Monetary Messiah of Latin America

March 1, 1999

Since 1492 when Cristobal Colon (Christopher Columbus as he is known in the U.S.) discovered the Americas, GOLD has always been the monetary messiah of the Latin American continent. This region encompasses the entire area from the Rio Grande river (U.S. Mexican territorial boundary) down to the Tierra del Fuego boarding on the South Pole (belonging to Argentina).

During the last five centuries all Latin American currencies have continuously devaluated. Moreover, during the last 50 decades all Latin American currencies have devaluated. Indeed, during the last nine years nearly all Latin American currencies have devaluated (except the Argentine peso, which during the last 6-7 years has been pegged to the dollar).

Legendary tradition became perennial costume. Devaluations followed relentless devaluation of the paper currency versus "la moneda patrón: el ORO" (gold). During five centuries the shiny yellow metal was the standard of value for the Aztecs, the Mayans and the Incas… and indirectly remains so even today, 507 years later.

During the last six months nearly all major Latin American currencies have again depreciated versus GOLD. Only the Argentine peso pegged to the U.S. dollar has escaped devaluation - at least until now. However, due to the 40% currency devaluation of its largest trading partner, neighboring Brazil, Argentine export business is under severe pressure to devalue the peso. Consequently, many experts fear the Argentine peso will soon be forced to abandon its U.S. dollar mooring.

The major Latin American currencies steadily losing value during the last six months are the Ecuadorian sucre, Brazilian real, Mexican peso, Venezuelan bolivar and the Peruvian sol. In terms of gold they have been decimated. The following charts show how much the value of gold has increased via the continued devaluation of these currencies.









Whereas the visual impact of the charts is indeed impressive, the numerical significance is even more so. The following table expresses the inverse of each country's devaluation of its paper currency. That is to say the nationals of these countries could have been 'saved' by the Monetary Messiah, had they the foresight of converting their paper into GOLD. Subsequently, instead of suffering a large loss in their net worth, they would have significantly increased their wealth in REAL TERMS.

Increased Value of Gold in Latin American Currencies
(last six months)

Country Currency Gold Value Increase
Ecuador
Brazil
Mexico
Venezuela
Peru…………
sucre
real
peso
bolivar
..sol
80%
71%
11%
4% (*)
22%

 

(*) Although the bolivar value of gold has demonstrated only a minor increase, it is due to that country's vigorous temporary support of its currency for presidential election purposes. Local monetary experts assert the bolivar will soon devalue from B575 to B1000 per dollar. This will represent a 42% devaluation - upon that note the bolivar value of gold will soar as it did in Ecuador and Brazil (immediately following their massive devaluations).

Monetary Messiah

For more than five centuries many great fortunes have been kept intact in Latin America by converting a portion of paper currencies into "la moneda patrón": el ORO" (gold). Needless to say many Latins have replaced the historic Monetary Messiah with the 'greenback' of Uncle Sam - primarily due to convenience. However, they most probably will soon sadly discover ALL paper money eventually succumbs to devaluation versus gold. Once the devaluation avalanche of the U.S. dollar begins, the chart of the greenback value of gold will look just like the ones you see above.

U.S Dollar Versus Gold

Personally, I do not feel the dollar devaluation will be gradual, but rather sudden and in extreme. My opinion dictates it will be precipitated by the U.S. government itself - rapidly imposing the new exchange rate to thwart speculators from taking too much advantage of the situation.

Not all the computers in the world working in tandem could accurately forecast the new dollar/gold exchange rate. There are just too many imponderables - especially political ones, which hardly ever lend themselves to logical analysis. Nevertheless, a study was posted last year which makes a scholarly guess of what the new dollar value of gold might be. It is based on the premise that the value of gold should be a function of the money supply. The study suggested that the money supply of major countries should be backed by at least 25% in gold reserves. And based upon IMF data, the study concluded the new value of gold might conceivably be about $1,200 per ounce. Here is the study: http://www.gold-eagle.com/asian_corner/oracle714.html

But the political factor - albeit usually illogical (except to another interested politician) - may well over-ride all other factors in determining the new dollar value of the shinny yellow. It may be greater than $1,200, or it may be less.

Plight of the U.S. Farmer

At the risk of digressing too much from the main theme of this article, this writer is compelled to mention that a significant revaluation of gold would indeed resolve the long suffered plight of the U.S. farmer. Were gold indeed to revalue from current levels to $1,200 per ounce, this would give the American farmer instant and permanent relief from his burgeoning debt which is a crushing yoke around his neck.

A $1,200 revaluation of gold represents an increase of about 300%. And per Alan Greenspan, gold is the quintessential barometer of price levels for all commodities. Translating a portion of the price level increase to farm products would undoubtedly save the American farmer. While his debt level remains the same, his income from his production will have increased substantially. Thusly, he will have been saved from the very brink of bankruptcy. This writer has NO DOUBT the president of the American Farm Bureau Federation, Mr. Dean Kleckner, would support this measure. Ask him!!

Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will soon be recognized as legal tender in all 50 US states…and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.

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