The savvy US Investor is faced with a tough but clear problem.
He or She realizes the US Dollar is chronically ill. He or She realizes the need to protect their assets to maintain purchasing power.
The unsavvy US investor believes the rubbish inflation numbers put out by the government. They takes no action to protect themselves until its too late and obvious the cost of living is exploding. Unfortunately, and at that time, they will have no means of generating an income sufficient to keep pace with inflation!
But for the savvy US investor the answer is (supposedly) clear – diversify into foreign currencies such as the Euro, Swissie, Pound, Aussie, Loonie or Gold.
As for the non-US investor the problem is a little more complicated. What the foreign investor sees is a booming economy, a strong currency (relative to the worlds reserve currency) and rising asset prices. No need to protect your purchasing power here right? Wrong!
As can be seen from the charts below, strong foreign currencies are not keeping pace with Gold:
Chart 1 - Gold in Euros - probing the highs
Chart 2 - Gold in safe haven Swiss Francs making new highs
Chart 3 - Gold in Japanese Yen speaks for itself
Chart 4: Gold is even in an uptrend against Super Strong Canadian Dollars
The reason for the under performance in almost every paper currency is due to competitive currency devaluations.
Whilst the world remains US centric and everyone wants to supply us with their goods and services, foreign countries would prefer keeping their currencies as low as possible in order to capture a competitive trading edge.
In an effort to cheapen their currency they print even more than the US Federal reserve does. And the Fed is printing 13% more currency every year! Supply and Demand. Today nobody wants a strong currency and hence all paper money is devaluing against Gold – whose supply cannot be manipulated.
There is certainly an element of real global growth out there but there is also a strong dollop of inflation in the over-heated Global economy. Unfortunately for the savvy US investors who is invested in foreign currencies its a case of jumping out of the fire into the frying pan.
Gold should be your currency of choice. Gold Bullion as well as Gold Stocks for those who can tolerate the volatility.
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks and small caps listed in the US, Canada and Australia.
Please visit my website for a free trial to my newsletter.
Click here: http://blog.goldandoilstocks.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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November 1, 2007
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