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Post by Hoosier Hillbilly on Feb 16, 2014 13:38:16 GMT -5
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Post by Hoosier Hillbilly on Feb 16, 2014 13:46:16 GMT -5
Roger Conrad
Gold is considered the "crisis commodity" because it tends to outperform other investments during global uncertainty. For millennia, the yellow metal has proved a reliable store of value in the face of every calamity, even as currencies of the strongest empires have failed.
Typically, gold's future shines as the U.S. dollar's luster fades. Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise.
It's hard to believe now, but 10 years ago, the U.S. dollar was riding high. However, massive deficit spending exacerbated by two hugely expensive wars helped grease the skids for a major decline in the value of the U.S. dollar against most major foreign currencies.
Consequently, the past decade has been among the more profitable times to hold physical gold such as bullion and coins, with the metal surging from just a few hundred dollars an ounce to better than $1,800/oz last year. The current price of around $1,725/oz, however, is still barely half the inflation-adjusted value of its 1980 high.
With central banks flooding the world with money to fend off a deflationary recession, more gains are likely.
As government deficits, financial crises, economic uncertainty, and civil unrest spread around the globe, some analysts are predicting the US dollar's collapse.
However, if you're worried about the future value of the buck, you don't necessarily need to buy gold as a hedge. The easier and safer choice is to buy solid companies that produce growing cash flows in stronger currencies. As these companies generate more cash, that cash will become more valuable in dollar terms, which effectively gives you two ways to build wealth.
For example, the Canadian dollar over time will follow energy prices higher, because the country is a major exporter. That means the U.S. dollar value of the country's stocks and their dividends will rise, as their underlying businesses grow.
Over the years, the U.S. dollar has occasionally stemmed its decline. In the fall of 2008, for example, it became the currency of last resort for panicky capital. The Canadian dollar dropped from near parity to the U.S. dollar in midyear to just 76 U.S. cents by early 2009.
The "loonie" lost ground sharply again during the "Flash Crash" and its aftermath in mid-2010, as well as in 2011 following the U.S. government bond rating cut. And it dropped again this spring as worries about slowing global growth stirred, before returning to the upside.
The Australian dollar has also been a major winner against the buck over the past 10 years. The currency began the decade priced at a little over 50 U.S. cents. By mid-2008 it had almost doubled to near parity, before crashing to around 60 U.S. cents later that year. Today, the currency is again above parity, basically trading in a range after hitting a high of USD1.11 in late July 2011.
Ten years ago the euro was worth just 90 U.S. cents. It rose to a high of USD1.60 by mid-July 2008, before crashing to the USD1.20-USD1.25 range in early 2009. In contrast to the Canadian and Australian dollars, however, the euro has since made a progression of lower highs and lower lows, scraping below USD1.20 for a while this summer in the wake of the Continent's financial crisis.
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Post by Hoosier Hillbilly on Feb 16, 2014 13:51:23 GMT -5
Hailing from Australia, BHP Billiton BHP +1.05% has a vast mineral wealth that spans the globe. Prices for the company's coal, iron ore, gold, titanium, ferroalloys, petroleum and other resources have slumped this year on concerns about Chinese demand.
However, BHP is that rare resource company that was actually able to increase dividends during the 2007-2009 financial crisis. And with a powerful balance sheet and demonstrated access to capital, it has plenty of options for weathering a further resource slump.
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