Global Economy

The outlook on the global economy continues to worsen. The United States and Great Britain further damage their respective budget levels by a prolonged and costly war on terrorism. The estimate for the United States involvement in the war on terrorism is $200 billion. Clearly, an impediment to an economic recovery is fighting a costly war. Both economic powerhouses are slipping further back into recession. Unfortunately, the ripple effect spreads across all other countries, slowing their growth rates as well.

Poor Growth in the Global Economy

With little to no growth in many of the leading economies, the chances of a quick recovery are slim. Interestingly, the main economy showing signs of growth is China. The early industrial stage of China’s economy is creating a heavy demand for hard commodities. Commodities have therefore gone on a nice run and have created healthy returns for savvy investors.

China’s robust growth makes the case for gold stronger. China has pegged its currency to the U. S. dollar. The rapid growth of China, coupled with a sluggish American economy, increases the strain on the U.S dollar. Specifically, the heavy growth in China is increasing their demand for U.S. goods, which causes the American trade deficit to widen. And as you know, a trade deficit mixed with geopolitical turmoil will weaken the U.S. dollar and strengthen the price of gold. This vicious cycle will likely continue and that’s why many experts are begging China to float its currency.

The global economy is very similar to steering a freight liner. Major directional changes are caused by drastic turns of the wheel and waiting a long time for the ship to react. The point here is that the global economy takes a long time to react to fiscal and monetary stimulus. Ongoing wars throughout the world only delay the recovery. As an investor, you have to make educated decisions on where you’ll put your savings. Precious metals are one of the only investments that will appreciate under these conditions.