Gold is money. It has been for thousands of years. It is what is going to get people through the turbulent economic road in the near future. Gold investment is on the rise, with sales of American Gold Eagles and other popular gold investments soaring, and any investor who wants his or her finances to survive in 2013 will follow suit.
Let’s take a look at 10 reasons why getting into the gold game is the smartest investment decision to start off 2013.
1. Western countries are devaluing their currencies.
The currency war—a desperate attempt to boost exports, that is nothing more than a band-aid solution with a dreadfully short shelf life—will benefit no one except the elite few in the embattled countries. What is happening is that with the economic collapse of 2008, consumers the world over are losing the buying power they once had, causing problems for exporting countries.
For example, as Americans lose their world famous buying power, Japan sees their biggest market failing. So in order to keep their foreign consumer base, the Japanese government has debased its own currency in order to ensure that the folks in the U.S. can still afford flat screen TVs and laptop computers.
But Japan isn’t the only economic powerhouse to do this. The U.S. is currently debasing the dollar, as well. The government is set to borrow more in 2013 than what its gold reserves (the world’s largest) are worth at the current market price. The Fed is once again artificially inflating the price of U.S. homes by monthly purchasing $40 billion of mortgage-backed securities. Gold is the best way to hedge one’s finances against such detrimental manipulation of the economy.
2. China is stockpiling vast amounts of gold in a bid to establish a reserve currency.
In the same way they bought up U.S. T-bills in shrewd anticipation of the impending economic havoc of 2008, China is now buying up huge quantities of gold in preparation for what is to come. As the world’s most dominant reserve currency, the U.S. dollar, founders on shoddy economic policy, China sees an opportunity to step in and join the ranks.
As of November 2012, China had imported a total of 720 tons of gold. The total tonnage of gold to make its way into China last year is expected to be over 800 tons once the country finally decides to report official numbers.
Rumors of this signaling a return to the gold standard are mere speculation. The odds of that happening are pretty much slim to none. What it does portend is a bleak future for the USD, a future that will find its most powerful protection in gold investment.
3. India’s gold imports are soaring, as well.
Even though the Indian government is threatening to raise the import tax on gold to 6% in an attempt to curb gold imports, the yellow metal has a cultural significance in the country that keeps imports coming in. Half of the gold bought annually in India is jewelry used in weddings—elaborate affairs that smack of Bollywood sets, for which some families spend over $200,000 on gold alone. The Indian government’s gold policies are beneficial to investors, for they aren’t—like the U.S. did—creating an asset bubble with easy credit.
This, combined with an average growth domestic savings rate of more than a 33%, leads to the implication that gold imports to India aren’t slowing down anytime soon. What is more, further import hikes will simply encourage gold smuggling and keep funneling the world’s gold into the country.
The billion plus populations of China and India account for a third of the world’s population, and they both hoard about a third of their income. Their combined effects on the gold market should not be overlooked.
4. Iran is trading oil for gold with China, India, and Turkey, among others.
Due to the heavy embargoes on Iran, the international banking system is prohibited from clearing currency used to buy oil from Iran. However, under the embargo—set to take full effect next month—it will still be legal to trade gold for Iranian oil, a practice that the three aforementioned countries have already been doing.
If Iran’s 2013 oil exports in any way mimic those from last year, the country will be able to exchange its black gold for around 600 tons of the shiny yellow kind.
5. The price of gold is being manipulated by certain countries.
In China’s attempt to have a reserve currency, it is in the country’s interest to buy as much gold as possible for as little as possible. And the way it reports its gold purchases is one way of ensure they get a sweet deal. When China buys gold, the rest of the world gets scared and the price rises, so by infrequently reporting how much they are buying, they are calculatedly keeping the gold price lower, effectively creating their own discount for the stuff.
The U.S. isn’t free from blame on this point, however. Historically, FDR’s confiscation of privately held gold was a drastic manipulation of the price of gold. After American citizens’ gold, he raised the value of an ounce almost 15 dollars, an immediate loss for the citizens who had been forced to hand over their gold.
The minutes from a 1997 meeting between the Foreign Exchange Committee and the G-10—the rights to which were won by the Gold Anti-Trust Action Committee when it sued the Fed—reveal manipulation of the gold price by various central banks. The U.S. and other struggling countries have a vested interest in keeping the gold price low, for it maintains the illusion that their palliative solutions to the economy’s problems are actually working.
6. Gold production is becoming more costly.
In 2012, around 4,300 tons of gold were processed worldwide, about 70% of that mined. Replacing mined gold from new ore now costs an average of $1,500 an ounce, which, after considering profit, sets the floor for gold in the $1,700 an ounce range, give or take. Don’t expect the spot price to go any lower than this ballpark figure in 2013. It is expected to go considerably higher fairly soon.
7. As of January 1, 2013, gold is considered a Tier 1 asset, meaning it is equal to cash and government bonds in most of the world.
The Basel III rule change classified gold as a tier 1 asset and it can now be mortgaged for its market value. It also means that organizations and individuals that can only own low risk, fiscally stable investments can now own gold.
8. Central banks the world over are buying up gold bullion.
Central banks reported to the World Gold Council a net bullion increase of 700 tons in 2011 and 2012 combined. The gold price, although heavily and circuitously influenced by currency values and government manipulation, is still subject to the simple economic principle of supply and demand. A dearth of gold available to the public will drive up the price.
9. Past gold bulls are becoming increasingly bearish.
Famous gold dealers, such as Jim Rogers and Tom O’Brien, are starting to change their attitudes towards gold’s future. This sentiment shift could be quite telling of what gold is about to do.
10. Capital gains tax avoidance was to blame for the price decrease at the end of 2012.
It’s true that there is no hard evidence that the price drop at the end of last year was a direct result of a possible tax gains increase. Nevertheless, gold was going strong on a 12 year run in the U.S. and President Obama distinctly expressed his intentions to raise capital gains tax rates.
We believe that many investors sold off portions of their gold at in December to avoid paying this higher tax rate and will get back in the game in January.
The time to prepare for economic shock, to protect one’s wealth against what could be dire economic consequences, is right now. Whether you are on the side of experts that predict gold’s astronomical rise, or with the gold bulls gone bearish, we can all be certain of one thing: that the immediate economic future is uncertain. Gold is entering new areas of the global economy in large quantities, the world’s strongest economies are intentionally driving the value of their currencies down, and countries and organizations are manipulating the gold market, usually behind closed doors so that when the rest of the world gets wind of the changes, it’s too late.
All of these factors are coming together, creating a perfect economic storm. It’s time to buoy your finances and secure your financial future, by purchasing gold. And the Certified Gold Exchange is here to advise you on the best ways to do just that. We are America’s Certified Gold Superstore and have over 20 years of experience facilitating investments in certified gold for private households and institutional investors. If you are ready to preserve the wealth you’ve worked hard to attain, give us a call at 1-800-300-0715 or send us an email and one of our expert representatives will get back to you as soon as possible.