Jan 18: When governments print money, buy gold

by Jeff Randall, The Telegraph (click to see original)

"If you don't trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars?"

- Kenneth J. Gerbino

The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence.

"The modern mind dislikes gold," said Joseph Schumpeter, "because it blurts out unpleasant truths." With gold trading at about $900 an ounce - more than 200 per cent higher than it was at the turn of the millennium - today's message from the bullion market is not comforting.

In the eight years since the arrival of the 21st century, the FTSE-100, the London stockmarket's main index, has lost about 15 per cent in value. The shares in companies that comprise "Footsie" usually pay dividends, sometimes more than five per cent a year. Gold pays none: never has, never will.

So why have investors been abandoning conventional assets, such as government bonds and stakes in blue-chip businesses, in favour of a metal that appears to offer no reward for holding it? The answer, I'm afraid, is crumbling faith in the world's central banks, and in particular the US Federal Reserve, where the presses have been working overtime.

Some argue that the soaring gold price has been driven by temporary anxiety over global instability. The metal is a safe haven in troubled times. But answer me this: when was the last time the world felt like a cosy hideaway? Ever since mankind turned up, Planet Earth has never been a safe place.

...Article continues...

January 14: Gold smashes through $900 as investors lose faith in dollar and pound.

By David Litterick and Richard Blackden, The Telegraph, Jan 14, 2008

The price of gold continued its stunning start to 2008, rising to a new record of $914 an ounce, as traders betted the US Federal Reserve will slash interest rates, weakening the already falling dollar and boosting the investment appeal of the precious metal.

January 14:  The Telegraph on the US-British economies.  Sterling is no safer than the falling dollar.

The pound has suffered the biggest fall of any major currency over the past year, it has emerged.Sterling's dramatic recent decline means it has now weakened by even more than the dollar in the past 12 months.

[Editor's advice:  the US Dollar and the Pound Sterling are both overvalued for the same reasons.  Diversify into gold and keep your wealth.]

The news, which comes only days fter the pound dropped through the 75p mark against the euro, underlines how fast sterling's value has diminished in past months. Economists warned it may also prevent the Bank of England from cutting rates as fast as many expect.

The pound has lost just over 9pc of its trade-weighted value in the past year, surpassing the dollar's decline of 8.4pc. The falls, which are measured by comparing the currencies to a basket of their counterparts, come amid growing fears about the health of both the economies of the United States and the UK. The euro, meanwhile, has seen its value appreciate by 6pc in the past year, causing an increasing headache for continental exporters. He said the fall in sterling could have a positive effect for the wider economy. Michael Saunders, chief UK economist at Citigroup, said: "It will help to support economic growth in the face of probable weakness in domestic demand, while cutting risks that the current account gap hits even more threatening levels. The lift to inflation from rising import prices is likely to be offset by a sharp margin squeeze as consumption slows."

Having broken through the $2.10 mark against the dollar only last autumn, the pound now lingers at $1.95. Even so, the scale of the decline has been masked to some degree by the fall in the US currency. Both Britain and the US share a number of weaknesses which have diminished confidence in their economies, among them an overvalued housing market, high levels of personal and corporate debt and record current account deficits. Until recently the pound had been spared a decline because of the high level of UK interest rates, but this is no longer the case, with the Bank of England starting to cut borrowing costs last month. However, the Bank Monetary Policy Committee last week left borrowing costs on hold at 5.5pc, though it is widely expected to cut them again next month.

The euro, meanwhile, has seen its value appreciate by 6pc in the past year, causing an increasing headache for continental exporters.

Experts said the fall in sterling could have a positive effect for the wider economy.

Michael Saunders, chief UK economist at Citigroup, said: "It will help to support economic growth in the face of probable weakness in domestic demand, while cutting risks that the current account gap hits even more threatening levels. The lift to inflation from rising import prices is likely to be offset by a sharp margin squeeze as consumption slows."

Having broken through the $2.10 mark against the dollar only last autumn, the pound now lingers at $1.95.

Even so, the scale of the decline has been masked to some degree by the fall in the US currency. Both Britain and the US share a number of weaknesses which have diminished confidence in their economies, among them an overvalued housing market, high levels of personal and corporate debt and record current account deficits.

Until recently the pound had been spared a decline because of the high level of UK interest rates, but this is no longer the case, with the Bank of England starting to cut borrowing costs last month. However, the Bank's Monetary Policy Committee last week left borrowing costs on hold at 5.5pc, though it is widely expected to cut them again next month.

[Again, here's where to buy some gold while your currency is worth something.]

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