Is the World Running Out of Options, to Solve the Financial Crisis?

Dear PGM-Capital Blog readers,
Last Thursday, July 5th 2012, will go into history as the day that 3 major Central Banks, “The Bank of England“, “The European Central Bank” and the
The People’s Bank of China“,  signaled their determination to stimulate the flagging global economy.

Highlights:

  • The Bank of England’s monetary policy committee, said that it would inject an additional £50bn in its current QE program, for it to rise to a total amount of £375bn, while the base interest rate would remain at 0.5%.
  • The European Central Bank cut its key interest rate by a quarter of a percentage point to a record low of 0.75 per cent and reduced the rate it pays on overnight deposits to zero.
  • China’s central bank lowered interest rates for the second time in less than a month, by cutting the Yuan lending rate by 0.31 percentage point, to 6%, effective Friday, July 6th 2012.

We believe that the quarter percentage point interest rate cut by the ECB, will not be enough and expect the ECB to cut the main interest rate to 0.5 percent, when they meet in August.

A cut of the interest rate to 0.5 percent by the ECB, in August, might be behind the curve, which means that buying government bonds (an option opposed by Germany’s Bundesbank, the ECB’s biggest stakeholder) or else offering more cheap loans to troubled European banks in the PIGIS might be its only option left for avoiding the euro zone crisis to intensify and the bloc to slide towards the abyss of a hard depression.

On the other side of the Atlantic, where things aren’t much better, with interest rates at zero, unemployment rate at record high, slumping manufacturing and a rising US-Dollar which will curb export, policy makers are also out of options. Due to this we expect the FED to soon announce one form of QE-3 or a hidden QE-program.

With central banks all over the world in a money printing spree, which will dilute the purchasing power of existing money and subsequently create inflation, we believe that we’ll soon see the new leg of the Gold Bull market.

Ladies & Gentlemen, Gold is REAL MONEY!, let me explain to you why Gold will be your ultimate safe haven, during the current financial crisis and subsequent depression that may lie ahead.

  • Even with modern technology gold is still incredibly difficult to find.
  • In total about 160,000 tonnes of fine gold have been taken out of the Earth, if a cubic centimeter of gold equals 19.3 grams, then a cubic meter of gold would weight 19.3 tonnes. Likewise all the gold ever mined would amount to 8,187 cubic meters.
  • Gold is being mined at about 2,600 tonnes a year, so the above ground supply is expanding at 1.6% per annum,
  • By contrast to gold’s restricted supply, our money systems are currently expanding out of control, by at least 11% per annum.
  • Gold’s unique chemical and physical properties mean that it is now finding increasing use in a wide range of industrial applications, computers, semi conductors and modern consumer electronics.
  • Increases in demand from China, India and the Gulf states have driven a 8.5 percent increase per year in demand for gold jewelry since 2003.

Due to their scarcity combined with increasing demand in modern precision instrumentation and renewable energy applications, we are even more bullish on the price of Platinum, Palladium and Silver.

Last but not least, before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of, Precious metals as well as the Stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek
Chairman

 

2 thoughts on “Is the World Running Out of Options, to Solve the Financial Crisis?

  • Dear Mr Panneflek,
    As usual your arguments are quite sound and difficult to gainsay. Nevertheless, there are ‘financial experts’ and ‘investment advisors’ who insist that gold is on its return and they recommend that now is the time to go into stocks, as they are far below their intrinsic value. However, they don’t come up with arguments why gold is pulling back and why they think it has had its run.
    While I agree that the volatility in the market and uncertainty in long-term world economic development are playing havoc with investment sentiment – which is why gold and precious metals are excellent safe havens in these troubled times – I do think there is something to be said for also considering the advantages of investing in
    carefully researched commodity stocks. I would certainly recommend food, copper and iron, and certainly rare earth. Depending on your stomach for a rough ride, you could do both short and long-term investment in these stocks. I would recommend the long-term approach, which can be interspersed with short-term investment. This is especially the case with copper and iron, as they show considerable volatility. Buy on dips and sell on market surges. Re-invest the profit in other short-term projects, while using the capital for long-term investment in food and rare earth projects, keeping in mind that some of these rare earth projects may be in initial stages of development (Greenland!).
    But whatever you do, keep in mind that gold and other precious metals remain your safe haven, even if they show the same doldrums as the market. And never forget that there are two forces that affect the price of gold: forced selling thereof to pay for margin calls and market manipulation by big international banks in order to force down the price, which offers them the opportunity to buy in large volumes.
    Good hunting.

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