Euro Billions!!

Euro Billions long shot

We all like to indulge in the dream or fantasy that against all possible odds – we could actually win it this time. Through luck, fate or mere persistence – people believe that the more money they throw into the pot – the greater chance they have of achieving their objective.

You wouldn’t be completely misguided if you thought I was talking about gambling. However, the political terminology is that of fiscal policy. A measure of last resort during times of economic crisis should be monetary easing but as a global nation we seem to get to that point whilst exhausting all other options faster than one would think.

Bank governor Mervyn King announced the possibility of another round of QE as of when the UK decided to flood the market with £100bn in order to influence the banks to increase lending activity. Despite this injection of cash – 8 banks have now refused to lend, 15 major Global banks have now been downgraded and Moodys is putting some of the banks on a negative outlook, which is a warning that they could be downgraded again in the future.

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Last week “official” figures suggested that inflation had fallen and therefore the case for the UK to print more money was apparently justifiable.  It’s easy to forget that the CPI (Consumer Price Index), the government’s measure for inflation, doesn’t take into account petrol, housing costs, mortgage interest payments and Council Tax. How can inflation have dropped when the average price of a gallon of petrol has gone up by more than 10% over three months? Or when the costs of residential rentals are soaring?

Good money after bad

The government may fool themselves into believing that

Insider's Guide to gold and silverinflation is low enough for us to throw more money into the pot and hope for the best. However if we apply the RPI (Retail Price Index) which has a wider remit, we can see that inflation more accurately sits at 5% and a further round of QE will continue to push this up.  Notwithstanding that this reduces the purchasing power of people’s money but against a backdrop of banks that won’t lend and banks that are offering interest rates below the level of inflation – people are losing money by keeping their money in the bank.

Countries like China and India hold more gold now than they have done over the entire history of mankind. Their rationale is quite the contrary to taking a gamble or an unnecessary risk but that of safety and protection. As gold tends to rise with inflation, they are maintaining their wealth and keeping up with the cost of living.

Currency devaluation

The other effect is that with every stimulus package carries with it the devaluation of currency. This is why the value of gold jumps up considerably every time the government decides to print more money.

French investment bank Société Générale think that the Gold Price could rise considerably and is urging readers of their latest strategy report to “Buy Gold ahead of QE3″.

SocGen’s latest recommendation to Buy Gold in fact repeats a call the bank made last November, predicting monetization of a further $600 billion in US government debt by March 2012…

So forget Euro Billions. Rather than taking a gamble on one’s wealth, the smart money is flocking to gold as a means of protection and with gold representing the strongest buying opportunity in weeks – many of our existing clients continue to prepare for the future.

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