Good News for the Gold Price?
Currency devaluation isn’t being discussed in the mainstream. Don’t ignore it. The falling value of currencies is hands down one of the biggest reasons to be bullish on the gold price.
As the time passes, it’s becoming evident that we are now moving towards an era where fiat currency will become worthless. We see central banks around the world getting involved in a dangerous race to drive their currency value lower. Know that gold bullion is one of the best hedges against currency devaluation and collapses.
Consider the central bank of Egypt. Just recently, it devalued its currency, the Egyptian pound, by 14%! (Source: “Egypt central bank devalues Egyptian pound to 8.85 per dlr at special FX auction,” Reuters, March 14, 2016.) If you held the Egyptian pound, you would have instantly lost 14% of your wealth. No warnings. If you held gold bullion, you might have seen your wealth increase.
We understand the Egyptian central bank isn’t a major central bank in the global context, but know that this phenomenon prevails across the globe. Major central banks are involved in devaluing their currencies as well.
They don’t outright say it, but their actions are speaking louder than their words.
We know Japan’s central bank is adamant that a lower currency will “help” the struggling Japanese economy. It hasn’t. Sadly, the Japanese yen has collapsed due to this outlook.
Please look at the long-term chart of the Japanese Yen Index below. It compares the value of the yen with major global currencies.
Chart courtesy of www.StockCharts.com
Since 2012, the Japanese yen has collapsed more than 30%. And if you think this decline is going to be over soon, you may just be fooling yourself. The Bank of Japan continues to print money and it recently embarked on a negative interest rate policy (NIRP). This is essentially a promise to bring down the currency value even further.
Mind you, if you are thinking the U.S. dollar, the darling of investors, won’t decline, don’t be too quick to judge. Know that since 2014, we have seen an increase in the U.S. dollar because investors anticipated that the interest rates would go higher.
We have seen one increase already. Later this week, we will find out what the Federal Reserve is actually thinking and if it will raise rates further. If you closely listen to the noise, it says the Federal Reserve may be keeping its rates the same. And some are suggesting a NIRP could come to the U.S. as well.
This would be a deal-breaker for the greenback’s rise, but good news for the gold price.
Why Even Look at the Gold Price?
Dear reader, the sad part is that the list of central banks involved in currency devaluation continues to get longer by the day. A significant number of central banks, small and big, are involved in it and more could follow this race to the bottom.
I know you will hear all sorts of arguments as to how the yellow precious metal isn’t worth holding and it can’t really do much for your portfolio. Don’t buy into it.
Now more than ever, gold bullion deserves a closer look for your portfolio. It has a history of storing wealth when fiat currencies fail. This time around, as currencies around the world are in trouble, it will do the same. Investors could really find peace of mind with gold.