This page has been archived and commenting is disabled.
Why The Argentinean Situation Should Make You Buy Gold
There hasn’t been anything but bad news coming from Argentina lately as the peso continues to drop against the US Dollar. This leads to an unbearable situation for both the main actors on the political scene as well as the monetary policy makers. But even worse off are the common people.
Let’s start with the beginning, Argentina has always had some prejudices against the country after it had to default on almost $100B of debt in December of 2001. Since then, the international community and investors have always been quite reluctant to ever put money in Argentina again. However, as the next chart shows you, Argentina’s economy was really booming after its depression ended in 2002 (which was a horrible year with a GDP contraction of almost 15% caused by a massive inflation rate of 41%).
As you can see, Argentina’s Gross Domestic Product almost quintupled in just a decade, from just over $100B to in excess of $600B. This would be great, but let’s not forget what caused this boost in the economy. Back in 2009 during the global financial crisis, Argentina’s economy was decreasing again and this made the policy makers panic.
After almost six years of continuous growth, the economic engine of Argentina stalled and seemed ready to crash. What was the solution to keep the economy going? Pumping more liquidity in the system by making more cash available to households and SME’s (does this sound familiar?). Let’s have a look at the chart which depicts the money supply rate (We use the M3 money supply here). In the first chart you can see that from 2007 on there has been an increased money supply, but it’s clearly visible there was a strong acceleration from 2010 on.
In just four years time, the money supply growth almost fourfolded (and we expect to have reached this milestone before the end of this year). So how could consumers protect themselves against a failing monetary policy? Buy purchasing a stronger currency, and in this case the US Dollar was the most interesting currency to purchase. However, as everybody was scrambling to get his (or her) hands on US Dollars, the reserves of the Argentinean Central Bank were depleting very fast, and the country had to instate extremely strict rules on who was allowed to buy US Dollars and how much they were allowed to buy. These new rules were enforced from 2012 on and have recently been fine-tuned, causing further pressure on the Argentinean Peso which has already experienced a huge devaluation ànd depreciation in the past years.
Source: Yahoo Finance
For the record, the previous chart shows the ‘official’ exchange rate which currently stands at approximately 8.5 Argentinean Peso per US Dollar. However, the black market exchange rate is closer to 15 Peso per Dollar, reflecting the eagerness of Argentina’s citizens to get its hands on a safer currency.
And we can hear you think ‘oh, but if it’s that hard to purchase Dollars, why don’t they buy gold and silver instead?’. That would be the logical thought, but back in 2012 the country has already banned all private buying of gold, and the only legal spot to buy gold was one specific bank in Buenos Aires, which marketed a product with a purity less than 99.99% gold. So by the time the hyper-inflation in Argentina started, the common people had no longer the possibility to either buy Dollars nor gold.
And let’s face it. Argentina’s Central Bank wasn’t the only central bank with the printing presses running at full capacity. Have a look at the next chart, which depicts the M2 Money supply in the USA (there are no official M3 numbers available). Even though the growth rate of the money supply is lower than in Argentina, the USA’s M2 money supply has grown by a stunning 36% in just 4 years time.
Granted, the money supply growth rate in the USA is lower than in Argentina, but even a slower growth rate (which is still close to a double-digit annual growth number) will very likely have an impact on the country’s economy. Argentina couldn’t be saved, as it had reached a ‘point of no return’. But these charts show how fast things can evolve and why it’s necessary to keep at least a part of your assets in protective investments like gold.
Just have a look at the 5-year chart of the gold price in ARS. Do you see any major corrections? We don't.
As the Argentinean situation evidenced, when the shit really hits the fan, you will very likely have no more access to it!
** Check out our latest Gold Report!
Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.
Follow us on Twitter @SproutMoney
»
- advertisements -
thanks, smallergovernment now!
Just ordered a brick from them.
With all due respect George, aren't you kind of comparing apples to oranges here? When the US prints money, the money printing is not the same as the printing in Argentina, because the peso stays mostly in Argenting, whereas the dollar is wanted all over the world. Therefore, the effects of the respective currency dilution is felt differently in the host population/economy.
just another payroll agent out there ...
i like this chinese guy Ling smt ... he talks to the kingworld people ... he had some real bs the other day ...
The russians were stunned at what i was saying and listen intently ... he spoke at some chinese event ... anyway, you would think a country of 100 million people would have a few people understanding things and they would not be stunned at what Mr. Ling had to say ...
but in case, even if these 3 russians that were listeing to him were "stunned" it is kind of misleading to paint the whole nation as being "stunned" at the wisdom of Mr. Ling ... talk about BS ,... where do they find these guys???
dont get me wrong I get the point that Mr. Ling doesnt have any say on anything, or knows anything for that matter, he is being another paid journalist spreading what he has been paid to ... however, do it with style, I am sure he is getting big bucks have some decency and do some work ...
it is like putting 666 wrong order of mini contract ... in your face stupido
Argentina, Greece, Japan, Italy, all have become victims of to much debt. While America also has a great deal of debt its currency is bolstered by being the world reserve currency. The Fed recently whacked the dollar down but for how long? For months the major world currencies have traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently some currencies have made multi-year highs or lows depending on the match-up .
John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market is about to drop like a stone.
http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...
Sprout money is comparing apples with bananas. In Argentina the newly created money goes directly to the economy therefore you have high inflation. In America the newly created money is parked in the form of excess reserves and stays there ( just look at the FEDs charts for excess reserves) so not too much inflation. just another sensationalist misleading article on ZH.
george soros
big bada boom
venezuala is going to lose all the gold chavez repatriated before his unfortunate death
big bada boom
Soros has substantial investments in Argentina, likely to acquire more.
Argentina needs friends with deep pockets.
China = new "friends with deep pockets"
Though there are reports of lots of Israelis looking at Patagonian property.
Hmmm.... owning gold = Civil Asset Forfeiture
https://www.aclu.org/criminal-law-reform/civil-asset-forfeiture
Good luck picking up .22 longs.
In my neck of the woods, they have been unavailable for more than a year. On the very rare occasions the gun stores get them in stock, they're gone by lunchtime. And that's at prices quadruple what they were before the shortages started.
LuckyGunner dot com always has them available. great shipping...
Sign up for email alerts from different places and put .22 on your wishlist. J & G Sales had a large shipment of Federal .22 in (sold out now of course), I was able to get a couple of bricks.
Texas.
You can get ammo pretty reliably now at Academy stores.
Haha, Canada has ammo and USA doesn't!
I just picked up 8 bricks and they had lots more.
Ammo and no guns or gun and no ammo ... go figure
Still would be better for Argentinians to buy US dollars first then buy gold with the dollars: call it a positive carry trade.
They prefer $100 bills....it's worked well over time.
That said.....Peso has clawed back from 15.5 over the last few weeks.
http://www.dolarblue.net
Why not some Johnny Walker and some cartons of Marlboro Reds?
gold seems way to valuable to me to be fueling around Argentina with...
I would buy gold BUT they seem to keep manipulating that
Better off buying an asset that they do not manipulate
Like, they cant manipulate EVERY market
Got a whole stack of Gold and Silver Age comics
Spider-man #1. Hulk 1, First appearance of Wolverine !
Bring on the apocolypse already!!!
I AM READY !!!!!!!!!!!!!!!!!!!!!!!!!
I'm not sure rare comic books will be that good of a bartering tool come the ebolapocalypse.
Maybe pick up a couple bricks of .22 to diversify your savings/barter account?
Just sayin',..
Lead Bullion..........
Keep it in common calibers .223, .308, 9mm, .45acp etc....
The central planners will have everything under control any day now.
Sprout Money - Not like they have an agenda or anything.
Don't get me wrong, I stack as much or more as most on ZH, but Sprout and his side-kick "Slick" Rick Rule would have lost you well over 50 % or your investment over the past two years. Their overall premise may be proven correct in the next 30 years, but their short term timing and PM market "Calls" would damn near bankrupt you.
Since China is slowing down and they have a giant real estate mess, gold and silver will be Sold to cover driving them further down. Cheap cheap gold silver on the horizon. Too, can think of a million things to "stock and store" that will be more valuable than gold or silver in a million different situations. Stop shilling for the good-for-nothing stick it in the ground metals.
Red China has massive reserves of paper they can dump in a pinch. They see the long run. Though their economy os overdue for a "credit bubble busting" contraction, they are smart enough to let the financial sector go under without dragging the remaining productive economy with it. There will be serious grief there but I suspect it will be quite bullish for gold as it unfolds.
Kind of what I was thinking as well. Why do they need to sell gold when they can sell all those accumulated US Bonds or dollar reserves?
If am mistunderstanding why they must sell gold, please let me know why.
Sprott is not Sprout
And even if they did have an Agenda, their logic is well presented and supported. Of course, if you prefer, carry on buying those nice Argentinian Government bonds, which have great coupons....................
if you use leverage then you have to be getting the timing a lot more right. If things line up risk/reward wise, then maybe it is okay to take a calculated shot at speculation, but otherwise accumulating mining stocks if due diligence is done and obviously stacking phyzz, and will be fine. PMs are a store of value and a way to not get blowtorched given what is coming. They are universal money, not get rich quick schemes, unless you think you have an edge in the markets and can trade on it with leverage.
A perfect timing for Argentina to resist against the money market tyranny
Latin America to open the road for other countries to escape from debt slavery
http://failedevolution.blogspot.gr/2014/08/a-perfect-timing-for-argentin...
And there is this:
http://www.neurope.eu/news/wire/ap-investigation-nazi-war-crime-suspects...
Gotta laugh or protest or fight your community or hack or whistleblow or join a radical ideology or join the armed forces or run for government office... or Audit our Spy Agencies... or Investigate how banks control financial and other intelligence info...
Visiting Buenos Aires for a month in a couple of weeks....
"What is the difference between an Argentine and a terrorist?"
Terrorists have sympathizers!