Price of Gold Supported by World Currency Devaluations

One of the first rules of economics is known as supply and demand. This applies to currency as well – when currency is in high supply, demand for that currency tends to go down because it isn’t perceived as very valuable. Indeed, this is driving the flight to gold, as the price of gold has risen dramatically over the past couple months. This is largely due to Central Banks around the world printing money and flooding equity markets to save the Eurozone and protect national economies from sliding back into recession.While this may seem like a good idea in the short run, many analysts predict that this will only lead to world currency devaluation. Remember that when there’s too much money, each individual unit of money loses its worth. Subsequently, everything else rises in price, including gold, silver and other physical commodities. Gold investors are watching the latest round of currency devaluation with glee.

Recent Currency Devaluations

The most recent currency devaluation came in the form of a ten trillion yen quantitative easing measure on Valentine’s Day 2012, bringing the total size of the massively leveraged nation’s QE program to about 65 trillion yen. Incidentally, Japan is nearing the 1 quadrillion yen mark for its national debt, which is definitely bullish for gold.

Prior to Japan’s recent stunner, the various European banks and funds such as the EFSF, ECB and IMF as well as the Swiss National Bank have given the beleaguered countries of the Eurozone
access to liquidity in the form of low-interest loans, subsequent loan write-downs and outright QE measures over the past year. Every time a currency devaluation occurs, the worth of the Euro goes down and gold spikes upward.

Even before that, the United States’ involvement with quantitative easing has been long and storied ever since its initial influx of liquidity “saved” us in 2008. A second round of QE measures was undertaken in 2010, and in 2011, “Operation Twist” was designed to cash in on the future today. This was effectively another form of quantitative easing, but it’s taken the markets a little time to realize it. Meanwhile, the price of gold has gone up, up, up.

Nobody wants the world to slide back into recession, and central banks have been emboldened by their seemingly limitless power to inject purchasing power into the economy. The only problem is that nothing is limitless. Every action has consequences. One of these consequences is global currency devaluation, which most hurts the average person trying to buy groceries or gas. However, for investors in physical value such as gold, currency devaluation means massive profits.

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