While the 32% increase registered this year made gold one of the best-performing assets on the planet, at this point, it means that the higher the price of this precious metal, the lower the exchange value of official currencies. Just take a look at this, where you can see how acute the debasement of the US dollars, euros, Chinese renminbi, Japanese yen, and even Swiss francs has been throughout this crisis.
Therefore, this implies that money as we know it is losing its value, as many of you probably can tell it by now, and more and more people are trying to get rid of it before it becomes just worthless paper. Many investors had already started preparing for the impact of the trillion-dollar stimulus measures adopted by governments and central banks worldwide will have on the economy, because the outcome won’t be distant from an unprecedented hyperinflation that will crash the whole system.
This is why they will look for respectable currencies, but when central banks worldwide do not hesitate to keep massively increasing the money supply, that is, the amount of paper money, these currencies will never be as reliable as precious metals, because there is no way to escape from inflation and no one wants to hold on to inflationary money, particularly when there is an incoming possibility of a currency reset.
The 10-year US Treasury bond, a benchmark in the market, now has a yield of around 0.5%. Many experts have been alerting that these government bonds are a dead-end, meaning buyers will have a guaranteed loss if they retain the paper up until its due date. This makes gold even more attractive in relative terms. Moreover, the Bank of America affirmed the impact of the health outbreak and tensions between the United States and China could drive the price of gold close to $ 3,000 per ounce over the next 18 months.
With all that said, it is important to notice that it isn’t only the rising on gold prices that indicates that the purchasing power of fiat currencies is declining. The monetary system is collapsing and that can be seen on many fronts. Essentially, all other goods prices are going up as well, most notably asset prices of housing, real estate, stocks, and even bonds, for this reason, the population’s purchasing power for these goods is getting smaller with the given official currency unit.
So on top of an economic collapse sped by a sanitary outbreak, we have a financial meltdown sped up by the liquidity injections with the alleged intention to ease the impacts of the sanitary outbreak. And on top of all of that, we have a monetary crisis sped up by inflation and the scarcity of precious metals. Because, you guessed, the ones that can actually save their wealth by purchasing gold are the ones fueling the whole crisis. So there we have it: The butterfly effect of the economic collapse.
In a world in which central banks not only ramp up the quantity of fiat currency but also push market interest rates to zero, people get hit particularly hard. Saving in traditional instruments (bank deposits, money market funds, etc.) is made impossible. The artificially lowered interest rates also contribute to asset price inflation: the prices of stocks and real estate are driven upward. Those holding fiat currencies suffer losses as far as their purchasing power is concerned, while people who hold assets that gain in price are on the receiving end.”
In conclusion, those are the reasons why people are moving towards the purchase of gold and cryptocurrencies, such as Bitcoin. Even though some experts may suggest that it is poorly constructed to be a viable transactional currency and has no inherent value, making many of them skeptical regarding its long-term prospects when helped by this network effect and even “official validation” by commodity agencies, the cryptocurrency has shown its potential to become a “digital gold”.
At the same time, it is worth it to keep in mind that short-term deflationary shocks to the financial system that will prompt massive corrections in gold, Bitcoin and their alternatives are a possibility, but it doesn’t change the fact that with the money printing effectiveness won’t last forever, and global currency reset is coming.
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