Gold prices on the Tokyo Commodity Exchange have jumped 7.8% since April 4, when the central bank of Japan announced its new and aggressive round of asset purchases. (Source: Wall Street Journal, April 9, 2013.)
The Bank of Japan has become notorious for printing extreme amounts of paper money. It wants to end the economic misery the country has faced for many years.
Dear reader, this all brings me to one key point: gold bullion has a shiny future in spite of the price correction it is currently going through.
Just as gold bullion prices are soaring in Japan today, it will eventually be the same situation here at home. The main reason gold bullion prices skyrocketed in Japan was the devaluation of the yen. The Japanese currency has declined in value by 30%, compared to other major currencies, in a very short period of time.
As I write this, the Federal Reserve is still printing $85.0 billion in new money a month with no end in sight. In the future, I believe there will be consequences for money that has been “printed out of thin air.”
Gold bullion has been a store of value for thousands of years—much longer than any fiat currency. It acts as a hedge against inflation. At the end of the day, the U.S. dollar is a paper-based fiat currency that’s backed by nothing.
The long-term stock chart below represents crude oil prices in terms of gold bullion.
Chart courtesy of http://www.StockCharts.com
This long-term chart clearly shows that the price of crude oil hasn’t really increased in terms of gold since 1990. Inflation caused by the fiat currency has made crude oil look expensive.
Yes, I know that since the beginning of the year, gold bullion prices haven’t performed very well. But that doesn’t mean the precious metal has lost its use. What still holds true is that central banks are buying up gold bullion with two hands—they know they need the yellow metal to protect what they have as the question of the U.S. dollar as a reserve currency comes into play.
I am bullish on gold bullion, and my reasons for being bullish remain the same; I don’t expect printing presses of central banks around the world to stop anytime soon. They will continue to print paper money in hopes of bringing “economic growth” to their respective countries. But just as the Roman and the German empires once learned, and as Japan is learning today, the more paper money created, the more worthless it eventually becomes.
Damage to the fundamental monetary system of the U.S. has already been done. Just look at the balance sheet of the Federal Reserve and how much the U.S. government owes to its creditors. More money printing and more debt will weaken the U.S. dollar further, while it continues to bode well for gold bullion.
Thursday, April 11th, 2013
By Michael Lombardi, MBA for Profit Confidential