By Sean Kelly
• Devaluation is the deliberate downward adjustment of a country’s currency value.
• The government issuing the currency decides to devalue a currency.
Former Templeton Fund Manager and Founder of Mobius Capital Partners, Mark Mobius, thinks you should buy gold to prepare for global currency devaluation. The reason? The global frenzy of economic stimulus (central bank money printing).
Mobius is referring to physical gold, not just paper gold like stock certificates or ETFs.
Upon his retirement from Templeton, Barron’s wrote, “The renowned Franklin Templeton Investments value manager has jetted from one far-flung corner of the world to the next, navigating military coups, Siberian snowstorms, and corrupt executives hurling threats, to unearth bargains as some of the world’s poorest countries transformed into economic powerhouses.”
Mobius is not talking about currency devaluations bye and bye in some hypothetical far-off future. He’s talking about next year.
“Currency devaluation globally is going to be quite significant next year given the incredible amount of money supply that has been printed,” he said.
A short discussion of devaluation will show just how precarious and nebulous the value of the dollar really is. Some currencies fix their exchange rates, pegging them at a certain ratio against the dollar. Other currencies are not fixed. Their exchange rates float – or sink!
The exchange rate of the dollar is no longer fixed to any objective standard. It is traded on the global currency exchanges at market rates, rising and falling depending on the perceived value of the currency.
In other words, the value of the dollar today is entirely subjective. If you ask the treasury to exchange your dollars for real money, all it could possibly do is take your dollars and give you different dollars in a pointless exercise.
When a currency is fixed to some objective standard like gold, devaluations are the result of a specific government decision, an official policy act that takes place at a specific moment. In his first term, FDR devalued the dollar by raising the official dollar-gold exchange rate from $20.67 an ounce to $35 an ounce.
In other words, when the dollar is devalued, gold goes up.
Today, currencies are no longer suddenly devalued by an official announcement. They are devalued every day with each new round of money printing. So, the daily devaluations can go unnoticed, but they accumulate.
Then the veil of illusory currency value becomes widely apparent. Mobius’ view suggests a frantic attempt to exchange dollars and other currencies for the real and enduring value of gold will get underway next year.
As protection from the inevitable sharp decline in the purchasing power of currencies, Mobius recommends that investors have 10% of their portfolios in gold. Even if a small number of investors begin trending that way, the price of gold will skyrocket to unimagined heights.
We’ll let another accomplished investor, John Paulson, who made $4 billion by foreseeing the bursting of the mortgage bubble, explain why.
“Gold does very well in times of inflation. The last time gold went parabolic was in the 1970s when we had two years of double-digit inflation. The reason why gold goes parabolic is that basically there’s a very limited amount of investable gold. It’s on the order of several trillion dollars, while the total amount of financial assets is closer to $200 trillion. So as inflation picks up, people try and get out of fixed income. They try and get out of cash. And the logical place to go is gold. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply and demand imbalance causes gold to rise.”
We agree that, like a rubber band that can’t be stretched any further, massive money printing has reached its end. The pent-up, accumulated daily devaluations can’t go on. You must act to protect yourself, your wealth, and your retirement.
Don’t delay. Take the first step today by calling us for a free one-on-one consultation.