Precious metals the only store of wealth

SOCIETY needs to realize that the world’s financial problems cannot be solved by governments printing more paper money and creating more debt, as has been the case since the link between gold and money was removed more than 40 years ago. Gold is the purest form of currency, followed by increasingly attractive silver, and the gold standard needs to be reintroduced.

This was a common theme at the inaugural Gold Symposium in Sydney during November and remains in the spotlight with the world’s debt crisis showing no sign of easing as we move into another year.

Respected Sydney gold chartist Alf Field told Symposium delegates that it is more than 40 years since President Nixon removed the last link between currencies and gold which launched the era of floating ‘I owe you nothing’ currencies. Money is what any government deems it to be, generally something it can create in unlimited quantities. This system, along with the fractional reserve banking system has brought an era of ever increasing debt and credit.

“After August 1971 the US Dollar became the world’s de facto reserve currency, which endowed the US with the advantage of being able to run current account deficits, buying goods and services from the rest of the world and paying for them with newly created US Dollars. Nations in surplus have built up large holdings of US Dollars that they are getting very nervous about while there is wide recognition that the reserve status of the US Dollar cannot continue.

“The distortions that have grown since 1971 have reached proportions that demand change. The problem is that the current generation does not understand that the root cause of the global financial crisis is unsound money, which can be created at will by governments, combined with a banking system that has enabled the creation of an unsuitable level of debt.”

Alf Field said, “The slate needs to be wiped clean and a new sound monetary system introduced. This will require elimination of all debt, deficits, unfunded social entitlements, the US Dollar as reserve currency, and the big one, the $600 trillion of derivatives. To eliminate these problems by default and deflation will cause a banking collapse and untold economic pain, leading to unrest and political change.

“While politicians continue to have the ability to create new money at will, they will do so in order to prevent a meltdown on their watch. The new international monetary system is likely to involve precious metals. It will have to be money that people trust and that governments cannot create at will. It is likely that gold will again be the unit of measurement or standard of value against which the performance of other assets will be judged.

Sprott Asset Management chairman and CEO Eric Sprott told delegates that global financial markets face meltdown from debt with banks levered at 20:1 and European banks at 30:1. “With governments buying out troubled banks, the risk is being transferred to the public sector which is likely to solve it by printing more money and creating more debt.

“Gold production has remained flat for 10 years while demand is increasing rapidly, particularly in China and other Asian nations. Silver supply is also not keeping up with strong demand for its use as a precious metal as well as demand for industrial uses.

“There is no doubting gold’s strength as a store of value and it has plenty of upside. Silver is under-rated and possibly has more potential for increased returns, despite its volatility. The supply ratio of silver to gold is 16:1 but the price ratio is 50:1. If the price ratio was to change to 16:1, silver prices would be about $100 an ounce.

“Most gold produced throughout history is still around because it has always been a store of wealth while silver’s strong industrial use and lesser value means most of the silver produced is not around anymore. This means strong ongoing demand for silver and supply that cannot keep pace, therefore just like gold, prices must increase.

“Despite the positive outlook for gold as an increasingly valuable store of wealth and the potential for under-valued gold stocks, gold still only represents 1.5% of all assets.” Eric Sprott says the market has determined that gold is the ultimate currency and will continue to rise in value against paper currency while it looks increasingly likely that silver will march towards the 16:1 price ratio, and possibly up to 10:1.