Is gold a valid hedge against today's competitive currency devaluation?
*Barron's, by Lawrence C. Strauss & Scott Minerd, November 8, 2010:
''There have been five paradigm shifts in the last century on the
definition of money. And it is not unusual for central banks and
governments to make a shift when the problems become so big that they
can't resolve them within the financial system they created.''
''The last major one was the Nixon Shock of 1971. President Nixon
closed the gold window, and that ended the convertibility of dollars
into gold at a fixed price of $35 per ounce. From that point on,
we went into a free-floating exchange-rate system with fiat
currencies. That was a dramatic change from anything that
occurred in the history of the United States or even in the history of
the world. Ultimately, though, the supply of money that is being
created by the Fed is creating an imbalance between the number of
dollars in circulation and the value of assets. Either asset
prices across the board will have to adjust upward in a dramatic way or
we will have to find a way to shift the definition of money in a way so
that it doesn't appear that, essentially, our currency has been
debased. That occurred back in the 1940s with the establishment
of the Bretton Woods system that linked all the currencies together and
then ultimately made the dollar exchangeable into gold for central
banks. Something like that or akin to the Bretton Woods system is
a possibility. Policy makers are putting out a lot of feelers for
the IMF [International Monetary Fund] to become involved and create a
solution to end the competitive currency devaluation that is going on
today. When the Fed faces its ultimate crisis of removing all of
this liquidity, it will force a change in the paradigm of money.
It is hard to predict exactly how that will work. But it
certainly makes the paper money that we are using today look like a
fool's game in the end, and that's why there is so much demand now for
hard assets such as precious metals, art and collectibles.''
''I actually think this decade is a great opportunity for investing --
that is, for people who buy high-quality stocks and investments in
select categories of fixed income, especially areas like high yield,
and in commodities. The bull market in gold, as George Soros has
said, is the mother of all bubbles, and we are still in the early
stages of a bull market that will probably go on for another
decade. So there are lots of opportunities for people to make
money. But in most of the asset classes where people could make
money, investors are afraid to get involved.''
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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