No Mainstream Safe-Havens

With the recent announcement that the Swiss Franc will be tied to the Euro, many investors have ceased viewing that currency as a safehaven, and now, as well as in the future, will look more towards precious metals for security, thus resulting in parabolic moves upwards in gold and silver, platinum and palladium. Clearly, fiat currencies of the world have been actively devalued by policy makers in a number of countries, as is evidenced by their simultaneous devaluation.

Granted, the precious metals markets have been violent over past weeks, but, to be certain, so too have all markets. We have seen wicked swings as individuals sell-off at the least bit of uncertainty and buy back quick in anticipation dip buying or in an effort to consolidate companies and assets.

Eventually, however, there will be a sell off without dip buyers, as contagion of economic depression spoil an increasing number of markets. The collapse of currencies and the soaring costs of resources and commodities will fuel huge gains in sectors such as food, energy and precious metals, whilst all paper representations of wealth, in which most people hold their savings and investments, will collapse as does the US Dollar.

We have seen austerity measures grip Europe. This is major news, and most of the world does not understand the implications thereof. The European continent has, for centuries, been viewed by many as the “core” of global trade. Without demand in Europe, there is no way that “peripheral” economies, such as the BRIC nations, can continue to grow. When these nations experience revaluation of their currencies, due to currency devaluation in the Euro and the US Dollar, demand for their products will fall, and they will be left with stalled economies and eventual inflation. Furthermore, many of these countries hold the US Dollar as a reserve currency. Once the US Dollar collapses, so too will these currencies.

The Gold bull run could “end all major bull markets,” according to Urs Gmuer, an asset manager at Dolefin, the Swiss investment advice firm. In the interview with CNBC, Gmuer said that gold prices may reach $6,200 per ounce.

Based on analysis of the last major gold boom in the 1970s, during which the price of gold rose from $35 per ounce to $850 per ounce, Gmuer’s insights points towards prolonged economic doldrums as a catalyst for a parabolic price move in gold. This time around, to be sure, the metal’s price run resembles less an investment, and more as an instrument by which one might preserve his or her wealth.

“Gold prices have risen over the last few years, as the macroeconomic picture has become worse. The deterioration of the fundamental situation has now gone even further…Purchases by investors of gold will be based on fears of systemic risk or banking crashes,” Gmuer said.

There are no more safe currencies, said the investment manager. In large part, this is due to all currencies holding the US dollar as reserves, as presidential candidate Ron Paul has pointed out. Ron Paul argues that this dollar and currency devaluation across the world is deliberate policy, which is supported by quantitative easing programs. In the US, this trend is supported by the outsourcing of jobs.

“The ultimate currency, which has stood the test of time, which has no political support behind it, is gold. Nobody can print gold out of a machine or a PC…What the Swiss National Bank did two-and-a-half weeks ago, increasing the supply of the Swiss franc, means the safe currencies are all gone. That is why gold will have a revival,” he said.

Gmuer compared the precious metal “super-cycle” to the 1998-2000 boom in technology media and telecommunications. He said that debt capital is an asset class for which demand and prices would fall.

To be sure, gold is not in a bubble, Gmuer maintained, denying that the rising gold prices would lead to such a scenario.

“If everybody is saying a particular asset is a bubble, that reflects the fact that most people have disposed of it,” he said.

Gmuer also added that markets in all precious metals were benefiting from the surge in demand for commodities, food, and energy in certain parts of the globe.

“Since World War II, the world population has almost quadrupled. However, most of the increase was in countries that had closed political systems, such as the Soviet Union, China and India,” he said. “When these countries started to open up in the 1990s, these people saw they could increase their level of well-being. It is pent-up demand.”