If taking into account the enormous US debt and interest on that debt alone, it's understandable why the Federal Reserve had printed around $ 1 trillion over two years, so that to stop borrowing. But, on the other hand, this was the cause of hyperinflation that affected an already frail dollar, which has depreciated by some 30% over the last four years. In other words, the Federal Reserve's approach to the dollar and hyperinflation determined investors to put their money into gold and other hard assets, which in turn determined prices to soar.
At the same time, it's inflation that made both the Federal Reserve and the European Central Bank to plan an increase in interest rates. Europe is also confronted with sovereign debts of countries such as Greece, Ireland, Portugal or Spain. The ECB is expected to raise interest rates any day now, while the Federal Reserve next year, if not by the end of this year, depending on the turn inflation will take, with the uprisings in Libya and in the Middle East, in general, pushing oil prices up.
Or, the increase in interest rates may push investors to put their money into bonds, and also affect gold rates. But, for this effect to take place, real interest rates should not be negative, as they surely are for now. Even if the ECB increases interest rates by 25 basis points and the Federal Reserve does the same by 75 basis points, real interest rates will continue to be negative and, as such, no threat to gold prices. On the other hand, given that S&P has been only 5% more than gold rates over the last 40 years, valuing now 0.92, gold is still cheap by comparison with stocks.
Taking also into account the fear of higher inflation, pushing investors to invest their money in gold as a reliable asset, gold prices are expected to increase further; or they witnessed a high rate last week, when gold settled at 1,452 dollars an ounce. Under these circumstances, you'd better think of diversifying your portfolio with gold, especially given the uncertain turn global events are going to take.
If you have had enough of paper assets and you look for something tangible, you don't have to buy necessarily ETFs or gold certificates, but you can go instead for gold bullion, purchasing gold bars or coins. These are certainly hard and safe and thus able to hedge your other assets against inflation, no matter what is to happen to paper assets, such as currencies or bonds.
At the same time, it's inflation that made both the Federal Reserve and the European Central Bank to plan an increase in interest rates. Europe is also confronted with sovereign debts of countries such as Greece, Ireland, Portugal or Spain. The ECB is expected to raise interest rates any day now, while the Federal Reserve next year, if not by the end of this year, depending on the turn inflation will take, with the uprisings in Libya and in the Middle East, in general, pushing oil prices up.
Or, the increase in interest rates may push investors to put their money into bonds, and also affect gold rates. But, for this effect to take place, real interest rates should not be negative, as they surely are for now. Even if the ECB increases interest rates by 25 basis points and the Federal Reserve does the same by 75 basis points, real interest rates will continue to be negative and, as such, no threat to gold prices. On the other hand, given that S&P has been only 5% more than gold rates over the last 40 years, valuing now 0.92, gold is still cheap by comparison with stocks.
Taking also into account the fear of higher inflation, pushing investors to invest their money in gold as a reliable asset, gold prices are expected to increase further; or they witnessed a high rate last week, when gold settled at 1,452 dollars an ounce. Under these circumstances, you'd better think of diversifying your portfolio with gold, especially given the uncertain turn global events are going to take.
If you have had enough of paper assets and you look for something tangible, you don't have to buy necessarily ETFs or gold certificates, but you can go instead for gold bullion, purchasing gold bars or coins. These are certainly hard and safe and thus able to hedge your other assets against inflation, no matter what is to happen to paper assets, such as currencies or bonds.
About the Author:
Find out how to buy Gold Bars in periods of economic troubles by requesting advice from specialists.
No comments:
Post a Comment