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Global Currencies Part I

US$, Fiat Reserve Currencies & Gold

US$, Fiat Reserve Currencies & Gold

With Special Guest Axel Merk
President & CIO Merk Investments,
Manager of Merk Funds

& Gordon T Long & Ty Andros

34 Minutes, 46 Slides

In Part I of this 70 minute two part series, Axel Merk in discussions with Ty Andros and Gordon T Long covers a broad range of the most important Global Currency issues relevant to investors. Named a Currency Guru by Morningstar, there is no one more qualified to assist investors understand this complex environment. Though markets may appear unpredictable, Merk Funds' research has found that politicians are not. Currencies markets most closely reflect the Macro realities without taking on associated equity and interest rate risks. Currencies are the cornerstone of successful investment strategies in the global financial markets.

Dollar versus Gold Cartoon


Currency: US Dollar

As serious as the issues are with the US Dollar losing its function as a "store of value", it is best viewed as the "least ugly" within the world's beauty contest of fiat currencies. As such it is likely to be the last to fall as global fiat currencies feel the pressures of having over-inflated their currencies while allowing negative Primary Current Accounts. The US$ is presently the safehaven for investors singularly because of its liquidity, rule of law and a dominant sovereign military.


Currency: Fiat Reserve Currency

As global currencies have been moving more and more away from the Gold Standard over the last 100 years, investors must continuously re-evaluate the "risk-free" element of their portfolio. This is now urgently dictated, since with negative real interest rates most currencies are no longer a safe 'store of value". It is a simple reality or "new normal" that Investors cannot trust the government to protect their purchasing power for them and must adopt personal strategies that match their own risk tolerance. The days of 'mom and pop' investing are over as macro and monetary decisions control the investment landscape.

Cumulative Change in Central Bank Balance Sheets

 


Currency: Gold

Gold versus Dollar Cartoon 2

Aggressive accumulation of gold by Emerging Market Central Banks and the Bank of International Settlements (BIS), suggests that the historic shift to fiat currencies is 'running out of runway'. In an increasingly unstable world, changes are overdue. Axel argues that the solution will unfortunately not be another Bretton Woods Monetary agreement, but rather is likely to first lead to chaos and social disorder before any possible consensus can be reached.

Gold will continue to be volatile, especially when priced in US dollars and with parallel distortions by the bullion banks in disconnecting the physical price of gold from gold's 'paper' price.


Currency: Euro

Though the Euro is the only major currency not backed by a tax base nor an army, it is in fact the most difficult currency to debase. Poorly understood is how the ECB has been successful in holding up the Euro by 'mopping up' liquidity, despite an expanding and seemingly intractable crisis in the peripheral nations throughout a relentless six quarter recession.

Euro Cartoon

Axel Merk lays out what the surprising hidden strategy is for the survival of the Euro, both from a sovereign and banking perspective.

 


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