|| URGENT MESSAGE FROM PETER SCHIFF:
Fridayâ€™s downgrade of US debt has enormous implications for every American investor. I expect the decline of the dollar will accelerate, and gold â€“ the most probable beneficiary of the rating cut â€“ will soar.
If youâ€™ve been waiting for a significant pullback in prices to buy metals, or add to your position, I think youâ€™ve missed it. We saw the short-lived pullback a few weeks ago. I believe metals prices will go sharply higher from here.
Global markets got clobbered last week, and as I write this early Monday morning, the devastation looks like it is continuing. However, unlike in 2008, there is no flight to the perceived safety of the dollar. Instead, money is stampeding into precious metals and stable currencies like the Swiss Franc and Japanese Yen. Only intervention by the Japanese and Swiss central banks has prevented their respective currencies from soaring much higher against the dollar.
As investors, this tells us two things:
A) The dollar is being kept on life support by other world governments.
B) Until that support is withdrawn, only gold and silver will be able to rise as fast as the dollar falls.
This crisis was sparked when Congress raised the debt ceiling without making significant spending cuts. Once again, the politicians kicked the can down the road, and avoided make the hard decisions.
Markets are now realizing that the US government doesn’t have any tricks up its sleeve to make good on its debts. Washington is just plain broke. Late Friday night, the Standard & Poor’s (S&P) rating house made this judgment official by stripping the US of its AAA rating â€“ for the first time ever.
Many investors are wondering: what comes next?
I believe that currency markets will dump dollars at an even faster rate in the coming weeks and months, as the full implications of this downgrade are absorbed.
As this happens, it will tip off a vicious cycle: US Treasuries will decline in value, interest rates will rise, the cost of financing the deficit will rise, and Treasuries will decline further as a result. As the federal government spends more and more on interest, it will be unable to finance more stimuli and the recession will deepen. This will make the financial position of the US even worse, threatening further downgrades.
Respected figures like Warren Buffett and Alan Greenspan are now saying that S&P was wrong in their downgrade because the Fed can simply print money indefinitely to avoid default. But any country can print money to pay its bills, it’s the value of its currency that determines its credit rating. After all, what’s the point of paying bondholders the amount printed on their coupon if it takes $100 to buy a quart of milk? This is what S&P is rightfully worried about, and why this is really a downgrade of US dollar.
Meanwhile, while money-printing is creating the illusion of solvency for the US, it is also creating a global tidal wave of inflation. Many foreign governments are wary of hurting their export industries by allowing the dollar to fall too quickly. So, they are printing money to keep pace with the Fed, blunting some of the deserved return from investing in healthier overseas markets.
There is only one form of money that cannot be printed: precious metals. Since the US seems dead-set on a hyperinflationary solution to this crisis, I think gold and silver are are headed higher â€“ and fast.
Today’s gains are just the beginning. I urge you to build a position in physical precious metals now. It will be the lifeboat that carries you away from the sinking US ship of state.
I have long advocated that investors hold at least 5-10% of their assets in physical precious metals, as the ultimate safe haven. In these perilous times, a larger position may be appropriate.
How to take immediate action
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I started Euro Pacific Precious Metals to cater to the needs of serious investors. We offer only the finest gold and silver bullion coins and bars.
If you are interested in precious metals, you should not risk timing the market. Protect your savings before they’re printed away.
Chief Executive Officer
Euro Pacific Precious Metals
For more on the economics behind the current market meltdown, CLICK HERE for Peter’s latest video blog.