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Thursday, June 28, 2012
Hedging against the European Union collapse with Gold
The European Union's problems just keep growing. First, it was Greece, which could still implode at any moment. Now it's Spain, which needed a $100 billion loan to prop up its economy. And the pundits say Italy and Portugal are not too healthy, either.
When investors think about hedging, one thing that comes to mind is Gold. Investing in gold is a great way to hedge against Europe's economic collapse and its ripple effects on the rest of the world. Any intelligent investor will want exposure in this market over the next few years.
The European Union has deep subterranean problems. The European Council's Van Rompuy has come up with an all-encompassing Grand Plan. This magical plan will provide for a European Treasury that has budgetary power over every nation in the EU; protect Eurobonds; provide a banking union that guarantees deposits; and of course, implement a bailout of all the banks. Enabling the Grand Plan requires a unified taxation policy, and regulated employment. And that sounds just like Orwell's Big Brother. The plan behind the Grand Plan is the mutualization of debt. Translation: Germany gets to pay for everything, because Spain, Italy, Greece and even the U.K. are in financial meltdown.
There's not enough money in the world to prop up the EU's failing economies. And when the EU finally succumbs to the Humpty Dumpty syndrome, the resulting splash, a veritable tsunami wave, will carry all the way to the US. So what does a smart investor do? He protects his money. He looks around for a way to hedge. Gold mines are a good way to hedge. At the same time, investors that hedge by investing in gold mines like Yamana Gold (AUY) or Newmark Mining will protect themselves against currency depreciation. Some experts believe that the US is in a commodities at the present juncture. Others maintain the bull market has ended. Nevertheless, despite the varying opinions and market fluctuations, the price of gold is still phenomenally high.
Bottom line is this: speculation in resource exploration stocks (gold mines) is the best way to hedge against what's going on in Europe.