The U.S. national debt has skyrocketed from $9.2 trillion in the beginning of 2008 to $17.3 trillion today. This represents an increase of more than 88% in just a matter of a few years. (Source: Treasury Direct web site, last accessed March 11, 2014.) The national debt of the U.S. is higher than its gross domestic product (GDP).
Japan is in a very similar situation, if not worse. At the end of 2013, Japan’s national debt stood above one quadrillion yen. In U.S. dollar terms, this amounts to more than $10.0 trillion. (Source: Japan Ministry of Finance web site, last accessed March 11, 2014.) Japan’s national debt is more than 200% of the country’s GDP.
In its fiscal 2012–2013 year, the national debt of Great Britain stood at 1.18 trillion pounds; in U.S. dollar terms, that’s close to $2.0 trillion. (Source: Reuters, February 28, 2014.) Great Britain’s national debt represents 74% of its GDP, and that percentage is rising.
The U.S., Japan, and Great Britain are only three countries whose national debt continues to increase. Include troubled countries in the eurozone, and the picture in respect to out-of-control debt and money printing starts to take a really ugly form.
Rising national debt pretty much means there will be higher inflation ahead; that’s one of the reasons why I can’t help but be bullish on gold bullion, one of the best hedges against inflation.
And that’s where the opportunity for investors lies today. Gold mining shares are trading at historically low multiples. Because of the sell-off in gold bullion prices over the last two years, many gold mining companies were punished. Fortunately for bottom-fishing investors, they are all still trading low.
Goldcorp Inc. (NYSE/GG, TSX/G) is a well-known senior gold bullion producer. In 2011, when gold bullion was trading at its highs, the shares of Goldcorp were trading near $53.00. Now, they are just above $26.00. The prices of junior mining stocks have been devastated even further.
If there has been a common theme for successful investing, it has been to buy low and sell high. I don’t know any investor who doesn’t know this, but sadly, few investors practice it when the prices of an investment are actually low. This is what we saw in 2009; at that time, stock markets were presenting an opportunity of a lifetime, but many failed to buy because they were too skeptical, too fearful that prices would fall further.
Gold-related investments could be presenting today the same low-priced opportunity that general stocks offered in 2009.