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| August
2006 |
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| 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. |
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| Play it right
and you can make life-changing returns. |
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| Central Banks
Looking to Exit the Dollar. |
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| 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. |
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| 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. |
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| Recently,
Russian President Vladimir Putin ordered the Russian central bank to raise
the gold share of its foreign reserves from 5% to 10%. |
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| That’s
no small matter, given that Russia's reserves have surged to $247 billion—the
world's fourth largest. |
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| 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. |
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| 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." |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| Click
Here to learn more about those golden opportunities and how to
profit from them. |
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