Yesterday, I talked about “The Worst Case Scenario” for the U.S. economy — American interest rates rising to protect the supremacy of the U.S. dollar — and how this concept is already playing out for another smaller country in Europe. Hungary raised its official benchmark interest rate three percentage points on Tuesday to shore up its floundering currency. Could the U.S. be next?
Okay, so it’s a long shot even thinking about the U.S. Dollar collapsing in value while it sits today at a two-year high against other major world currencies. But worse has happened. Oil was at $140.00 a barrel a few months ago and analysts at the biggest rokerage houses on Wall Street were calling for oil to go to $200.00 a barrel ($66.75 as of yesterday’s close). And who would have thought the bust in the U.S. housing market would bring down Wall Street and threaten credit markets around the world? In the global economy we have today, events unfold very quickly.
As foreign investor concern mounts over the vast debt the U.S. Is issuing and accumulating, foreigners could become wary of buying American bonds. This will result in the American dollar starting to fall viciously against other world currencies. The U.S. could then be forced to raise interest rates to attract foreigners back to its debt securities. This is “The Worst Case Scenario” I talked about on Wednesday.
At this point, you are likely saying, “Great, that’s all I need…to see my investments go down even further” (traditionally stocks go down when interest rates go up). But there is a silver — or should I say a golden — lining in all this.
The price of gold bullion has been attacked this past month for two reasons. Firstly, the flight to the U.S. dollar has taken the shine off gold. I believe this will be short-lived. A rally in the value of a currency that is backed by ever-increasing debt cannot be sustained. Once the shine comes off the U.S. dollar, higher interest rates or not, my opinion is that gold will become the next “currency” alternative.
Secondly, gold bullion is being ravaged by the deflationary times we are experiencing today. This morning, gold bullion is down to $707.00 U.S. per ounce. Yes, the price of gold tends to move higher during inflationary periods and lower during deflationary periods. But we must keep in mind that, at a certain point,
consistent deflation will erode all currencies while causing political, social and economic upheaval — what you can call “The Best Scenario for Gold Bullion.”
In my humble opinion, the bull market in gold bullion and quality gold stocks is far from over. In fact, I think it’s just getting started.