gold and silver shares—are
as much with us now as they were a month ago, and gold’s continuing march
upwards is far from over. In fact, I suspect in the historical context,
it has hardly begun.
Central banks bailing out of the
dollar, the wheels coming off the U.S. economy—the nightmare of every investor.
Or maybe not… If you invest wisely now, the emerging paper bear market
will eventually prove in your favor. As foreign governments look to avail
themselves of more gold for their reserves, you should do the same. And
investing in gold and other natural resource stocks is a strategy that
promises even higher returns… if you pick the right companies.
Picking the right companies is not
as easy as it sounds. Ideally, you would spend considerable time jetting
around the world, kicking rocks at mine sites, talking to reps of mining
companies, and browsing the news on junior explorers.
That’s why the subscribers of the
International Speculator find the expertise of Doug Casey and his team
so valuable. It combines detailed information on companies… in-depth descriptions
of promising sites… and an instinct for “golden” opportunities that are
likely to generate double- and triple-digit returns in 12 to 24 months.
Click
Here to learn more about those golden opportunities and how to
profit from them. |
