Gold – Dollar – Bonds
QUESTION: Hi,
I have two questions:
a) do you believe US dollar has been kept artificially lower than it should be (or at least in long range trading range) by at least two central banks lately? if so how long you think it would last, years?
b) you remind many times gold does not yield so investors should avoid it at any cost – as the most investors have done. benefits of stocks are clear but why many investors still buy / have bought bonds even with negative interests or buy fiat currencies with very low interest levels.
BR, J
ANSWER: Yes. The central banks have been trying to keep the dollar down because a rising dollar will undermine Europe exposing the ECB total failure, and then there is the risk of major sovereign defaults among emerging markets who issued their debt in dollars. The IMF has lobbied hard with the Fed pleading not to raise rates for this fear of capital pouring into the dollar. They do not appear to be able to sustain this policy beyond January.
Gold is not something to avoid. True, institutions cannot buy gold for they earn no income. Gold is really for the individual and it will eventually be the hedge against government and the change in the monetary system which could come as early as 2018 but by 2020 if on schedule.
Institutions buy bond because they simply go by the book. Then pension funds often have restraints requiring various portions MUST be in government debt to varying degrees. Social Security is only in US debt. Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity according to most people. The value of fiat money is supposed to be derived from the relationship between supply and demand rather than the value of the material that the money is made of. But throughout history, ALL money has always been fiat. Bretton Woods collapsed because they continued to print money and the claimed backing was not there. So even the pretend gold standard was fiat. When money was gold coins during the 19th century, it was legal tender, not backed but anything else, and yet it still rose and fell in purchasing power. There is no such period in monetary history of such a Utopia or money remaining steady and a constant purchasing power. It has never existed.
