1. The dollar is in steep decline. The current White House administrationwants a weak dollar to help U.S. exports. No development is more positive for gold than a weak dollar policy. Worldwide, the sentiment is changing toward the U.S. Dollar. The weak U.S. Dollar has been trading at record lows against a strong Euro. But the worst is yet to come. When foreigners decide to take their money out of U.S. stocks and trade in their dollars for foreign currency, the dollar could meet with an historic crisis. Should that happen, gold is the one investment you must own.
2. Inflation can’t be far away. The Federal Reserve has the printing presses running overtime spewing out paper dollars. Meanwhile, U.S. Government spending of those paper dollars is out of control– all in a vain attempt to temporarily prop up the economy ahead of the election. We believe the only result of a “loose money policy” will be inflation. Inflation sneaks up on you quickly when you run those printing presses. Back in 1979, the U.S. inflation rate hit 13.3%– and it could happen again! Excess new dollars decrease the buying power of every other dollar. Inflation has always been gold for gold. After the 1970’s runaway inflation, gold peaked at $850 in early 1980.
3. Shoppers will run out of money, the economy will grind down. We believe that personal debt from over-consumption is sure to slow down the U.S. economy. Home equity loan debt is at all-time highs as is the consumer debt load for credit cards. Consumers are sucking equity from homes to spend in the malls. Is all this borrowing making consumers wealthier? No! The American Bankruptcy Institute reports personal bankruptcy filings totaled 1,613,097 in the U.S. – an all-time high for any 12-month period. When the consumer-buying binge is over, the debt hangover will remain. With the American economy so dependent on consumer spending, when the shopping binge is over, a recession can’t be too far behind followed by falling stock prices.
4. Interest rates are bound to rise. While interest rates today are artificially low, consumers are eagerly buying new homes, cars, and borrowing money to stimulate the economy. But at some time, it’s inevitable that the Federal Reserve must permit interest rates to rise. Consumer spending could be stifled completely with rising interest rates on their credit card debt. The Daily Reckoning explains further, "When you have a consumer economy where everyone is already deeply in debt, all cutting interest rates does for you is coax people even more deeply into debt. People can't go deeper into debt forever; they'll run out of money to make the payments. Sooner or later, they have to cut back - and then, they're in worse shape than ever.”
5. Investment Demand for Gold is Accelerating. Despite the fact that the stock market is still soaking up the overwhelming majority of new investor dollars, gold prices have risen 25% this year. But look out! If public sentiment changes – if there’s a flight to safety and people sell their stocks to buy gold– gold demand could skyrocket. This fresh, new demand for gold could be unlike anything we’ve seen since 1980 when gold peaked at $850/ounce.
6. Government Deficits Out of Control. The largest deficit in history was $290 billion in 1992. That historical mark has been far exceeded, as the federal government's budget surplus this year will top $374 billion dollars– that is twice as large as last year’s deficit. For 2004, the deficit is estimated to surpass $500 billion. Add to that the trade deficit, which just topped $500 billion. Current deficits have reached levels that have led to a currency collapse in virtually every other instance in history.
7. Investors Seek Better Returns. The Federal Reserve has dropped interest rates 12 times to historic lows. It may be helping the economy, but it’s killing many investors on fixed incomes. When you subtract inflation from the interest rates paid on Bank CDs, real interest rates are now negative. Negative real interest rates have historically been a driving force for stronger gold prices. In times of poor interest rates, investors turn to alternative investments like gold that historically generate positive, inflation-proof returns– especially in the worst of economic times.
8. Widening Gold Demand/Mine Supply Gap. In recent years, jewelry, electronic, industrial, and coin demand for gold has far exceeded the actual gold mined in the world. Central banks filled the gap. Evidence suggests that 30% to 50% of the gold reported to be in central bank vaults was sold and used by manufacturers. These gold reserves must be replaced sooner or later with newly mined gold. However, the forecast is for mine supply to contract in coming years due to the lack of exploration when gold prices were low and the natural exhaustion of existing gold mines. A high demand/short supply scenario creates an nearly ideal environment for gold prices to continue to rise.
9. Gold Demand Soars in China! Today, gold is once again legal to own in China. There are 1.3 billion Chinese who’ve have loved gold for 5,000 years! In poor, rural areas of China, gold ingots are auspicious symbols of wealth. In China’s cities, thousands of entrepreneurs are now millionaires. They too are accumulating gold as an investment now that the National Gold Exchange legalized gold trading in China. China’s demand is expected to rise 150% to reach 500 tons per year in the next few years.
10. The War on Terrorism. Because gold is the one investment, you must own in a flight to safety, we must talk briefly about a “worst case” scenario regarding terrorism. It is distinctly possible that America may be attacked again. It could happen next year or it could be tomorrow. We may face another biological attack like anthrax. Or it could be small pox or the plague that infects the mail. It is unthinkable, but we could lose a major U.S. city to a terrorist nuclear weapon. Even a radioactive dirty bomb that serves more as a “Weapon of Mass Disruption” than Mass Destruction is a possibility. When considering investments today, we must weigh-in even the worst scenarios.