Commodity Plays For the End of Fiat Currency

For the majority of U.S. history, we have stood behind a currency backed by gold. That all changed on August 15th, 1971 when President Richard Nixon discontinued the gold standard in order to deal with a number of issues ailing the U.S. at the time. But since we have come off of the gold standard many would argue that our fiat currency is one of the primary reasons why our economy is currently suffering. Recent years have seen the Fed print money at will and pump back into the economy in an attempt to kickstart the recovery, an action that is simply not possible with the gold standard [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].

But as the days wear on, it seems that more and more experts and analysts are hopping on the gold standard train, as it seems like our troubles are only mounting with the fiat dollar and our absurdly unattainable debt levels. One such person is Stephanie Pompoy, an economist and founder of the MacroMavens research boutique. Pompoy successfully called the U.S. housing bubble and its subsequent burst back in 2006 and sometime after, she laid out the consequences of that burst. Now, she is predicting that our current financial disaster will lead us to the end of fiat currency, as the economy will not be able to endure the current system.

What Does it Mean For Commodities

Pompoy feels that there are a number of assets that one can use to protect themselves from the inevitable negative reaction to such a switch, and many of these options are commodities investments. First and foremost, Pompoy recommends gold. Obviously if the dollar is backed by gold, the precious metal becomes that much more coveted and has more use than just as a store of value. The flight to gold in this scenario would likely be dramatic, so it would not be surprising to watch the commodity make a similar run as it did in 2011 when it touched its historical high [see also How to Play Schiff’s $5,000 Gold Prediction].

Pompoy also comments that “oil would be an absolute-return asset: Central banks are amassing strategic resources like oil. Companies tied to mining and commodity production are absolute-return areas”. Though her prediction is bold, it may not be as far-fetched as some investors think. The economy is currently in the toilet and we certainly aren’t getting any help from Europe or the economic slowdowns in the world’s biggest emerging markets. With our financial situation looking worse and worse as the days go on, we may very well be nearing the end of fiat.

Ways to Play

For those of you who buy in to Pompoy’s theory on the U.S. reverting to the gold standard or some sort of asset-backed currency, we outline several investing options to cash in on the trend [for more commodity news subscribe to our free newsletter].

  • SPDR Gold Trust (GLD): This ETF tracks physical gold bullion and is one of the largest funds in the world. GLD will make an excellent play for those looking to hop in to gold prior to any sort of switch from the current currency system. Also note that the fund is extremely active and has a healthy options market for those looking to make a short term trade.
  • PetroChina (PTR): Though most oil producers are already multinational firms, PetroChina provides a great global play on Pompoy’s oil strategy. She also noted that she feels playing for emerging market consumers is a strong way to combat the negative reaction to any policy changes regarding the dollar, making PTR a great stock to look at. The firm has a market cap of over $200 billion and pays out a healthy dividend yield of 3.7%.
  • BHP Billiton (BHP): BHP is one of the biggest miners and commodity producers in the world. According to 2011 revenues, BHP is the largest mining company on the globe with headquarters residing in Melbourne, Australia. The stock boasts a market cap of over $150 billion while paying out a handsome yield of 3.4%.

Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.

Disclosure: No positions at time of writing.

This entry was posted in Brent Oil, Commodity ETFs, Commodity Producers, Energy, Gold, Precious Metals, WTI and tagged , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

17 Responses to “Commodity Plays For the End of Fiat Currency”

  1. [...] Equity markets staged a volatile reaction yesterday following the latest FOMC meeting and commentary from Chairman Bernanke. The Fed made no offer of further stimulus while at the same time citing deteriorating economic growth expectations, which almost immediately lead to an equity market sell-off as well as profit taking in gold futures. On the home front, ISM data came in barely above last month’s reading while construction spending dropped to 0.4% from 1.6% previously [see also Commodity Plays For the End of Fiat Currency].  [...]

  2. [...] At first glance, Brazil offers unparalleled growth potential fueled by a rapidly expanding middle class, increasing rates of urbanization and also holding a spot in the well-known BRIC group of leading emerging markets. This South American giant, however, has hit a few noticeable speed bumps in recent months, prompting many to reconsider future opportunities in the region. Mexico, which has been flying under the radar for most, is actually on track to outpace its larger Latin American rival for a second year in a row [see also Commodity Plays For The End Of Fiat Currency]. [...]

  3. [...] At first glance, Brazil offers unparalleled growth potential fueled by a rapidly expanding middle class, increasing rates of urbanization and also holding a spot in the well-known BRIC group of leading emerging markets. This South American giant, however, has hit a few noticeable speed bumps in recent months, prompting many to reconsider future opportunities in the region. Mexico, which has been flying under the radar for most, is actually on track to outpace its larger Latin American rival for a second year in a row [see also Commodity Plays For The End Of Fiat Currency]. [...]

  4. [...] Moreover, the investor can do worse than non-gold Commodity Plays For the End of Fiat Currency (Commodity HQ). [...]

  5. [...] Lack of confidence in currency: Working off of the last point, hyperinflation is also caused by a general lack of confidence in a particular currency (this one sounds familiar too). When consumers do not trust a currency it can quickly lose its value, especially as investors look elsewhere to store their capital. Note that this process only works in fiat currencies, as printing money at will (only a possibility of paper money) causes people to rightly question the value of said currency. Though the U.S. has long been off of the gold standard, many analysts and investors are calling for a return to a backed currency given the risks associated with paper money and the Fed’s ability and willingness to print dollars at will [see also Commodity Plays For the End of Fiat Currency]. [...]

  6. [...] UUP has corrected lower over the past two weeks since peaking at $23.14 a share on July 24, 2012 as low trading volumes have allowed the bulls to push higher without much of any economic headlines to get in their way. Nonetheless, the uphill ride for stocks likely won’t remain smooth for long as the U.S. dollar appears poised to pop higher; from a technical perspective, notice how UUP has been drifting higher along a rising support line within an upward slopping channel [see also Commodity Plays For The End of Fiat Currency]. [...]

  7. [...] Mexico, which has been flying under the radar for most, is actually on track to outpace its larger Latin American rival for a second year in a row [see also Commodity Plays For The End Of Fiat Currency]. [...]

  8. [...] At first glance, Brazil offers unparalleled growth potential fueled by a rapidly expanding middle class, increasing rates of urbanization and also holding a spot in the well-known BRIC group of leading emerging markets. This South American giant, however, has hit a few noticeable speed bumps in recent months, prompting many to reconsider future opportunities in the region. Mexico, which has been flying under the radar for most, is actually on track to outpace its larger Latin American rival for a second year in a row [see also Commodity Plays For The End Of Fiat Currency]. [...]

  9. [...] There are a number of websites out there that offer non-fiat currencies, but one of your best bets is going to come from Pecunix, which is one of the few sites that is backed by a bullion audit, a major sticking point for investors. Pecunix is a gold-backed currency that allows investors and traders to purchase/sell goods and services with the currency and it can easily be converted to national currencies and vice versa. It is a great option for those who feel that fiat money is simply too risky and want a currency with a bit more substance to it [see also Commodity Plays For the End of Fiat Currency]. [...]

  10. [...] At first glance, Brazil offers unparalleled growth potential fueled by a rapidly expanding middle class, increasing rates of urbanization and also holding a spot in the well-known BRIC group of leading emerging markets. This South American giant, however, has hit a few noticeable speed bumps in recent months, prompting many to reconsider future opportunities in the region. Mexico, which has been flying under the radar for most, is actually on track to outpace its larger Latin American rival for a second year in a row [see also Commodity Plays For The End Of Fiat Currency]. [...]

  11. [...] of the past century, the U.S. has been on the gold standard, which ensured that our currency was backed by physical gold. But that changed in 1971 when President Nixon announced the end of the gold standard in order to [...]

  12. [...] for a gold standard have been relatively strong in recent years, as a gold-backed currency would not allow for such rampant and irresponsible money printing that the Fed has exhibited. That [...]

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  14. [...] This South American giant, however, has hit a few noticeable speed bumps in recent months, prompting many to reconsider future opportunities in the region. Mexico, which has been flying under the radar for most, is actually on track to outpace its larger Latin American rival for a second year in a row [see also Commodity Plays For The End Of Fiat Currency]. [...]

  15. [...] in jewelry and some industrial applications, today gold is viewed by many as insurance against fiat currencies that rely on faith in the government that issues them [for more gold news and analysis subscribe to [...]

  16. [...] site allows one to open a “practice” trading account in which you can test your theories with fake money before moving into the real [...]

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