Demise of the Dollar: Rush to Gold is Here       

Over the course of history, we have read about the rise and fall of empires and the transition from one era to another. Today, we see more of things like the dollar unfold before our very eyes.

The Dollar

Dollar, whenever mentioned, most often than not, the concepts supremacy, wealth, gold and the like are the first things that come to our mind. The US dollar occupied the dominant spot the world over as the global reserve currency.

Its strength lies in the fact that gold backs it. Literally yes, every dollar had an equivalent gold. The United States of America had the most significant gold reserves. This makes the US the most powerful nation early in the 2oth Century.

This hadn’t changed for about a century until the Federal Reserve started to print money without gold reserves to back it in the late 1940’s.

Then came the inflation which prompted the start of a vicious cycle of printing more and more money without the equivalent gold reserves compounding the problem.

This then led to the upsurge of the market value of gold thereby reaching the point that the US currency stopped being backed by gold. Gold price tripled, a scenario inversely proportional to the rapid drop in dollar value.

Global Currency Reset

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Global currency reset became the new reality, the birth of the petrodollar, a somewhat political move.

In the past, the US was the most prominent importer of oil from Saudi Arabia, which allowed them to politically have the price of oil based on the US dollar.

This necessitated all other countries to comply.

However, rapid turn of events did happen when Russia took over the limelight when it replaced Saudi Arabia as the major oil producer globally by 2017.

Together with this, China had replaced the spot of the US as it became the most prominent importer of oil recently as well.

The players of the oil market have changed, so much that they wanted to have the Yuan to back the price of oil.

As the dollar supremacy fades in the scene, the Yuan, on the other hand, is promising.

Over the years, China and Russia have been buying gold and now decided to use it to back the Yuan.

This is a game changer. Other countries are set to reconsider as the dollar had gained $123 trillion in debt rather than gold reserves.

Many other nations have followed the game plan of Russia and China.

In fact, European countries such as Hungary and Germany had fortified their gold reserves. Others followed soon, creating a hundredfold rippling effect in a global context.

Indeed, this is the most profound financial change. Today, in the oil market, the dollar is joined by a basket of currencies including euro and the yen.

The dollar is slowly losing its global position in contrast to the gold becoming more significant in the global market more than ever.

This is “gold rush” in a different perspective.

gold

Top 2 Reasons Why You Should Invest in Gold

Because gold has a recognized value worldwide, it had been used as a universal currency dating back to the Byzantine Empire.

However, upon the signing of the Bretton Woods Agreement back in 1944, the US dollar has replaced the gold in being a universal currency. But that didn’t stop gold from being a valued asset. It may have ceased to be a currency but not a store of wealth. However, many developing countries still used it as a backer to their devaluing currencies. Many years have passed, and gold still remains a priceless treasure.

When Richard Nixon removed the gold standard in 1971, other countries followed suit. It may have been erased from the memories of many people, but even when it was no longer a currency, it retained its value by being an excellent investment form.

With the rise of new investment instruments, some people would ask if in today’s modern era, is gold still considered a valuable investment? There are lots of reasons why gold makes for a significant investment. Two reasons are:

1. An Excellent Getaway from The Paper Currency Experiment

The fiat currency which we have all believed to be the ultimate form of money is only an IOU. Meaning to say that it is a representation of a particular credit that countries are issuing. The paper money phenomenon first started out as an experiment. Eventually, when society became more accepting of paper money as the standard of financial systems, many government units have lost control of the economy. And, thus, they resorted to printing massive amounts of money. This, in turn, resulted in hyperinflation.

Hyperinflation has happened time and again in the past. For some people, it may be best to leave the past behind. However, you can’t ignore the saying “history repeats itself.” With that in mind, one factor that makes gold an excellent investment is that it can serve as a replacement for fiat currency.

People may refuse to accept paper money as payment if your currency has been devalued. However, they will always take gold because it is the single asset that has value all over the world.

2. The Relationship of the US Dollar and Gold

There is no denying that the US dollar is the leading currency worldwide. However, just like other fiat currencies, the US dollar also tends to fluctuate through ups and downs.

There is an intriguing association between the US dollar and gold. When the dollar is at a high value, gold appears to be heading towards that direction. However, when gold is purchased at favorable prices, the dollar also goes up in value. Meanwhile, when the dollar has low value, the price of gold tends to go up.

The US dollar is currently at an all-time high. But instead of waiting for a currency fluctuation, you’d rather start investing in gold. That way, when the dollar swoops in value, you will have an excellent exchange for gold.

To Buy or Not to Buy

The main goal of investments is to increase and protect one’s wealth. The topics discussed above cover the primary reasons why gold is people’s go-to when it comes to financial problems.

 

investing in gold and silver

Investing in gold and silver. Why do we invest?

Why do we invest? As elementary as that question is, the answer is worth restating here: we invest to secure our money and to reap interest on the initial investment.  There are many investment vehicles.  Some are: stocks, crypto-currency (Bitcoin for example), real-estate, bonds  and precious metals (gold and silver). Investing in gold and silver may be a smarter way to invest.

All of the fore mentioned investment vehicles have historically grown in value, thus allowing an owner in any of the above to earn money on the initial investment. However, Bitcoin has dropped sharply and is a very volatile investment. Also, of concern, other Crypto-currencies like Bitcoin have failed altogether. Names such as SpaceBIT, Gems, DogeCoin, & Dao have gone away in a blaze of notorious fire for the history books. Likewise, however, under authoritarian governments, access to trading stocks and the ability to own and profit from real-estate has been historically unsafe.

Therefore, it’s necessary to think of investment vehicles as being a unit of two components: profitability and safety.

A particularly unique thing about precious metal investments such as investing in gold and silver is that they are portable investments. Unlike real-estate where you must secure the location you own, with the help of local police or otherwise, Crypto-currencies where you must have access to an internet source, or stocks where you, at this point, require access to an internet source to trade, precious metals can be secured and moved and still retain the value that those precious metals have.

When it comes to the safety aspect of investments, it’s hard to beat investing in gold and silver. In the worst case scenario where all investments besides precious metals have become unsafe or impossible to use, you’ll likely be protecting your precious metal investment by merit of your ability to protect it physically. No other investment vehicle allows you such flexibility with regard to safety of your investment.

When you go back and examine the profitability component of investment vehicles, even while being very safe, precious metal holds its weight against all the other competitors with gold yielding over a double increase in value over one hundred years such as seen in the info available on this website here:

http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

Comparing several investment vehicles with respect to the criteria of safety and profitability, investing in gold and silver as precious metals comes out as the best investment. It contends well with other investment vehicles with regard to its profitability while being totally unbeatable with regard to safety of investment.

Lastly, gold and silver prices raise considerably during times of turmoil when safety in other investments are in jeopardy. In uncertain times, money from other investments, and bank accounts are poured into precious metals to secure money. Thus, given this is being read in a time of relatively low turmoil, it would be irresponsible of me not to mention that you’re likely getting a bargain price on precious metals. That historical trend is worth considering when investing in gold and silver and will likely be discussed on this site another time.

Fiat Money

What is fiat money?

According to InvestorWords, fiat money is money which has no intrinsic value and cannot be redeemed for any commodity, but is made legal tender through government decree.

If something has no intrinsic value and can’t be redeemed for anything that does, how could people value such a thing? In other words, how can such a thing like that be used as money?

In order to understand the relatively new phenomenon of fiat money we have to look at how money has changed historically.

Way back when during the times of kings and kingdoms, the medium of exchange was gold, silver, or copper coins, just to name a few. All was well with regards to normal commerce in marketplaces as people would exchange these valuable commodities for goods or service. However, whenever a kingdom would decide to go to war there was a problem: in order to pay the soldiers a salary of gold coins to wage war, the kingdom would be limited to however much gold resources the kingdom controlled.

Hence, the birth of contractual money. Instead of paying the soldiers gold coins directly, the kingdom would issue contracts promising to pay the soldiers a certain amount of gold. The contract could be brought to the kingdom and it could be exchanged for gold.

This type of money persisted for thousands of years up until the previous century when fiat money was invented. At that time, gold, and silver-backed currency in the form of paper dollars was commonplace. More importantly, the paper dollars were contracts for an amount of gold, or silver they could be exchanged for.

When fiat money was introduced, the contracts for gold and silver were decreed to be null and void.

The obvious question, then, is why was that fiat money still able to be used as money after such a heinous decision to render the contract for gold or silver void?

Economists generally concede that the reason why the new fiat money maintained value was because the vast, general populace had been used to trading paper dollars.

Fiat money, then, is like owning stocks in a company that is generally accepted to be a very valuable, stable company, but in reality is worth nothing and has no assets or earnings. But because it’s generally accepted to be valuable and people purchase stocks at a generally high rate, the stocks in that company remain valuable.

However, if the stocks were to stop being generally accepted as valuable, or if the company were to issue more and more stocks trusting on general ignorance to maintain the stock’s value, historically, the price of the stock will plummet.

Switch the terms in the above analogy from company to government, and stocks to money and you have the fiat money issue that is facing the world today.

How long will something without value remain accepted as valuable, or how long will it take a government to overestimate public ignorance?

Only time will tell….

What is money?

What is money?

According to the Merriam-Webster dictionary, the definition of money is something generally accepted as a medium of exchange, a measure of value, or a means of payment. So, what is money? This definition has three critical components:

• Generally accepted as a medium of exchange
• A measure of value
• A means of payment

If any kind of ‘money’ were to fail the criteria listed above, it would cease to be money. So, lets take a closer look of what is money.

Historically

Historically, ‘money’ has ceased to be money, and a great example of this was during the First World War. When the German Empire ‘temporarily’ suspended their gold-backed money, the gold Mark, to use debt-backed money to finance their war, the money in the form of the Mark started gradually failing the criteria of being money.

After the Allies won the war, the value of the Mark was so low that they would not accept it from Germany to pay for reparations. The German government then made the following decision: buy gold and foreign money at any cost in Marks to pay the reparations they had to pay. If they ran out of paper Marks, not to worry, they would simply print more.

  • By 1920 10 paper-Marks were worth one previous gold-Mark.
  • By 1922 100 paper-Marks were worth one previous gold-Mark.
  • By 1923 10,000 paper-Marks were worth one previous gold-Mark.
  • And by the end of 1923, 1,000,000,000,000 paper-Marks were worth one previous gold-Mark.

But in 1924, the German government instituted a new form of money: the Rentenmark. It was backed at a rate of 2790 Marks per kilogram of gold.

The change in value of the Mark by backing it with gold was dramatic:
1923: 4,210,500,000,000 Marks per US Dollar.
1924: 4.2 “Rentenmark” Marks per US Dollar.

By backing, meaning the paper “Rentenmark” Marks could be exchanged readily, and easily for a bond for gold, the Mark once again became:
• Generally accepted as a medium of exchange
• A measure of value
• A means of payment

So when did the Mark stop being money?

The moment the decision was made to stop backing the Mark with gold as its measure of value, the Mark as a form of money was totally in jeopardy. The man who made the decision to back the Mark with gold, Hjalmar Schacht, wrote in his biography, “Unbacked paper money is political money and as such is a disruptive element in a system of free markets.”

Once the German government chose to use paper money it became unsafe money for the German people. While it was seen by other countries, and trading individuals as valuable money for a little while, in the end it would cease to be money. Anyone holding only that form of money would have been destitute; they would have no money.

The only people that would have money, and not be financially ruined after the failure of the paper-Mark would be those people holding other forms of money; a form of money—gold, silver or an equivalent generally considered valuable, or a currency backed by gold, silver or an equivalent generally considered valuable, or similar— generally accepted as a medium of exchange, a measure of value, or a means of payment.  So asking the question of what is money really opens up a very large discussion as you can see.