Gold continues to excel as one of this past decade’s best performing asset classes and continues to garner the attention it rightfully deserves. The increasing number of news reports and other media coverage is evidence that gold is in the second stage of its long-term bull market. The third and final stage of this bull market is still in the future.
Nevertheless, it is understandable if we ask ourselves, can gold keep climbing higher? Rising ten years in a row is clearly exceptional, so it is reasonable to ponder whether gold can keep this upward path. Yes, it can, and the reason is straightforward; we are witnessing the destruction of national currencies.
As long as governments and central bankers pursue policies that erode the purchasing power of the currency they manage, gold will be exchanged for that currency at an ever rising price.
It is important to recognize that all national currencies circulate because of government fiat, i.e., force. Governments use legal tender laws and other instruments of force to keep national currency in circulation. Because their purchasing power is being eroded, national currencies no longer meet the goals of what currency should be or the needs that currency should fill.
Gold is the numéraire – the measuring stick – that illustrates how badly national currencies are being managed. Therefore, unless government policies change – and I see no prospect of that – the price of gold will continue to rise.
Consequently, it still makes sense to stay with the same strategy that we have been pursuing throughout the last decade. Continue to accumulate gold under a steady cost averaging program. Make gold purchases part of your regular budget, and view gold to be your savings. As I have said many times – but it is always worth repeating to understand the underlying logic of this gold accumulation plan – saving money is always a good thing, particularly when it is sound money.
While 2010 was a great year for gold, it was the best year of the decade for silver. Silver rose against all nine of the major world currencies, topped by a spectacular 97.0% jump against the euro and 87% against the dollar.
We clearly know from experience that silver is more volatile than gold. Silver also fits well within a long-term accumulation plan, but only if you are prepared to accept the volatility that comes with it. The reward for doing so will be silver’s continuing outperformance against gold over the long-run. Silver has average annual rates of appreciation in all nine major currencies that are higher than gold.
To conclude, we should assume that gold and silver will both appreciate again in 2011. After all, nothing has changed. The reasons that have been driving the metals higher all decade long remain in place. Governments and central banks are pursuing policies that are destroying the purchasing power of national currencies.
As a result, government policies that have led to monetary debasement for decades are going to accelerate in 2011. Be ready for it. If governments continue to follow the wrong policies and make the wrong decisions when confronting some critical moments in the months immediately ahead, then the sky is the limit for gold and silver as national currencies hyperinflate and approach a total collapse. Consequently, everyone needs physical gold and physical silver now more than ever.
So where does this all lead to? I am telling you right now that there will likely be a massive debt crisis in America during 2011 and gold is going to rise like the Phoenix as a result. Wall Street may not agree with me, but I don’t care. The previous crisis proved that literally hundreds of thousands of people with flashy degrees couldn’t think rationally. Anyone who can think rationally and logically without allowing emotions or preconceived notions to seep in can see this disaster coming from a mile away. Stimulus in America is failing for obvious reasons, but not one in a hundred understands why. Debt will not stimulate the economy if all of the interest payments are being exported. Businesses will not invest and expand no matter how low you drop interest rates if tax policy is not consistent. These are things I’ve consistently said against the crowd while everyone was predicting a stimulus-induced recovery. Our way of approaching this debt crisis is just dead wrong.
Several weeks ago I mentioned that a disaster is coming for the individual States. Federal funding is about to run dry and states have yet to fix their finances. Recently, Illinois lawmakers have suggested a 75% increase in their income tax rate.Truthfully, our leaders never really had any plans of paying this debt off. Leader after leader ignored the debt crisis hoping that it would all blow up under someone else’s watch. Imposing drastic cuts on the public sector was one sure-fire way of ensuring you would not get reelected. No one showed the courage to speak honestly about our problems, with the exception of maybe Ron Paul, and that is why this sovereign debt crisis is going to be massive. It is time once again for people to realize that often times those who stand apart from the crowd really are the ones who are right.