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Gold: A Solid Investment

By Michael Fung


Thinking about the reality that gold cannot be constructed or developed instantly at will by governments around the world, it can't be devalued as speedily as the paper currencies that may be printed as needed all the time.

Make no mistake, a major currency crisis is coming. Rather than sitting back and letting it happen, protect yourself and profit from an economic upset that could basically render your dollars about as worthless as the paper they're printed on.

We saw a preview of this kind of debacle quite recently. In early 2006 a currency plunge triggered an avalanche of sell orders in emerging markets from Brazil to Indonesia. The Icelandic krona plunged nearly 10 percent in only two days, dragging down Icelandic stocks and bonds with it and subsequently spread to Brazil, Mexico, Poland and Turkey.

A prelude to this was the crash of Asian Forex of 1997, which sent shares south like ducks in winter season. Financial institutions, insurance companies, housing and debt instruments also fled the scene. The only real sensible choice still left was gold.

Looking forward to another possible significant currency crisis in the next few years, gold will grow to be the currency of preference and its worth will almost certainly be increased exponentially from its present monetary value.

How can this projection be real? Let's look at it this way: for all practical purpose, gold cannot be created out of thin air in a hurry. Therefore it cannot be devalued as rapidly as other assets because all other paper currencies can be printed on demand as need arise.

When a currency is backed by gold, $1 in paper money has to be backed by approximately one dollar's worth of gold. Once a currency is no longer backed by gold, governments can print as much as needed. Naturally, most world governments have gone off the gold standard and that is why paper money has no intrinsic value.

Subsequently, a lot of key trading establishments speculate only temporary in various paper currencies and their associated values in common shares or bonds. Then they promptly transform their economic gains into gold. This is why some trading firms prefer to focus on an investment strategy in multiple markets worldwide and diversification into gold assets for their customers.




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