While geopolitical tensions such as these will likely impact on gold prices in the short-term, they are hardly the main determining factor. They will come and go and re-emerge. What is of much greater significance is the unprecedented amount of money central banks have pumped into the global financial system.
If the Fed continues to print money at the current rate of $85 billion a month and does not announce cuts to its quantitative easing program when it meets in October, the US central bank’s balance sheet will exceed some $4 trillion by the end of the year. But the US has not been the only government in the world to print more money and together with the Bank of Japan, the European Central Bank and the Bank of England, more than $9 trillion has been pumped into the financial system.
Furthermore, even if the Fed was to taper, the Fed is wholly committed, as is the ECB, the BoE and the Bank of Japan, to maintaining close-to-zero interest rates for up to two more years, which is the overriding consideration.
While quantitative easing is a very effective way to ensure monetary expansion, it also finances the government deficit at virtually no cost, while stealing money from savers. However, this policy is likely to have inflationary consequences. In the long-term, this policy will destroy these economies as the governments steal from the public to finance their worthless endeavours.
Thanks to our politicians in most countries, in my opinion the US dollar will end in a collapse. In addition to all this money being printed, the U.S. Treasury is holding more than $2 trillion in short-term debt that must be refinanced within the next 12 months. And, the only way the government will be able to finance this debt will be to continue to print more money. This will only delay the day of reckoning while debasing the value of this fiat currency. According to the American Institute for Economic Research, the purchasing power of the dollar has already decreased by more than 95% since 1913.
As geopolitical tensions come and go, the consequence of this unprecedented money printing experiment will have far dire implications. It is for this reason that it is important for individuals to diversify some of their assets into physical gold and silver.
Gold prices continue to trade sideways, holding well above the support of $1300/oz. However, they will need to break back above $1345/oz. to gain some upward traction.
This article is brought to you courtesy of Gold Silver Worlds, who advocates to own physical gold and silver outside the banking system.
Related Tickers: SPDR Gold Trust ETF (NYSEARCA:GLD), iShares Silver Trust ETF 9NYSEARCA:SLV), PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN).