Gold is at all time highs in all major fiat currencies... How did we get here?

Why is gold rallying in all fiat currencies? It’s not just a weak dollar phenomenon. I would invite readers to take a trip down memory lane to see what events got us to the current $950 gold price and the new all-time high in the HUI (Amex gold bugs index) today.

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Let’s start with this piece that I wrote back in early September, which was basically a reprint of a July piece that provides some basics on gold and “where we are” so to speak. As the housing bust unfolded and crippled the financial system, the Fed had no choice but to begin to “run the printing press” despite the obvious inflation problem that was already developing:

In early October, I discussed the fact that gold was beginning to rally strongly in all fiat currencies and the implications:

In January, the Fed finally went into an all-out panic and dropped a 75 bp inflationary “nuclear weapon” and left no doubt as to what it was going to do in order to try and preserve the system. That event coincided with gold breaking out to new all-time highs in dollars, euros, and virtually every other major fiat currency.

Why is gold rallying in all fiat currencies? Gold is rallying because the housing bust and the credit bubble that spawned it have crippled the financial system, and the Fed is being forced to “print money” simply to keep the system functioning. That’s causing a flight from fiat money globally since the entire global monetary system is based on the fiat dollar. In the end, the result is a breakdown of the monetary system, which is what we are witnessing now. The result is going to be stagflation here in the U.S., dramatically higher gold prices, and higher inflation worldwide.

It is what it is. The Fed is going to inflate. Don’t fight the Fed.

People have become used to disinflation for the past 25 years. Only in the past several days has it finally begun to dawn on the herd that inflation and more specifically stagflation is going to be a problem going forward. That means the conditions are ripe for a sudden shift in herd psychology which could trigger a virtual stampede into inflationary hedges in the coming days and weeks, including potential major currency shifts in the Middle East and in China. Don’t say I didn’t warn you.

Lastly, it may seem like one is “reaching up” for gold at this point, but consider this: was it a mistake to buy the Dow in 1982 when it broke out over 1000 after 20 years of trading between 500 and 1000 and began what would be the great secular bull market of the 1980s and 1990s? Clearly not. Well, gold (and the XAU Gold Mining Index) just broke out of a nearly 30 year trading range back in January. Do you think it’s a good time to buy gold and gold mining shares? What do you think? I say "yes".


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As for the gold mining shares, my favorite names in the senior space continue to be Gold Fields (GFI) and Newmont Mining (NEM), while in the junior space I like Banro (BAA), New Gold (NGD), Nevsun Resources (NSU), Minefinders (MFN), Golden Star (GSS), and Metallica Resources (MRB). I also like the closed-end gold fund ASA Ltd (ASA), which is still trading well below its net asset value.