Gold and Silver Spot Prices Signalling
Foreign nations are shedding US dollars quickly, increasing gold and silver spot prices and the allure of alternative hedges, such as silver. The astute investor can generate a better return by pinpointing not only what nations are selling, but also what they are buying. Thus far, the Japanese yen and the Euro have been the largest replacements for the US dollar, but there are other assets that are hiding in the shadows, waiting for their bull run.
Hard Assets Reign King
Of all the dollar pessimists, Russia and China have been the most vocal, even though both of these nations currently hold a large position in dollars. China has its large dollar reserves because of its financing of US debt through the Treasury market, as well as from the US-China trade imbalance, which runs in the hundreds of billions each year. Russia’s vast dollar reserves are generated from the sale of oil, which is only denominated in dollars around the world.
China is acting quickly to sell its dollars by the process of buying hard assets -having a direct effect on gold and silver spot prices. Recent purchases include mineral and precious metal mines, steel producing companies in neighboring nations, and even more recently, gold and silver.
World governments recognize that it is not the price of metals that changes, but instead the value of the currency against those metals. Throughout the ages, gold and silver have been used as a medium of exchange, and they are universally recognized as currency and units of exchange in barter.
Knowing this, large dollar owners, such as China, have an even greater interest in owning metals. As they convert their positions into gold or silver, they negate the risk that their dollar holdings lose value. At present, China owns very little gold, although analysts believe that recent spikes in the Tokyo financial markets may be China stocking up on both gold and silver. This presents a lucrative opportunity for investors to get in early (low gold and silver spot prices) and buy before China and other countries begin to trade their US dollars for hard assets.
History Repeats Itself
When the world convened to make the US dollar the original reserve currency, most members were sold on the idea that the dollar was as good as gold, as it was backed by gold reserves stored deep in the vaults of Fort Knox. At the time, the US was adamant about the gold standard, tying the value of the dollar to the amount of ounces the United States had in its vaults. Member countries felt safe keeping their reserves in the US dollar, knowing full well that they could always exchange their dollars for hard metals at any time in the future.
This thinking has hardly changed from many years ago; nations and their people still want a stable currency, and through the ages, no other currency has performed to the task as gold and silver have.
One of the biggest differences between silver in 1945 and today is the thousands of modern applications for silver that have developed in the last six decades. This helps lower the amount of silver entering the market, as millions of ounces are consumed each year to create electronics and wiring for consumer goods. Once silver is melted, smelted, and used in circuit boards, it is lost forever, helping to preserve the value of silver held by investors.
Subsequently, each unit of physical silver (such as coins, bars, bricks) owned by investors appreciates as rarity increases, and with the industrial world using more and more of the metal, it is assured that gold and silver spot prices can only go higher.
For more info on gold and silver spot prices and to stay tuned to the primary trend, check out our Free Guide and E-Course.
Gold And Silver Prices - The Broad View
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