Image via WikipediaThis week, India purchased 200 metric tons of gold from the IMF (International Monetary Fund). It amounted to half of all the gold the IMF placed for sale. India bought it to bolster it's foreign reserves account. China is strongly expected to buy up the other half. What does that tell us about gold prices and the decreasing value of the U.S. Dollar. Well, it tells us a lot, and many Americans are not going to like the answer.
The United States dollar has been the worlds reserve currency for the past 50 years, even before the gold standard was dropped. That gold standard, or some form of it, is creeping back into the international psyche as governments and individual investors buy up gold and gold miners in record numbers. There is a very basic, common sense reason for this. The United States dollar is headed lower, maybe a lot lower. It has to. Here's why.
At the start of the George W. Bush administration, the U.S. economy was in the black. Bush was handed a "surplus", the first one in 30 years. During the next 8 years of his administration, the U.S. went into debt to the tune of $10 Trillion by the time Obama took office. In the midst of two wars being fought on two different fronts, W. did what no other U.S. president had ever done at such times of crisis. He cut taxes. Not only that, he did it twice. The result is the debt and deficits the United States have to this day and unless there is a sea change in spending and the tax regime, it will get a lot worse.
This year alone, the U.S. will add $2 Trillion more to their debt. If there are no changes, economists predict that by 2015, the United States will be $23 Trillion in debt. Even the powerful American economy can't take a hit like that. A devaluation in the dollar is probably one of the few ways the U.S. can pull itself out of this mess. In the mean time, other countries, and the citizens of other countries, looking for a better store of value, are turning to the one currency that has been in place for over 6,000 years. No fiat currency has ever replaced gold, although the USD tried very hard, becoming the reserve currency for the world and replacing the gold standard. That gold standard is creeping back, in some form, at this writing.
China has doubled it's gold reserves over the past few years. India just did the same and they both will no doubt continue to buy as their foreign exchange reserves shrink with the U.S. dollar. They want to hold value, not lose value! The Hong Kong government recently moved it's entire gold reserve to a domestic location from London where it was held. China is not only investing in gold, but it is telling it's citizens to do the same. India's citizens have long done this and are the biggest buyers of gold jewelry in the world.
As the U.S. dollar dives, it's stock market is gaining daily. After a recent pullback last week, the U.S. market is again going gang busters. It has to. As the dollar drops, people are investing in good companies as stores of value and their stocks are going up correspondingly, with the dollars demise.
Publicly traded Gold miners have a unique position in all of this. They are stocks and they produce pure gold, thereby gaining from both sides of this gold buying bull market.
Over 95 % of the worlds entire gold supply is now above ground. No wonder, after 6,000 years of mining. Canada, however, is one of the few countries with a number of producing gold mines.
Here are our top picks of these gold miners in order.
1. Apollo Gold Corp - U.S. company mining in Canada (APG-TSX or AGT-Amex)
2. Barrick Gold (ABX - TSX or NYSE)
3. Kinross Gold (KGC-NYSE)
If you don't already have gold in your portfolio, then I suggest you do so soon.
1. An American Fox in Canada's gold hen house.
2. The argument for gold.
Other sources: Could Gold go to $5,000 per ounce?