Wednesday, December 14, 2016

Dana Point Gold Coin, Silver, and Bullion Orange County

3 Major Reasons Why Gold Could Skyrocket

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After the U.S. presidential election the markets have been responding in surprising directions. Stock markets are up, and the dollar is high, on expectations that President-Elect Trump could fuel economic growth, however, these market sentiments are bound to be short-lived. The price of gold could gain some major momentum considering these 3 very important factors:

1. Sharia Law Will Soon Spur $3 Trillion of New Gold Investors into the Market

Sharia Law

Sharia Law is the religious law that governs members of Islamic faith, and that includes finances. By the end of the year, a new law will go into effect that will allow Muslims to buy gold for personal investment for the first time ever. This is huge because before this point, Muslims have been allowed to own gold in the form of jewelry or trinkets under Sharia Law, but forbidden to hold gold as an investment that would increase in value over time. All this is about to change, as the World Gold Council is working with the Accounting and Auditing Organization for Islamic Financial Institutions to enable Muslims to own gold as a commodity.

The bottom line: Muslims account for 1.6 billion of the world’s population, including 112 billionaires and the royal Saudi family and wealthy sheikhs. Standard & Poor estimates that this could funnel $3 trillion into the gold market—a significant amount that would be sure to send gold prices soaring.

2. The Chinese Gold Exchange Will Reset Gold Prices Based on Physical Bullion

Chinese gold

As we’ve discussed at length in previous newsletters and blog posts, China is a formidable player in the gold market, and this year established their own Gold Exchange, which rivals the two main exchanges in London and New York. China is already the top importer, exporter, and consumer of gold—and has plans to seriously change the way that gold is bought and sold. On the New York and London Exchanges, gold has been priced for the past 40 years based on gold futures contracts—not actual physical gold. Only 1 in 252 contracts are based on real physical bullion, which artificially suppresses the price.

The bottom line: On the Shanghai Gold Exchange, anyone buying gold futures will be required to deposit the equivalent of physical gold, meaning that every trade on the Shanghai fix will be backed by physical precious metal, putting the ratio at 1:1 instead of 252:1. Based on the law of supply and demand and finite amounts of gold available, the result should be an astronomical rise in prices.

3. Analysts Strongly Predict a Trump Presidency Will Increase National Debt


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Donald Trump

Even though the immediate response to Trump’s presidential victory has whetted the risk appetite of investors, the long-term effects are sure to be less savory. Trump’s policies, though still vague, propose increased spending combined with significant tax cuts. This is a recipe for more and more debt, and the Committee for a Responsible Federal Budget, a non-partisan group advocating for responsible government spending and debt reduction, has the evidence to prove it. This organization predicts that the federal budget could increase by $5.3 trillion in the next decade, pushing the debt-to-GDP ratio to 105% (the current ratio is at 75%). This equates to an increase in the deficit by as much as 25%.

The bottom line: Though, as the Committee admits, Trump’s policies are neither clear nor transparent, the general consensus is that a Trump administration is sure to raise the debt, not diminish it. Who knows what the actual outcomes will be, but all signs point to negative long-term economic impacts. Once his policies start to show the debt increasing, the dollar will surely fall; gold would once again rise as a reliable safe haven investment against irresponsible government spending.




 

 

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