Q&A: Why is Gold Increasing?

I received the following question today, and I thought that the question and my reply would be a good topic for a posting:

"Randall, I know you won't agree, but to me it looks like gold is the next bubble. It's value has increased 6 times faster than the SP500 (sic) over the last 5 years." - Jonathan 

(Note: $1,236.50 - Gold Price 5/14/10)

Jonathan, the price of gold is an inverse indicator of the strength of the currency that you will use to purchase it. Gold has skyrocketed of late, because countries are printing fiat currency, as if no day of balancing will ever come.

Let me put it to you this way: If you have an eight-slice pizza that is worth $8, and a case of Pepsi is worth $8, you could conceivably trade one for the other, right? It's an even exchange.

Now, let's say you cut that pizza into 16 slices, but you still claim that the pizza is worth $1 per slice, rather than $8 in total. Nobody in their right mind is going to let you eat half that pizza and give you the case of Pepsi in exchange for the other half, right?

Well, this is exactly how the USD and Gold interact. The government prints more bills, and tells you that they are still worth the same amount. The person selling Gold is on to the game, and makes you pay more dollars to buy the gold.

As long as countries continue to print fiat (counterfeit) money, with no value increase to justify the expansion in the supply of currency, gold and other raw commodities will continue to increase in value.

With all of the additional debt that the US is accumulating through increased spending (e.g. Bailouts, Health Care, Fraud), the only way it will ever be repaid is through the continual printing of new money to pay old debts.

This will cause a dramatic up-tick in inflation, as the costs of all goods will sky-rocket in order to adjust for the diminished value of the dollar. Interest rates will also increase as a result.

Gold is not an item subject to bubble. It has a fixed value. If Gold decreases in value, that is only because the USD has become stronger. Gold is an inflation hedge. It helps you to maintain the purchasing power you had on the day you purchased it.

If Gold increases in value, you still have the same purchasing power as when you started. If Gold decreases in value, you still have the same purchasing power as when you started.

By purchasing Gold, you are stating that you expect the value of the USD to decrease. By not purchasing, or selling, Gold, you are stating that you expect the value of the USD to increase.

Does it make more sense to you now? The hard part for most Americans is coming to the realization that the current administration is hell-bent on destroying our country from within.

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Dear Readers:

You may have noticed a lack of frequency in my postings over the past year or so. I have been quite busy, and I have not made this blog a priority.

Hopefully, I will soon be able to start posting on a regular, even weekly, basis soon. In the meantime, I am working with a number of high-liquidity, high-return investment projects overseas.

If you have an interest in investing in projects with very high returns (5% monthly to 300% annually), please post a response to this blog. All responses are moderated, and your personal information will not be publicized.

Stop HUD From Eliminating Seller Financing!

Every once in a great while, the government steps in to fix a problem, and actually gets the job done. With the proposed changes in HUD's interpretation of the SAFE Mortgage Act, the government again shows that it just does not understand how to fix the problem that the Fed created. HUD proposes to severely limit or eliminate seller financing by placing the following limitations:

1. Limit to five the number of seller-financed loans that one can give, unless one attains a lending license (Attention investors, this means you!)
2. Disallow entirely any partial seller financing for FHA loans (no more 5% seller carry-backs to handle closing costs and/or down payment requirements)
3. Eliminate all seller financing for non-owner-occupied homes.

I have posted my personal opposition to these proposed rules, and my comments to HUD are as follow:

I'm sure that like all Americans, I just love when the government steps in to fix the problems of commerce. Well, not all the time. In the instant case, the proposed regulation goes too far to fix a problem that doesn't really exist, and it does so at the expense of exacerbating the problem it is attempting to fix.

Please, allow me to explain. While everyone understands that something went horribly wrong in the mortgage industry, which led to the financial meltdown of our nation, no one seems to have the spine to direct the problem where it truly lies: At the feet of the Federal Reserve. The Federal Reserve Board is charged with monitoring the lending practices of its member banks, and it also sets primary interest rates, upon which all other lending rates are eventually based. If one wants to get to the heart of the problem, correct the Fed's lack of oversight and the loose banking practices that it promoted that led up to the present crisis. Predicting the outcome from keeping rates at an artificially low level, and lending money, as if it was free, to people that could never qualify for loans under traditional underwriting (i.e. 100% LTV, No Income/No Assets, Neg-Am and Variable Mortgages, etc.) was a recipe for disaster. When the Fed raised rates in order to stave-off the inevitable inflation that arises from a loose monetary policy, the resulting drop in home values and increase in mortgage payments was a given. If I could see that, why did these so-called "experts" not see this coming? As for the proposal at hand, eliminating seller financing will take away from the market one of the strongest forces that is allowing properties to sell. Many people still cannot qualify for loans, and the knee-jerk increases in underwriting standards have made it near impossible. Seller financing is involved in many transactions, and helps with hard-to-finance properties such as vacant land, mobile homes, distressed properties, and more. Please keep it in place!

Now, you can also comment, but the deadline is Tuesday, February 16, 2010, which means you must take action immediately, if you want your voice to be heard. In order to comment on this proposed regulation, please follow the instructions below:

1. Click on the Title of this blog to get to the regulations.gov website.
2. Review the document by clicking the link or just click on "submit comment."
3. Complete the form providing required information and your comments and then submit

I hope that you will take this opportunity to comment on these proposed rules. The quicker the housing market can recover, the sooner that the rest of the economy may follow.

I have serious doubts about the integrity of the U.S. Dollar, and I am recommending investments in hard assets (i.e. Real estate, gold, silver, and other precious metals) as well as investments in foreign currencies and foreign stocks.

If the return on your current savings is not up-to-par, I have a limited-time opportunity in which you can earn a fixed 4% monthly (48% APR) return on a six-month investment of $1,000 to $10,000. This is a securities-backed investment and is highly secure. You must act quickly, because when the capital requirement is filled, this opportunity will be gone.

If you need more information on how to attain maximum results on your investments, in spite of the current economic situation, please comment to this post. All comments are moderated, so your personal information will not be displayed publicly.

Blog to you soon!