Tags: Gold | Leaders

Gold to Benefit as Ineffective Leaders Fade Away

By Ashish Advani   |   Wednesday, 09 Nov 2011 08:56 AM

Another leader bites the dust: This time it is the Italian leader Silvio Berlusconi.

Frankly, I am not sure how such people become leaders of countries. All he left in his legacy is utter failure and disaster for Italy. He has been hurting Italy for over a decade and half with his weakly constructed policies.

And this on the heels of George Papandreou of Greece. He quit last week when he was forced out by his inability to manage his country through the tough times.

While this is about a debt crisis in Europe, it is also exposing the ineffective leaders around the region. While it has not been directly linked to the debt crisis, we saw a sea of change in Africa with leaders in Egypt, Algeria, Yemen and Libya all banished or killed. And soon we will see some more high-profile leaders depart. So the lack of true leadership is quite evident.

What is the one rock of stability that is soaring through all of this turmoil? Gold.

Every time the world has gone through turmoil, we have seen gold surge and stand above the waves of disruption. And this time it has been joined by silver.

This lack of leadership also brings another fundamental to the forefront. And that is real value and inherent strength cannot be ignored. You cannot put down a good thing forever and vice versa, you cannot prop up weak ideas forever.

Despite the virtual collapse all around Europe (even the mighty French are scrambling to stave off downgrades) the euro has hung around the 1.38 level.

The world is likening Greece to Argentina of last decade. And I can tell you one thing: Greece is no Argentina.

Argentina went through a crisis of epic proportion a decade ago.

Defaulting on its debt led to social unrest, runs on banks, unemployment in the 25 percent range and massive decline in growth rates (GDP of negative 11 percent).

And yet in two years, growth rates were at 9 percent due to strong agriculture, manufacturing and natural resources. Greece only offers tourism and maybe shipping.

Another example is the crippling floods in Thailand. A large part of the major city of Thailand, Bangkok, is submerged.

Major manufacturers like Honda, Toyota, Dell and other computer makers are all indicating shutdowns for as much as six months to recover. Crops have been destroyed and tourism is at a standstill. And yet, the Thai baht has barely declined by 3 percent. This is due to the fact that the Thai economy is fundamentally sound and has repeatedly shown resilience and turned itself around each time stronger than the last.

And that is also the reason why the U.S. dollar continues to decline against the world currencies as well as hard assets like gold, silver and oil. No amount of rhetoric and bravado is propping up the U.S. dollar forever.

I would go out on a limb and say that the assets seem to be preparing for a third round of quantitative easing, or QE3. With most companies warning about the future, the Federal Reserve may get itchy fingers and pull the trigger on QE3 as its Operation Twist seems to have failed miserably.

I would begin to exit the U.S. dollar in an orderly fashion and increase allocations overseas in fundamentally strong economies as well as hard assets, if you haven’t already done so.

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