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Gold Investment

Gold as a Hedge and Multiplier of Wealth

Gold has historically played a central economic role as real money and a store of wealth. Any type of fiat experiments taken on by empires and nations throughout history involving the creation of debased coinage or unsupported paper bills have always failed after a relatively short period of economic respite. In fact, no fiat currency in the history of humankind has ever survived beyond a number of decades. During these temporary periods of fiat 'success,' gold remains somewhat dormant and incredibly undervalued until the inherent faults of a fiat-based economic system begin to materialize. It is at this time that gold re-emerges as a principle form of money and a store of wealth, just as it is presently doing. Because the current wealth transfer is so colossal due to its global nature, the possibilities for currently undervalued asset classes such as gold and silver are almost astronomical. Although many people believe that gold, for example, is overpriced at its present price, it has yet to reach its inflation adjusted 1980 high of $2,200 per ounce.

Furthermore, it is expected that gold should reach much greater heights than this former $2,200 per ounce high in the coming years as the present US monetary base is much greater than that of the period around 1980. In fact, it is approximately ten times as big as it was then. The price of gold must catch up to the huge and ever-increasing monetary supply presently being circulated around the world. This time, the precious metals market will not only be accessible to North America and Western Europe as it was - for the most part - around 1980. The present bull market is global, with millionaires and billionaires situated all across the world potentially seeking out this comparatively tiny market. Lastly, the runaway inflation of the late seventies was nothing compared to the number of fiscal and monetary problems that will soon be facing us.

If gold is to do its traditional accounting of fiat currency expansion, the US dollar would have to reach a minimum of $10,000 to reach fair market value in order for the gold that is supposedly stored at Fort Knox to cover base money plus outstanding revolving credit. If this accounting process takes its natural course as it has in 1934 and 1980, we could be looking at prices of $10,000 or more in an inflationary environment. In actuality, the gold market is so small with so much global wealth to be allocated to a limited amount of metals that even a small influx of global capital - even if it were less than 5 % - would cause prices to go from gold's present price to the tens of thousands per ounce. Currently, less than 1% of global wealth is invested in gold, which demonstrates just how much higher the price of gold can possibly go, how under-exposed investors really are to physical gold and silver and how wrong people are to be talking about gold being a bubble at this stage in its bull cycle.

The following chart shows us how, from a historical perspective, a minimal amount of global wealth is currently invested in gold and gold mining stocks:

Taking gold stocks out of the equation, we can note that only a very small amount of global wealth has been allocated to gold, which would also include spurious paper forms of gold investment, and not be limited to the purchasing of physical gold:

These charts demonstrate that those pundits who have been repeatedly making false calls that gold is in a bubble for years have not only been continually wrong along the way; they do not understand the fundamentals of what will continue to drive gold much higher. There will come a time when precious metals will reach a bubble stage and smart investors will be looking for other asset classes to start to invest in anew. However, these charts establish just how under-owned and undervalued gold still is.

G.I. Metals DMCC is of the position that in an inflationary environment, gold's fair value price in comparison to the current U.S. monetary base and the unaudited amount of gold professed to be owned by the U.S. Treasury is approximately $10,000. In a deflationary environment, we would expect to see lower gold prices accompanied by very strong purchasing power. In a hyperinflationary situation, an ounce of gold might be measured in the trillions of dollars. This illustrates the importance of not measuring gold in American dollars or any other fiat currency, but instead, in terms of purchasing power. It also helps us understand that regardless of the type of financial crisis we are in, gold is a good place to be.

With current economic conditions, the present undervalued status of gold (compared to the oceans of fiat currency circulating the world) is expected to quickly correct itself as investors across the globe continue to pile in to invest their money in the comparatively tiny market of gold. This is expected to send its price to unimaginable heights. Indeed, G.I. Metals DMCC expects that its present forecast of $10,000 as a fair market price will need to be readjusted as central banks around the world continue to print money as a last, and eventually, final resort.

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