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Is A Stock Market Collapse Really on The Cards?
In a recent article, world-renowned finance expert, Egon Von Greyerz stated that a stock market collapse and a surge in gold investment is imminent, the question is what will be the trigger?
The question I want to ask first is, is a stock market collapse really imminent, let alone any collapse resulting in a rush to invest in gold?
The only way to answer that is to look at the evidence that is before us, evidence that shows us that we could be heading for a collapse in the stock market.
Since the financial crisis of 2008, the main money men of the world have increased world debt in the last 7 years by nearly 50%. In 2008 the worldwide debt was $150 Trillion dollars and at the start of 2015, it had increased to over $220 Trillion, an increase of $70 Trillion that came about because the financial institutions in major countries have been carrying out quantitative easing to free up the pressure on them. The purpose of quantitative easing is to create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. This new ‘ cheap money‘ swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitative” easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The problem is, people are not borrowing, so the debt continues to swell.
On top of the above, you also have the financial bailouts of countries such as Ireland, Spain and most publically recognised, Greece, which naturally add to the debt on a daily basis.
The Biggest Evidence Financial Collapse is Coming
Looking at all the evidence out there concerning potential stock market or financial collapse (and the above is only the tip of a very large iceberg), it is easy to be speculative about our financial futures. But when the International Monetary Fund (IMF) states at their conference in Peru last week, that sustainable recovery has failed and cheap money has led to bubbles and debt and the fact that they have not even finished fixing the flaws in the global system that were exposed by the last financial meltdown in 2008, it seems we are in for a very fragile state right now.
On the subject of a potential stock market collapse, the IMF said ” “Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the IMF goes on to say in their report that some markets do appear to be “brittle”
Source: The London Guardian Newspaper
Is Investing in Gold The Answer?
Historically precious metal, especially gold, has performed well gainst the performance of stocks and shares (see my page on gold investment), and is immune to any collapse, because it sits outside the financial control of banks and financial institutions. Physical gold and some silver stored outside the banking system will be one of the few ways to preserve wealth over the coming years. I strongly recommend you read the full article I referred to at the beginning, by Egon Von Greyerz, if you are serious about protecting your financial well-being from the financial situation that is clearly on the horizon. You can also check out my page on where to buy gold, so you can get a more inciteful indicator on what is involved and the benefits of investing.
Earlier this year, CNBC ran a sequence of articles where they raised a number of valid and important questions as to why Russia wants more gold. (source)
The Central bank of Russia has announced plans to increase its reserve level from $300 billion to $500 billion. Now how Russia plans to do this is unclear, however lets look at three major facts for a moment that have negatively impacted on the Russian economy:
- Russia has for some time been trying to stabilise the value of the Russian currency, the ruble, by selling a mix of currencies including the US dollar.
- Its war with the Ukraine has brought about sanctions that has put them under economic strain
- As the world’s leading energy supplier, the fall in the price of oil has impacted on Russia greatly.
These factors, along with others, have contributed to the economy of Russia to actually contract by 1.29% and this is a result of 12 months of continual contraction.
graph courtesy of http://www.tradingeconomics.com/russia/gdp-growth
Now when you consider that Russia is the largest country in the world and the fifth largest economy, along with being the world largest producer of oil (no it’s not Saudi Arabia, there output is only 13% compared to Russia’s 14% (figures courtesy of Wikipedia)) along with gas, you can see why having a stable economy is vital.
So how are they going to do it?
Well one of the fastest and most common ways to bolster an economy is through the purchase of gold. In an article on CNBC, they stated:
“Rumors last week that Russia was on the verge of selling its gold reserves were quashed with the news on Friday that it has continued to add to its holdings. However, John Butler, chief investment officer at Atom Capital, and Alasdair MacLeod, the head of research at online bullion exchange GoldMoney Foundation, believe that Russian President Vladimir Putin could bring the country onto some sort of “gold standard” to try to shore up its economy. “
It is no secret that Russia does have an interest to distance itself from other currencies that are inflating in value. Putin wants to base the Russian economy on sound investments and the best way to do that is, through gold.
What evidence is there to suggest that?
Russia increased its holding of gold in December last year to just over 38 million ounces, an increase of over 1 million ounces from the previous month (source) and it continues to do so each month. Although the country is a long way off from having a currency that is backed completely by gold, it is moving in the right direction
January 22nd – the European Central Bank announce that they will print over 1 Trillion euros to buy 60 billion euros worth of soverign bonds every month, for the 18 months )march 2014 – September 2015) See full story here at Bloomberg.com
George Soros, the billionaire investor announced that he strongly feels such action will “divergence between rich and poor bigger than it already is” He continued, “It will benefit the owners of assets and actually wages will remain under pressure through competition and unemployment.”
That benefit on assets has already started, with the price of gold increasing 3% in Euro terms, in just one day. (you can see how gold has increased over the past few months, and continues to do so on our precious metals price page)
So what effect has this actually had on the price of gold? Gold has returned to its key mark price of $1,300 and experts are already stating this is just the beginning.
If you are interested in looking at the investiture of gold further, check out our gold reviews.
On the 5th January we saw gold take an up turn in its value, and it has been continuing ever since.
Yesterday (15th January 2014) Switzerland made the unusual move to end its peg to the Euro. As a result of the Swiss action, currency brokers around the world were affected by heavy losses. One example of this was Alpari, based in the city of London, who had to enter into insolvency. Sadly the list continues to grow of those firms who have been negatively affected by the decision.
What this decision also did was it also had an impact on the price of gold.
Gold increased over night in value by $15, to £1277. Speculation continues to grow that the price will rise even further, with companies FX companies looking to protect themselves as best they can, by diversifysing into gold.
Until this can be confirmed, we will continue to monitor the price of gold as we do, however for those who have invested in the precious metal, the future looks very bright.
If you have considered investing in gold in the past and want to review your options even further, we suggest you check out our full gold ira review page, where we have fully investigated the main providers of gold.
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