Tuesday, May 24, 2011

Currency Debasement and Gold

What does a 'race to the bottom' look like?

When it comes to currencies it looks like a chart of ounces of gold verses a particular currency in a steady upward trend.

Note the graphs below indicating how gold has performed in the some of the major currencies worldwide and the New Zealand dollar.

2 year Gold in EUROS
2 year Gold in British Pounds
2 year Gold in US Dollars
2 year Gold in New Zealand Dollars

Often times, you will see the USD and the EUR seesawing. One goes up, then the currency gurus get a bit nervous and there's a bit of bad news and then that currency goes down and the other currency goes up.

It's a bit like sloshing water in a bath tub. It sloshes to one side and a bit drips out, and then it sloshes to the other side and more drips out. Eventually if you do enough violent sloshes it all disappears.

So it is with this paper money game. The 'race to debase' is in full swing.

You see, countries need to remain competitive with their exports and so they devalue their currencies to increase the amount of money they receive for these exports. Devaluation by any number of methods is used to achieve this.

One being the printing press. Central Banks can buy Government Bonds for example. But this game is a dangerous one, especially if you do not have world reserve currency status like the USA. Your money can become toilet paper overnight. Not to say that the USD couldn't either, but it takes a bit longer. It appears many still consider it the ultimate safe haven currency. Good luck with that!

And what about the poor Belarusians (from Belarus) whose currency was devalued by 56% just last night.

As you can read in this article;

"Luckily for those who held their "money" in the form of gold and silver, they just got an instantaneous 56% value preservation and a relative boost in their purchasing power with just one central bank announcement."

But for those who had no chance of protecting their savings (because they trusted the system or they just didn't know), they have literally been robbed of 56% of their wealth; overnight.

It is recommended by many who understand gold, that you have a percentage of your wealth stored in this precious metal. As you can see buy the graphs above, it is tantamount to preserving your purchasing power.

Belarusians now understand. They are well in front in the 'race to the bottom'.

Gold in New Zealand dollars: $1916.62 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $44.45 per oz
Previous all time high: $48.58
per oz

Articles of interest:


Belarus Just Devalued Its Currency By 56%

See article here
zero hedge


Global stock markets fall as Spain default fears grow

See article here
The Telegraph
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The Original Private Bullion Custodian
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