It’s as if everyone is holding their breath. This is the week we’ll find out whether or not there will be a default on the U.S. dollar.
Chances are, there won’t.
It most likely that some kind of compromise will be made. The debt ceiling will rise. There will be some cuts in spending. Maybe there will even be some nominal increases in taxes. We’ll see. As you’ll see below, the details really don’t matter.
Look beyond this week. Will anything have really changed? Will the U.S. debt have been reduced? Will new jobs have been created? Will the deficit have fallen?
The answer to all of these questions is no. What we’ll see, in one form or another is simply a political compromise. All the underlying economic problems will remain. Nothing will be fixed.
How can it be any other way?
As of June 29, 2011, U.S. public debt stood at $14.46 trillion, and was approximately 98.6% of calendar year 2010’s annual gross domestic product. That won’t change.
The U.S. has one of the lowest rates of taxation of any of the G20 countries. That won’t change either.
In other words, in spite of all the hot air and fussing around in Washington, nothing significant is going to change. At least, not for now.
You might think that this scenario would have driven tens of millions of Americans to exchange some of their cash for gold coins or gold bars. But that hasn’t happened.
Although investment advisors constantly tell their clients to put 10% of their savings in gold, most people don’t. Less than one percent of the world’s investments are in gold…whether that be in the form of ETFs or gold bullion.
But there must be a tipping point somewhere out there in the near future.
There must come a time when people wake up and realize their dollars are declining in real value day by day. At some point, millions more people will wake up and decide to reduce risk by buying gold bullion.
Even Ben Bernanke, whose job it is to defend the dollar is on record for saying, “I think the reason people hold gold is as protection against what we call ‘tail risk’ — really, really bad outcomes. To the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.”
Your job is to stay ahead of the herd, and buy more gold now, before prices rise even further. And gold prices will rise, for the two reasons outline above.
1. Gold prices will rise because nothing is going to change the real economic problems faced by the U.S. and other countries around the world. At least, not yet.
2. Because we will reach a tipping point when millions of people lose faith in their dollars, and scramble to convert them into gold.
Ongoing problems with the economy, and a rush to buy gold, will both push prices higher.
In other words, while you might be wishing you bought more gold a year ago, it still makes sense to buy more now.
Further reading…