Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

In the End, Why Going Back to the Gold Standard May Be the Only Alternative

Friday, November 23rd, 2012
By for Profit Confidential

What no politician has the guts to do:

Step 1: stop printing more fiat currency; Step 2: have all fiat currencies backed by gold.

It wasn’t too long ago that the global economy had the gold standard—only a certain amount of money was printed and that printing was based on the holdings of gold bullion a country had.

Now, after a few decades of running away from the gold standard and flooding global economy with paper fiat currency that can be created out of thin air, countries are regretting what they’ve done.

We are starting to see countries in the global economy turning their attention towards gold as a source of safety—something that has stored value for much longer.

Since the inception of paper money, the amount of economic risk in the global economy has simply increased. The biggest concerns are inflation and the constant debasement of money. A dollar U.S. in 1970 is now worth $5.96 in the U.S. economy. (Source: Bureau of Labor Statistics, November 14, 2012.) For American citizens, their currency value has declined almost five-fold since we stepped away from the gold standard. It’s the same situation elsewhere in the global economy. Fiat paper simply has less purchasing power as the year passes.

  • Michael's face turned red when I said these eight words:

    Economic Trigger Guarantees Dow Jones Goes to 30,000?

    I went into Michael Lombardi's office and told him I expect the Dow Jones Industrials to double from here.

    He immediately showed me the door.

    While my boss has good reasons to believe the market is headed lower, I have proof the market will double first before it tanks.

    This is a presentation you don't want to miss...

    Click here to see it now!

All this leads to a simple question: to stop the erosion of the purchasing power of paper money, what do we do? Go back to the gold standard?

The Prime Minister of Turkey thinks we should do just that. He is urging the International Monetary Fund (IMF) to consider gold as its base currency. He suggested that the IMF has heavily relied on the U.S. dollar and this factor alone has caused more chaos for the other countries in trouble. (Source: Sabah, November 14, 2012.)

Along the same theme, a study done in the European Union (EU) is recommending countries in the eurozone area use gold as collateral, as this can bring down their borrowing costs. If the eurozone area combined all its gold and pegged it to the euro, it could potentially put a stop to the crisis destroying the global economy. The eurozone area has 10,792 tonnes of gold. (Source: CNBC, November 5, 2012.)

From all of this, what I get is that gold bullion prices are going to increase. Uncertainty and debasement of currencies in the global economy will certainly change attitudes of countries toward gold. Are we going back to the gold standard? I don’t know, but for a gold bull like me, what’s happening with the deterioration of the purchasing power of fiat currencies is a good sign for gold. As the global economy deteriorates further, we might just get a gold rush dominated by central banks—and I believe we are already seeing some action on this.

Going forward, I will not be surprised to see more world leaders coming out and agreeing with the prime minister of Turkey. Fiat currencies have created more trouble in the global economy than they have benefits.

Where the Market Stands; Where it’s Headed:

For the Dow Jones Industrial Average, we are near the end of a multi-year “head-and-shoulders” formation.

In technical terms, looking at the multi-year chart, the left shoulder was created over the years 1995 to 2002. The neckline was created in the years 2003 to 2007. The right shoulder creation started in 2008. The right shoulder has likely reached its peak and we are now starting the long-term trend down for the right shoulder.

At this exact moment, the market is oversold from its recent sell-off, but any upside rally will be limited in scope.

What He Said:

“Starting two years ago, I was writing how the housing boom would go bust and cause the U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing prices to continue declining, soft auto sales, soft consumer spending, and a lower stock market.” Michael Lombardi in Profit Confidential, August 15, 2007. You would have been hard pressed to find another analyst predicting a U.S. recession in the summer of 2007. At the time, the stock market was roaring, with the Dow Jones Industrial Average hitting its all-time high of 14,164 in October of 2007.

VN:F [1.9.22_1171]
Rating: 0.0/10 (0 votes cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.