A Tale of Paper and Metal Money

Let’s take a quick look at what’s happening economically in the world… the big picture:

— China is the fastest growing economy. And that fast growth has brought many American dollars into China. I expect China to soon sit on $1 trillion U.S. dollars because of its enormous trade surplus with the remainder of the world.

— Europe has growth and contraction pockets within it. The euro, once thought to be the only alternative to the U.S. dollars, isn’t there yet. Too many inter-country issues, Britain still with the pound, non-constitutional acceptance of the euro and other issues, I believe, work to quietly plague the euro.

— America itself is, for lack of a better term, bankrupt. Consumer and government debt is at record levels. The U.S. Federal Government spends about $1 to $1.5 billion more a day than it has coming in. But in the case of the government, through the Federal Reserve, it has unlimited access to dollars. Essentially, more money is simply printed as needed.

World investors are in a tough position in that the Chinese yuan is still not widely acceptable as a “world” currency, while the euro hasn’t taken off either. Foreigners are also cautious about investing with more U.S. dollars because the world seems to be awash in them. What will China do with its trillion U.S. dollars? Too much supply of any item eventually leads to lower prices, and the U.S. dollar could be a prime example.

My dear readers are all too aware of my fondness for gold. Gold bullion and gold shares have been amongst the biggest investment winners of the past several years.

After rebounding from a sharp price correction that sent speculators in gold marching home, gold has been slowly building a base, for what I believe, will be the next phase of its bull market. Patience, my friend, patience. It could take some time for gold to consolidate a strong base from which to accent to new price highs. But it could also happen quickly.

With no real “paper” money alternatives, investors may find the flight to yellow metal a sudden one. Hence, the best I can suggest is to sit tight with your gold holdings, ready for the flight to gold. We don’t know when it will happen. Could be soon, could be a year from now. But, in investing, patience is the friend of the investor and enemy of the speculator. Patience pays off when well planned.