April 06, 2011 – It takes only about 21% the amount of gold bullion to purchase the Dow today than it did just 10 years ago. That should tell you something.

When it takes less and less gold to buy equities it is a sure sign that the stock market has stopped playing by the rules. Rather than improving fundamentals and increased demand, gains are coming from excess liquidity, an artificial and unsustainable force. It is “the end of an era for equities” and gold is certain to be “the next great asset class,” says Fred's Intelligent Bear Site.

Actually, the trend is just part of a very consistent cycle that leveled out at the turn of the century. Under normal circumstances we would expect the slide to bottom out at five or six ounces of gold to buy the Dow. But circumstances are far from normal and a repeat of the last down side, where the ratio dropped to 1, is very likely. And the final plunge will be sudden if hyperinflation strikes.

The National Inflation Association (NIA) has been trying to warn us of the eventuality of hyperinflation for years, but the warnings have fallen on deaf ears. It’s just natural for Americans to believe such a thing cannot happen here. In the past we could justify that belief because the dollar dominated global trade. It earned its position as reserve currency because the USA had by far the largest manufacturing and consumer bases, and the dollar was backed by gold. Things have changed.

Now China has the largest manufacturing base and global consumption has lessened the significance of our own. China is also actively taking measures to position the yuan as the new global reserve and to convert their dollar assets to gold to further bolster their currency.

As the Fed repatriates more and more of our sovereign debt the inevitable inflationary pressures of monetization will quickly lead to hyperinflation. The NIA believes “the most likely time frame for a full-fledged outbreak of hyperinflation is between the years 2013 and 2015.” They also warn that “it is essential that all Americans begin preparing for hyperinflation immediately” because those “who wait until 2013 … will most likely see the majority of their purchasing power wiped out.”

We should heed their advice and start preparing today with gold bullion investments.

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Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org