Dollar is going to be a mere "paper piece" very soon.. Read on..


The relentlessly plunging US dollar is the primary topic of some of the most widely played financial-news stories these days. This once mighty American currency is rapidly falling from international grace, and even conventional media outlets are focusing more and more on the enormous implications of the down-spiraling dollar.

It’s not only the financial markets that are nervously pondering this troubling development, I suspect that all of the major governments on Earth are burning the midnight oil trying to decide how to address this issue. The farther the dollar falls, the more difficult it is for other countries’ exporting industries to sell their products into the largest consumer market in the world, the United States.

European officials seem to be pretty calm about the dollar rout so far, but European exporters are growing increasingly vocal as the young euro soars to all-time-record highs. Europe is a major exporter to the US and for the last four months or so the plunging dollar has ratcheted up the pressure on European exporters. Every fresh new dollar low relative to the euro makes European goods more expensive for Americans.

As the dollar’s exchange value falls, it takes more dollars to buy gold so the dollar gold price rises. Conversely, when the dollar’s exchange value rises, due to a bear-market rally or any reason, it takes fewer dollars to buy gold so the dollar gold price falls. A short-term countertrend dollar rally portends a short-term bearish omen for the price of gold denominated in US dollars!.

Dollar is in its last days.. 

This is not breaking news. But what are you doing about it? Most Americans are doing nothing.

Historically, one of the best ways investors have protected themselves against a faltering currency is to purchase gold and silver.

A falling dollar means that everything that is priced in dollars is falling in value. If the dollar falls 10%, and you are paid US$50,000/year, your earnings will fall by US$5,000. If your home is worth US$200,000, its value will fall by $20,000. If your stock portfolio is worth US$100,000, it will decline by US$10,000. 

If you’re like most Americans, this erosion in the value of your dollar-based assets is invisible. That’s because you’re probably still paid in dollars, paying your mortgage in dollars and investing in dollar-denominated stocks. 

But just because the decline is virtually invisible doesn’t mean that it’s not real. To understand one consequence of this decline, just take a vacation overseas, to a city like London. Just be ready to pay the equivalent of US$8 for a pint of beer, or US$20 for a meal of fish and chips! 

More expensive international travel, though, is not the most important consequence of the dollar’s decline. But to understand that consequence, you must understand the cause of the decline. That, in turn, points the way toward a strategy to protect yourself.

Most experts say the dollar is falling because of our “twin deficits”: the federal budget deficit and trade deficit are at historically high levels. Simply put, more money is being spent than earned. If you overspent the balance in your checkbook, checks would be returned for “insufficient funds.” But the U.S. doesn’t have that problem...yet. This is because the dollar is the world’s “reserve currency,” viewed historically as being “as good as gold.” Among other consequences, this is why oil is sold in dollars, not yen or euros, and why people in third world countries hide dollars, not rubles or pesos, under their mattresses. 

Both deficits are serious, but the one that most concerns economists is the trade deficit. Academic studies say that when a trade deficit exceeds more than 5% of a nation’s Gross Domestic Product (GDP), that country’s currency must fall sharply—20%–40% in most cases. Devaluing the currency makes that country’s exports more competitive, and imports more expensive. That in turn spurs exports and discourages imports, bringing things back into balance. 

In the case of the United States, the balance of trade deficit now amounts to a stunning 5.7% of GDP. Economists are unanimous in stating that the only way this can be addressed is by a substantial dollar devaluation. What’s more, U.S. leaders now accept this and are calling for a lower dollar. Not directly, but by warning U.S. trade partners not to intervene to prevent the dollar from falling. So…the dollar is falling, and is likely to fall more. In the near future, you can expect to be paying more for anything imported from overseas—and the declining dollar will then not be nearly as invisible as it is today.

The real question is: How can precious metals protect you from this insidious decline in the purchasing power of your dollars?

The most fundamental reason is that precious metals, and particularly gold and silver, are, in fact, money. Gold has been a trusted store of value for more than 5,000 years, and silver for almost as long. The monetary nature of gold and silver is even specified in Art. I, Sec. 10 of the U.S. Constitution, which prohibits the states from making “any thing but gold and silver coin a tender [i.e., an offer] in payment of debts.” However, there is no such prohibition for the federal government, and so today, the dollar has no connection whatsoever to gold or silver. It is “fiat” or paper money, with no intrinsic value, and backed by nothing but the “American dream.” 

Gold and silver, therefore, are competitors against the dollar and all other forms of paper money. And because of this, when the values of paper currencies like the dollar decline, gold and silver prices increase. That’s what’s been happening for the last 90 years, during which time the value of the dollar has fallen a stunning 95% against gold. Or, to put things in a slightly different perspective, during this 90-year period, gold has moved from US$20.67/ounce to US$450/ounce, an increase of 2,100%! This is the fundamental reason why gold and other precious metals should always be in your portfolio. 

How Much Should You Invest In Precious Metals?

A growing number of investment advisors suggest placing 5% of your investment assets into gold, which is never sold. This is your “golden anchor.” Another 15% of investment assets should be placed into gold and silver to be bought and eventually sold as you would a security. A purchase of one-half gold and one-half silver of the 15% allocation is often suggested. (You may also wish to purchase platinum or palladium with some of these funds; metals that tend to move in line with gold and silver prices, but which are primarily industrial metals with limited monetary use.) 

The Best Money

Bullion is the best money, because for centuries, as a result of countless individual choices, it has evolved as such. It was not imposed on the market by force, but was cultivated in the soil of the market itself. It grew naturally in the open air of voluntary exchange, not in a cloistered greenhouse of government fiat. When governments said they supported a strong dollar, it meant that they would not attempt to undermine the gold backing that the market chose. Today, those words have little meaning.

Read More : Why Invest In Bullion >>