Bitcoin’s unprecedented price explosion has many investors dazzled. In this post, we will take a look at bitcoin: reasons behind the price explosion and what’s next.
Bitcoin: Reasons Behind the Price Explosion and What’s Next?
Bitcoin attained an impressive increase in 2020 in spite of numerous things that would usually make investors careful, such as the US-China tensions, Brexit, and, naturally, the covid 19 caused financial crisis. From a year-low on the everyday charts of $4,748 in the middle of March, as pandemic worries took hold, bitcoin rose to just listed below $30,000 by the end of the year.
Ever since it has reached all-time highs above $38,000, making headlines day after day and increasing the prices of other cryptocurrencies at the same time. So what has driven this enormous price hike and is it a far cry from the bubble of 2017?
One reason for the massive price hike is that there has actually been a huge increase of investors from dominant institutions such as pension plans, university endowment funds, and investment trusts. This was not the case throughout the last bull market in 2017, in which the bitcoin price rose up to nearly $20,000, just to relapse to the low $3,000 s a year later.
In 2017, the cryptocurrency community was dominated by individual small-time investors, much of whom were brought in to bitcoin’s shortage and the fact that it stood outside the worldwide financial system. The 2017 bull market had all the indications of a timeless monetary bubble and investors who were buying in “fear of missing out” (FOMO).
Bitcoin Moves Mainstream
This time, big names such as billionaire investor Paul Tudor Jones and insurance colossus MassMutual have actually invested large amounts of money, while even former skeptics like JP Morgan now say that bitcoin might have a great future. All these developments help to increase trust in the cryptocurrency and shows that bitcoin is now a mainstream asset.
Bitcoin has also been backed by some large consumer-facing payment organizations. PayPal now permits its customers to buy, hold, and offer bitcoin straight from their PayPal accounts. Rival digital payment organization Square reported in November that more of its Cash App users are buying the digital currency, and purchasing more usually than in the past. The number of vendors using bitcoin for their transactions is growing fast.
But wait, there is more. Visa is also taking a look at bitcoin. In October it revealed a small number of bitcoin-related credit and debit cards with leading crypto exchange Coinbase. As the ways to use bitcoin multiply, there is no doubt that the number of people who will want to hold it will multiply too.
There is no doubt that Bitcoin has actually become far more mature considering the days when it was utilized mainly as a technique to acquire drugs on the dark web on Silk Road. Bitcoin wallets, bitcoin keys, and exchanges are much easier to gain access to and there are much more trustworthy details out there than previously.
The introduction of commercial investment products such as bitcoin options and futures, as well as blockchain-related funds, has actually enabled investors who might otherwise have been afraid of volatility to get involved. Bitcoin futures indicate that investors can guess or speculate on falling prices by “going short” on the cryptocurrency. Nobel laureate Robert Shiller has recommended that the 2017 bubble might have been linked to the reality that there were no bitcoin futures at the time.
Bitcoin Protects Against Inflation
Besides all this mainstream enthusiasm, the havoc brought by COVID-19 caused economic crisis has actually triggered substantial stimulus packages from governments around the world and most central banks are printing large amounts of money. This will drive up inflation, which in turn reduces people’s buying power. Certainly, the United States Federal Reserve in 2015 signified it would be somewhat more tolerant of increasing rates when it relaxed its 2% inflation target.
Inflation
In the face of this risk, investing in bitcoin is considered to be a store of value. It is well known that there will be no more than 21 million bitcoins mined unless for some reason the protocol changes. Right now there are over 18,5 million bitcoins in circulation.
In addition, the supply of new bitcoins is likewise decreasing due to the fact that the reward that bitcoin miners receive for confirming transactions on the blockchain halves approximately every four years— it fell from BTC12.5 to BTC6.25 last May. This scarcity is comparable to that of rare-earth elements.
Furthermore, central banks are joining the cryptocurrency game. Russia, China, Canada, the EU, and lots of others are either currently dealing with reserve bank digital currencies (CBDCs) for their nations or releasing white papers detailing their intentions to do so. This is an apparent sign that the powers that be in the old monetary world are definitely seeing cryptocurrencies as the future. In the meantime, the Fed has revealed that retail banks can perform payments with stablecoins, which are cryptocurrencies pegged to conventional currencies.
What’s Next
For that reason, seems that the recent bitcoin price-hike may have more realism than in 2017. However, not everybody seems to share that opinion. Chief economist and strategist at Rosenberg Research and Associates, David Rosenberg, believes bitcoin remains in a bubble, and financiers do not comprehend how it works.
Market downturn
Rosenberg is well-positioned to discuss bubbles considering that he is understood for recognizing the United States real estate market bubble that caused the global monetary crisis of 2008-09. He believes investors have no idea how bitcoin works and right now the classic, follow-the-herd bubble phenomenon takes place (though he has admitted that he is no professional on the cryptocurrency market himself). Nevertheless, some large firm investors still worry that large volatility in the price could still be an issue.
So what to think? There are lots of very bullish projections for the bitcoin price in 2021. Tyler and Cameron Winklevoss, the creators of leading crypto exchange Gemini, are both adamant that bitcoin will eventually hit $500,000 while a Citigroup analyst suggests a price of $318,000 by December 2021.
Final Words
There is no doubt these crypto-experts do know what they are talking about. However, my opinion is that these numbers may be too optimistic. Nevertheless, ten months ago the possibility of bitcoin reaching US$ 30,000 seemed hardly possible. Wherever the price goes from here, the fortunes of the leading cryptocurrency are plainly going to be among the world’s most significant financial stories in the year ahead.
I hope my article bitcoin: reasons behind the price explosion and what’s next, has been helpful. If you still have any questions feel free to write me a commend and I will get back to you.
Many people in the community are now wondering whether capitalism is still a healthy system, or whether it has changed for the worst, and whether capitalism faces its biggest crisis ever.
We are living in a world that can not survive without a constant budget deficit, can not survive without cash printing, can not survive without negative interest rates, there is something extremely rotten. In fact, we are living in a world that accumulates government and public debt, a world that gives us a false sense of fulfillment by spreading around worthless currency. Well, this world is not only rotten but also disgusting! Yes, it stinks of lies, deception as well as ethical decadence.
Capitalism Faces its Biggest Crisis Ever
Why does not anyone stands up to warn the community where we are heading? Well, for the straightforward reason that no politician can tell the truth. Since if they did, they wouldn’t be chosen. The principal function of any politician is to buy or obtain votes and as a result, they can never speak the fact.
Additionally, there are so many beneficial interests with endless rewards. The money men that regulate the monetary system have all to obtain, from developing false markets, false money, and false interest rates.
The Reality Never Dies
The Roman philosopher and also statesman Seneca said: “Veritas Nunquam Perit” (The Truth Never Perishes). That could very well hold however it can be suppressed for a very long time as we are seeing now all over the world.
Let us initially think about the greatest lie which is cash. For 5,000 years, the only genuine cash has been gold (and sometimes silver). Whenever the financial system has differed from that basic principle, by creating false money, it has finished in disaster for the world, whether that has been done with silver coins full of zinc or copper or by just printing paper money.
Complete Disaster of the Currency System to Follow
Which is where we are heading currently. A tragic course of events was triggered when Nixon closed the gold window on August 15th, 1971. Ever since international debt has taken off and also all money has imploded. Financial obligation, derivatives, and unfunded liabilities have gone from workable amounts in 1971 to over $2 quadrillion today. As well as every single money has shed 97-99% in actual terms.
We are currently at the point when we will certainly not be able to change the training course of either of the two. The environment is figured out by really long cycles that humans have no impact on. Now we just have to allow it to take its course which will be devastating for the whole world.
So why is nobody seeing what is taking place and why is nobody taking on the claim that the Emperor is completely naked?
The truth is unpleasant and painful yet it does never die.
It is an indisputable reality that essentially all the fiat cash that is printed by federal governments, central banks as well as commercial banks is pointless as well as for that reason incorrect.
If a federal government prints cash out of nothing to cover deficit spending, that cash has NO worth given since all the jobs needed to develop it was to push a button on a computer system.
We likewise recognize that the money has no worth because no financial institution or central financial institution is prepared to pay interest in deposit accounts. Instead, because cash is worthless, these bankers desire to be paid to hold the money. There is no reason to pay interest in worthless money.
There is an Abundance of Worthless Money
American Dollars
As well as when a financial institution receives a $1,000 down payment and after that lends out that very same cash 10 times or even more, that cash is likewise worthless, considering that it has set you back $0 to provide the funding.
It is the same with a credit card company, or car funding, they all concern counterfeit money developed by the touch of a switch.
For the ones who don’t recognize what this implies, let me describe it. Allow us to begin with the bubble’s possession. When the worldwide stock, property, and also various other bubble asset markets stand out, all these properties will certainly lose a minimum of 95% of their value in actual terms. The best way to calculate real terms is certainly gold because that is the only cash that has actually survived and also preserved its purchasing power for hundreds of years.
And also, if we take a look at the financial obligation bubble, global financial debt goes to the very least $270 trillion. Yet when the financial obligation bubble stands out, so will other liabilities like the $1.5 quadrillion of derivatives. So when the financial obligation bubble pops, basically all that fiat money ends up being entirely useless. No person can repay it as well as no one wants to acquire it.
Global Debt Chart
I recognize that the above two paragraphs are an extremely streamlined description of what will certainly take place over the coming years. However, this is the ugly truth.
These occasions will undoubtedly not take place in one go. They will certainly most probably begin with the securities market very first collapsing, which will certainly put pressure on credit score markets. A lot more QE will certainly adhere to yet that will just have a short-term impact. Even more collisions, even more, cash printing, the rising cost of living, devaluation, credit report defaults, company closures, and also bank defaults.
We had the first clear signals from numerous significant reserve banks, that something was rotten in the worldwide monetary system already in August, when the Fed, ECB, and BOJ all proclaimed that they would do what it requires to sustain the system.
Quantitative Easing and Money Printing the Same
In September the Fed launched overnight Repos of $75 billion boosts to $100 billion. They additionally took on two-week Repos of $ 30 billion rising to $60 billion. Adhering to that the Fed has now announced that they will certainly start QE of $60 billion each month. We should not call it QE according to the Fed. So allow us just call it money printing since that is what it is.
The President of the Minneapolis Fed stated: “This is not about changing the stance of monetary policy. This is about making sure markets are functioning. This is kind of just a plumbing issue.” He is right, it is a plumbing concern. However, the issue is that the economic system is leaking like a filter without the possibility of connecting all the openings.
Between the end of 2017 and also 2019 the Fed reduced its balance sheet by $700 billion from $4.5 trillion to $3.8 trillion. As always, the Fed has no idea whatsoever. The issue is that the system will not make it through with even more cash printing either.
Central Banks Introduced Unprecedented Economic Stimulus
The FED
The world’s largest central banks had no other option to fight the covid-19 caused crisis than to introduce further economic stimulus amounting to trillions of dollars. It was the Fed and the US government first with the ECB-European commission next, and all the other major western economies and central banks to follow.
Yes, the system is rotten and is currently starting to smell. The activities by the central banks specifically in the last couple of weeks smells of panic. The problem with JP Morgan or Financial Institution of America, the ECB, or possibly the Fed is supporting the bankrupt Deutsche Financial institution? We will most likely quickly learn where the greatest stress is.
On top of the bank issues, the company’s financial debt is obtaining riskier day by day. The financing of firms like We Work and Merlin, are clear indications of just how hazardous this market has ended up being.
Central banks are already trying to deal with the fires, most people are not aware these fires exist. There is a concern whether the central banks will be able to contain these fires or whether they will spread like wildfires.
The Decadence Started in 1971
US financial debt back in 1971 was $400 billion versus $26 trillion today, a “plain” 55x boost. US GDP was $1.2 trillion in 1971 versus $26 trillion today. A 55x boost in US financial debt in the last 48 years has just generated a 17x boost in GDP.
The US economy is in trouble which is not surprising because never-ending money printing of pointless paper money, can not create real growth and wealth whatsoever. Its only effect on the economy is to create the stock market bubble.
It is not just the US that is in this setting. Since taking away the gold support of the dollar in 1971, offered all countries an incentive to print money and increase credit.
The UK Example
I do keep in mind the beginning of the damage of money. Moving later on to the UK, I saw the pound collapsed against the Swiss Franc from CHF 10 in 1972 to Swiss Franc or CHF 1.20 today, an 88% loss of the extra pound.
A period of economic mismanagement and political turmoil in the UK in the 1970s started it all. The annual rising cost of living was 15-17% for 7 years and interest rates got to over 20%.
The economic system was moments from breaking down in 2008 throughout the Great Financial Dilemma. Eleven years later on, worldwide financial debt has doubled and danger has increased greatly.
Central lenders are conscious that the global economic situation is currently standing at a crossroads. The course was laid by them many decades back and now there is no way back.
The US and the Gold Standard
August 2020 remains in many ways comparable to August 1971. America was at that time behind-the-scenes. The country was under pressure after the costly Vietnam battle, as well as the gold standard, which stopped the United States from cheating the system by printing cash. The remainder of the world saw the US’s precarious situation as well as began marketing bucks. To recover their position, Nixon saw no other way than to take the buck off the gold standard, and this was the start of 50 years of global cash printing, and also credit score growth on a humongous scale.
Nixon-Elvis
Nixon’s August 1971 choice has brought about a dilemma of extraordinary proportions. Still, most people can see that we are currently at the point of “a final and also total catastrophe of the currency system included” as von Mises stated.
This August is not one solitary event like in 1971 yet a variety of very clear indicators that all reserve banks are worrying about. Every major reserve bank is currently revealing a level of concern that is extraordinary. They are all telling us that there will certainly be unrestricted money publishing incorporated with no or negative interest rates. This will certainly not clear up half a century of reckless monetary mismanagement.
What Nixon started will now be finished off by current governments as well as main lenders in the most magnificent money printing bonanza, leading to hyperinflation as well as a collapse of the economic system.
Until now, over 40% of worldwide bonds currently generate less than 1% and over $16 trillion well worth of bonds have an unfavorable interest or negative interest.
Negative Interest Policy is Insane
A negative rate of interest prices is of course complete insanity. It will certainly come to be also much more intriguing when home loan rates go to minus 25% so after a few years the financial obligation has been paid by the financial institution!
Us Rates to Decline Unless
95% of international bonds are now listed below the Federal Finances price. Since that rate is 2.5%, this is a short-lived scenario. US rates are likely to decline dramatically throughout the autumn to absolutely nothing unless the devastating results of the neverending money printing start to take place. That will cause a lower dollar and greater gold. US stocks will certainly decrease despite lower prices.
Lower rates are no longer seen by securities market financiers as helpful for markets as a sign of financial difficulty in advance.
Powel Trump and the US-China trade war
Fed Chief Powell simply stated that the “Economy is in a beneficial area”. You ask yourself where that area is, considering that there is nothing good regarding the United States economic climate currently. As well as it appears that Powell doesn’t think his very own words given that in the same breath he claims that there are “substantial threats”.
So the Tit for Tat video game between the US and also China proceeds and what is specific is that everybody is a loser in a trade battle. Trump won’t give in and neither will China. As they play their video games, the global economy will certainly suffer and so will a breakable global economic situation. Global trade is currently down and I am afraid things could get worse in the autumn.
Trump is most likely to win this video game over Powell. Trump has stated that rates need to drop by 1% now. Hence, we are assured to see a lot lower US rates and a rapidly falling buck throughout the fall.
Investors set to Suffer Big Losses
Regretfully 99% of investors will not understand that they need to be out of stocks and move into gold, till their wealth has been wiped out. All stock investors will believe that central banks will certainly support them once more. But as I have described over, this time support will certainly fall short as we begin a secular bear market in stocks, and the global economic crisis will last a very long time as well as lead to massive wide range destruction.
That the global economic situation for the last 100 years was reliant on credit scores as well as printed cash, is not a new miracle paradigm but a sign of a diseased system. The never-ending credit and the constant printing of worthless money are about to end. In a corrupt way, it is virtually paradoxical that the trigger for finishing this sick financial system would certainly be a pandemic disease.
Social Discontent and Anger to Come
Currently, the world remains in a situation when all of those aspects will possibly come to pass. We already have the recession and also we have a condition. There is no significant famine yet however, this is most likely to come. Social discontent and conflict are possible repercussions of these troubles. Starving and angry people will stand against their leaders as well as against the elite. The differences in income, as well as the huge gap that separates the wealthy and the poor, have created an illogical scenario. This is basically without exception just how every change starts.
There is a lot of anger in the community. People aren’t happy at all. They are wondering what on earth is going on with their taxes, they are wondering why the money they earn is never enough, they are wondering why social inequalities have increased, they are wondering where all this abundance of (fake) money is going, and so on.
The Money that does not Exist
Central banks and governments are currently printing limitless amounts of cash to help small and also big organizations as well as individuals. It is a program terrific in that every person gets aid, but no one asks where is the money coming from.
No one stresses that THERE IS NO CASH. The $ 100s of billions as well as trillions that are being provided to the needy do not exist. They are just produced out of thin air. Because the situation started in the very early autumn of 2019 with the Repos, the Fed’s balance sheet has increased by practically $3 trillion to $6.5 T. Yet this is just the start. The forecast is that it will get to $9T in June as well as possibly $12T a couple of months later on.
What we have to keep in mind is that this situation did not start now however, in 2006 when the Fed’s annual report was $800K. By 2012 it had gone to $3T. In the following few months, the equilibrium sheet will certainly blow up by 3-4x to $12T.
In the present year, the US can quickly get to a shortage in unwanted of $4T, taking the financial debt to $28T. If we just go back 3 months, who would certainly have thought a Fed equilibrium sheet reaching $12T as well as a US financial obligation of $28T? They don’t even do that because if they had, they would have known that the United States financial debt has doubled every 8 years because of 1981.
The United States is likely to have a debt of $40T in 2025 however, that number is most possibly a low number. Then we are going to see failings not simply in the economy but also in the financial system. That is the danger the economic system is currently facing as well, as we are currently in a stage when the surprises will be much even worse than anybody can think of.
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Back to the Future
It all began with private lenders taking control of the financial system in 1913 when they established the Fed for their very own benefit. For practically 60 years their power grew slowly however, then in 1971 when Nixon closed the gold window, all hell broke shed.
The United States currently begun what is currently 60 years of shortage investing. Every solitary year given that 1960, the United States is running at a loss. (deficit)
Because the main purpose of political leaders is to purchase votes, Nixon had no choice back in 1971. The United States had currently at that point been running a shortage for ten years. With a gold standard, it is necessary to run a sincere economic system without deficits. Or else you lose all your gold as well as the currency breaks down. Given that Nixon had no intent to run excess, he might not be connected by a gold requirement and also consequently abolished the gold backing of the dollar. The consequences were of course tragic as well as the dollar has actually fallen since.
Back then $33 could buy you an ounce of gold nowadays you need well over $1900. This is how much the dollar has depreciated.
Considering that the US began running deficits 60 years ago, total United States debt has actually gone from $800 billion to $26 trillion today. What we are seeing is a fantasy world all built on financial debt, federal, state, customer, home mortgage, car, trainee, and so on. The checklist is limitless just how to produce phony wealth simply based on the financial obligation.
US Debt Chart
The US is currently coming back to reality which will certainly be the biggest shock. The trillions of fake cash and fake assets will now implode and also so will certainly the US economy.
What the world has experienced in the last 100 years is fake capitalism. It more looks like Voodoo capitalism. Central bankers, led by the Fed, have successfully taken on Mayer Amschel Rothschild’s philosophy: “Permit me to issue and control the money of a nation, and I care not who makes its laws.”
By doing this, they have placed a spell on the international economic system as well as lumbering it with debt that might never be paid back. They are instrumental in developing a debt-plagued world economic situation as well as then they are the only ones who can come to the rescue and “save” it.
A debt-burdened world can never be saved by even more financial debt. Next, we will certainly see limitless cash printing that squashes money as well as leads to depressionary run-away inflation.
Inflation is on the Way
The reckless money printing by the Fed is expected to bring an inflation crisis. Analysts are convinced that unprecedented money printing could increase inflation substantially. That means your cash will lose value. For example, if you are planning to take a holiday to an exotic location with your retirement savings, chances are that you will not be able to afford it. You could probably end up at a cheap resort nearby.
Business Collapse and Unemployment.
Market bulls argue the market is already recovering. Shops are opening, factories are back in business, restaurants are opening too, stocks are holding up, and so on.
They are wrong. Unfortunately, unemployment levels are massive and still growing. Several airlines already declared bankruptcy. Some of them are Avianca from Colombia, Virgin Australia, Trans States airlines from the US, Compass airlines also from the US, and many others. Rolls Royce announced 9000 job losses in the UK, Nissan shuts down its Barcelona plant in Spain with 3000 redundancies, and another 25000 jobs indirectly threatened.
In the US the news is not good either. The country has lost 20,6 million jobs since mid-March, resulting in an unemployment rate of 14,7% a level not seen since the great depression in the 1930s. I am afraid, there will be more business collapse and more unemployed in the following months.
The recession is going to be bigger than the 2008 recession. It will take years for the world economy to recover not months or weeks. The numbers are already massive and still growing. As I just said, the economy is not going to be back to where it was within a year that’s for sure. So why is the stock market still high? What is that’s still driving equity prices? It is the Fed’s liquidity.
Stocks and Bonds set to Collapse
In genuine terms, all bubble possessions will now collapse. Actual terms indicate secure acquiring power and evaluate against gold. We will see supplies, bonds, and also residential or commercial property decline by 90-100% against gold. In nominal terms, stocks may go up at first with hyperinflation. That will just be imaginary gains.
Supplies worldwide dropped initially by around 40% and also have currently recouped half of that loss as stock capitalists have been buying the dips in the hope that central banks will certainly save them yet afterward. Yet they will certainly quickly have their next shock. Markets might begin their next leg down already in the coming week. Or it could take 2-3 weeks. What is clear is that a profane bearish market has begun which has a very long way to go.
Gold is Still Undervalued
For twenty years I have discussed the value of riches conservation in the form of physical gold. Throughout that time gold is up 6-7 times depending on which currency you rate it with. Still, much less than 0.5% of world economic possessions are in gold.
Gold is still exceptionally undervalued regarding the growth of the international cash supply. It is still possible to obtain gold, yet the physical market is under real pressure.
This is an outrageous circumstance that will not last long. Both the Comex and the LBMA are under huge pressure which quickly will lead to substantial distribution problems and also a significant cost squeeze. The home window of opportunity to acquire physical gold at current costs will soon close.
Keep in mind that gold is actual physical wealth in addition to an insurance policy against a monetary system that is unlikely to make it through. Gold can still be bought with miscalculated fiat cash at prices significantly below its genuine value, however, not for too long.
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The European Central Bank is ready to start a new round of quantitative easing, in order to get the European economy back on its feet again.
The ECB president Mario Draghi made it crystal clear that, all measures available to the ECB will be taken to stop the European economic slowdown.
The export driven European economy is experiencing a deceleration, due to German economy-posting disappointing figures in the last months, the feud between European Commission and Italy over Italy’s budgetary policy and the effects of a “no deal” Brexit.
Draghi will go beyond the 2,6 trillion euro program which ended in 31/12/18. The ECB does not expect recession and does not expect deflation either for 2019. On top of that, according to Draghi interest rates in Europe are likely to be cut.
So far quantitative easing in Europe has failed to produce results. Inflation was expected at 2% in 2019, but in May inflation was only 1,2%. However, the Europeans expect inflation to reach 1,3% this year, 1,4% next year and 1,6% the year after.
Successive rounds of quantitative easing from central banks did little to stimulate global growth and the markets are not enthusiastic about further stimulus.
Quantitative failure will lead the markets to refocus on elevated depth levels and ill economic growth is likely to increase volatility.
The central banks are certain quantitative easing will work and that is the reason they insist with that policy
This is music to gold’s ears as central banks will continue to invest in gold as they want to diversify their investments. De-dollarization is also another incentive to invest in gold.
Money periodically lost its value and became cheaper hundreds and thousands of times. This happened in many countries, across different continents. I have compiled the most revealing examples of devaluation of national currencies over five decades.
1967-1968. A crisis in Peru
Peru’s state budget was seriously depleted during the second half of the 1960s. The country’s gold reserve experienced a threefold decrease. Sharp inflation plunged the country into a crisis. Following the military coup, the incumbent president of the state was dismissed and replaced by another one. The Cabinet of Ministers changed four times over six months. However, it was impossible to overcome the crisis in the country.
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In the photo: A mass demonstration in Peru. Citizens of Lima took to the streets to express dissatisfaction with the policy of the authorities.
The prices of products and basic necessities increased, the number of poor and unemployed in the country grew by 22%. Due to inflation, the devaluation of the Peruvian sol was 45%.
CONCLUSION: Against the backdrop of economic problems and the fall of the national currency, the price of the precious yellow metal has risen. The average price of a troy ounce of gold in 1967 was $35, and in 1968 — $ 38.
1970-1971. The decline in the quality of life in Argentina
In the 70s, Argentina was hit by the financial crisis. The price level doubled every two to three months. The government decided to save the situation and introduced a new national currency. The old peso was exchanged for a new “legal peso” at the rate of 100:1.
The crisis in the economy was accompanied by all the classic symptoms of the Lack of Financial Security virus: unemployment, a decline of living standards and strikes.
CONCLUSION: The old peso savings of Argentine residents have been decreased many times. The economic crisis affected the price of the precious yellow metal: in 1971, the price of gold increased to $43 per troy ounce.
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In the photo: participants of the street rally in Córdoba, Argentina.
1975 year. The military coup in Chile
Since the early 70’s, the government of Chile printed a huge amount of paper money – escudo, to plug the gap in the country’s budget. Besides that, the government decided to take food prices under control. Strict measures had a negative impact on the economy. There was a shortage of food products. Prices have multiplied. In just 2 years, inflation increased sharply from 22% to 353%. Prices for copper decreased, the devaluation of the dollar impacted the national currency. Strikes and mass demonstrations have become more frequent. In 1973, the military coup happened in Chile.
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In the photo: In 1975, after 15 years of using the escudo currency, Chile issued a new currency – peso.
One could exchange 5000 escudos for 5 new pesos.
As a result of the anti-crisis measures of the military government, inflation began to decline.
CONCLUSION: At a time when the national currency of Chile depreciated, gold became more expensive. In 1975, the price of gold was $139 per troy ounce.
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On the chart: changes of the price of gold per troy ounce, starting from 1975 to 1979.
1979-1980. The collapse of the national currency in Israel and Vietnam
Inflation in Vietnam began to increase since 1975. Money began to depreciate. The Government of the Socialist Republic banned the free sale of gold, therefore, the “black market” of gold was on the rise in the country.
The state of the united Vietnam abolished the monetary unit of dong. The replacement of the old dong with the new one was made at a rate of 500:1. The exchange limit of 100,000 was set for each family. By the end of the 1970s, hyperinflation in the country had reached three-figure numbers.
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In the photo: 500 old dongs of South Vietnam and 100 new dongs of the Vietnam in the 1980s.
Israel also experienced difficult times. The authorities tried to improve the situation and restore trust in the national currency. In a short time, three heads of state were replaced. In 1979, for the first time in the history of the country, inflation exceeded 110%.
In 1980, instead of a depreciating lira, a new monetary unit was introduced — shekel.
CONCLUSION: Due to the difficult economic situation in the world, the demand for gold sharply increased. In 1980, the price of the precious yellow metal reached $706 per troy ounce. The average price per year was $594.
1998. The fall of the Russian ruble
Since 1993, Russia was hit by inflation, which was followed by a default in 1998. Over 5 years, the price of some products and services increased by 100% or even more. The prices were in millions of rubles. Banks stopped giving cash to depositors. The market was empty. The workers received their salary in the form of food.
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In the photo: the queue of the Russian depositors to the bank, August 1998.
CONCLUSION: Many people who had money on bank accounts lost their savings. Against the backdrop of instability in the world, the price of the precious yellow metal has increased. In 1997-1998, the average price of gold per troy ounce increased to $291.
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On the chart: changes of the price of gold per troy ounce, starting from 1968 to 2000.
2001. Devaluation in Belarus, Ecuador and Turkey
Inflation in Belarus has progressed from the mid-nineties to the early 2000s. The Belarusian ruble has fallen in price so much that the government had to introduce a new national currency. Old Belarusian rubles were replaced by new ones at the rate of 2000: 1.
In 1998, following the decrease of oil prices, Ecuador was hit by the financial crisis. The government of the country declared a default on external debts. The Ecuadorian sucre depreciated 4 times. 70% of the population were below the poverty line. This caused a storm of protests and unrest.
The government tried to fix the situation and pegged the sucre to the US dollar at a rate of 25,000: 1. But such measures did not help. Since 2000, the state has finally transferred the country’s financial system to the US currency. Since 2001, Ecuador has no national currency.
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In the photo: The purchase of US dollars from an “illegal dealer” in Quito, Ecuador.
Turkey experienced severe inflation throughout the 90s. From 1995 to 2000, the lira depreciated 20 times. In 2005, the government introduced a new monetary unit. The exchange rate of the new Turkish lira for the old one is 1 000 000: 1.
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In the photo: The denomination of 20 million Turkish lira was exchanged for 20 new liras.
CONCLUSION: The above listed examples illustrate the depreciation of paper money. Against the backdrop of inflation, gold rises in price. In 2001, the price of the yellow metal was $276 per troy ounce, in 2005 — $513.
2008-2009. Hyperinflation in Zimbabwe
During the mid-2000’s, the financial crisis in this South African country reached alarming proportions. This happened as a result of the state land property redistribution. Prices doubled every half hour.
The Zimbabwean dollar was cheaper than the paper on which it was printed. In 2009, the authorities ceased to issue their own currency and began to use the monetary units of neighbouring countries.
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In the photo: A citizen of Zimbabwe exchanges a trolley full of banknotes for 1 US dollar.
CONCLUSION: Inflation in Zimbabwe has deprived the population of savings kept in the national currency. Gold continued to grow. In 2008, the annual average price of a troy ounce was $869, and in 2009 — the precious metal was worth $1087 per ounce.
2018 year. Paper money has been losing ground
The depreciation process of national currencies in some countries of South and Central America, Eastern Europe and Asia continues. The devaluation of the Bolivar occurred in Venezuela. Iranian rial fell in price. The Russian ruble survived the downfall, and the Turkish lira became cheaper.
Meanwhile, the price of the troy ounce of gold remained high – $ 1,192.
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On the chart: price change (in US dollars) per troy ounce of gold, starting from 1968 to 2018.
It should be noted that during a short interval the precious yellow metal could slightly decrease in price. But this wasn’t so dramatic and not as traumatic as the devaluation of the paper currency.
Gold has demonstrated a significant price increase over 50 years.
In times of political and economic crises, owners, as a rule, lost their savings kept in paper money. Gold, on the contrary, was in demand and rose in price.
The precious yellow metal remains stable at all times. It serves as a protection tool for people and their savings over hundreds of years. Gold does not depreciate as opposed to money.
Now, is not the time to abandon precious metal investments. Due to the euphoria caused by Donald Trump’s election victory, many investors are prepared to leave gold, silver, and other precious metal investments for the good old Dow Jones. I personally believe now is not the time to move away from safe-haven investments.
Although, there is a strong demand for gold and silver globally, in the US buying activity for physical bullion has fallen significantly, especially in the wake of Donald Trump’s election victory. On the other side, retail selling has increased.
The two terms of President Obama included the 2008 financial crisis, zero interest rate policy from the Federal Reserve, and the Quantitative Easing from the Europeans. There was plenty of reasons to buy gold. Today they still are, but they are less obvious to the average investor.
Many people who were disappointed by Obama’s policies are now investing in the stock market. Artificially low-interest rates are pushing inflation higher and the US dollar looks decent, compared with other world currencies.
If the dollar continues to get stronger, along with real economic growth and the risk assets continue to outperform, then we should not expect a bullish market for precious metals.
The second path involves price inflation, with a sharp rise to the national debt. There is also a scenario that involves geopolitical uncertainty. In this case, investors will have to hedge themselves against the dollar’s declining purchasing power.
The Bureau of Labor Statistics just reported a massive jump in the Consumer Price Index in four years. There is also a proposal for tax cuts, and we all know tax cuts increase spending and therefore inflation. However, at the same time tax cuts can increase deficit and borrowing, leading to a weaker dollar.
If Donald Trump convinces congress to levy import or border taxes, with a major partner such as Mexico or China, that will also mean higher prices in the US.
At the same time, the only way to address the massive deficit is a substantial devaluation of the US dollar, which is inevitable.
In addition, the President has made it clear to fight the Deep State. The unelected often anonymous bureaucrats, who have a behind the scenes say on how the state is run. The President has many enemies and many of them are some powerful republicans.
On the other side of the Atlantic, there will be some very important political elections, with the anti-European forces gaining ground. If they succeed that will upset the markets.
Furthermore, China is facing great problems as officials are desperately trying to maintain a currency peg, in order to deal with the massive amount of bad loans piled up on Chinese banks.
Conclusion
NOW IS NOT THE TIME TO ABANDON PRECIOUS METAL INVESTMENTS
Just a few weeks ago Donald Trump became America’s 45th president. Judging by his first two weeks, I can say that his presidency brings uncertainty and chaos. Uncertainty and chaos, are exactly what the markets love to hate. If you add to that the weak dollar, then you have the perfect recipe for gold. You see, the weak dollar and political uncertainty favor gold.
Uncertainty cannot be planned for, cannot be predicted-can only be estimated, and can be wildly and unexpectedly wrong.
The United States economy is the biggest economy in the world, it has the biggest GDP in the world. (16.77trillion) It also has the biggest debt in the world. (17.60trillion)
Because of this difference in size, most people think it’s insulated from the actions of the world economic climate. In addition, the dollar is the world’s reserve currency of choice, and America has been used to have the first word, on many fronts economically.
However, this is about to change.
In recent years, the gap between government income and expenditure has widened due to the degree of military service, and social security commitments, and at the same time, productivity and educational levels, is where its fallen behind.
Without radical change, this gap could reach a point of no return. In this case, the dollar will weaken to a degree unseen in recent years.
At the same time, Russia and China are teaming up in their efforts to replace the dollar, as the world’s reserve currency. And this is possible due to changes in the IMF’s voting system. The BRICS (Russia, India, Brasil, China, and Sth. Africa) have now collectively more votes than the US alone. That means the dollar will soon be in danger unless the Trump administration decides to reform the US financial system.
In addition, when it comes to the US balance of trade, the news isn’t good either. The trade deficit for the year 2016 was $502.25 billion, a 0,4% from the year 2015. This will also weaken the position of the US dollar role, as the world’s reserve currency.
It is imperative that you preserve the value of the things you have and I am talking about your savings. Rather than investing in bonds, shares, and other paper holdings, I suggest that you invest in gold. In this case, when you do come to draw down the money, there will be far more to take. That is the whole idea behind it.
Remember investing in physical gold hedges you against inflation, and protects you if the dollar collapses.
Now, is not the time to abandon precious metal investments. Due to the euphoria caused by Donald Trump’s election victory, many investors are prepared to leave gold, silver, and other precious metal investments for the good old Dow Jones. I personally believe now is not the time to move away from safe-haven investments.
