By Nicholas Santiago on May 12th, 2010 2:10pm Eastern Time
As everyone knows, gold is now trading at new all time highs. Throughout history the yellow metal has been the one true currency of choice, regardless of countless attempts for nations to try to have a fiat money system. Once again, gold is emerging as the one true currency to the world. It is important to realize that gold is in a nine year bull market with no real signs of slowing down. SPDR Gold Trust (ETF) (NYSE:GLD).
Throughout 2009, gold lead the markets higher as the central banks around the world tried to inflate the market back to health. Obviously everyone knows that the banks around the world have been bailed out by printed money for years now. This past weekend European Central Bank and the International Monetary Fund announced a $1 trillion European bank bailout to keep the European Union together for a little while longer. This money is not going to the countries that are defaulting on their debt. Instead, this money is going to the banks the same way the TARP (Toxic Asset Relief Program) money went to the large banks in the United States.
Here in lies the problem; the European nations all have extremely high tax rates already. Now the taxpayers are going to pay more taxes and lose their benefits or entitlements that they currently receive. The tax payer is going to become outraged as we have seen from the Greek protests. The world is starting to get fed up with these bailouts. The U.S. is now starting to see a new movement developing called the Tea Party. This movement is begining to spring up in almost every city and town in the country. People are now recognizing more and more that the current two party system in the United States is a double headed monster in which they spend money to fix the problem while creating more. Where does the money come from? What is it backed by? First the money is printed or in modern times created on a computer. Second it is backed by the U.S. taxpayer and that taxpayer is getting tired of this system.
Households cannot function or stay above water by leveraging themselves or by taking on massive debt. That being the case, how can a nation or a government do it? They simply cannot incur more debt and remain healthy; this is what gold is telling us. Every fiat money (money which has no intrinsic value and cannot be redeemed for a commodity) supply system from the beginning of time has failed. This is not a good track record for a world that prints money out of thin air everyday. Gold has been the currency since biblical times and is still the currency of choice.
Is gold in a bubble? Normally when a stock or currency gets this much press it is in a bubble. However, that is not the case right now. If you ask anyone on the street, most people do not own any gold outside of their jewelry. Most Americans have never seen gold bullion or even a gold coin for that matter. Therefore, this is not a fade like Crocs, Inc. (NASDAQ:CROX) or the Silly Band Bracelets that my young children wear. This is the world currency from the beginning of time.
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