Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Single Best Investment for 2008!

Commodities / Gold & Silver Stocks Feb 07, 2008 - 10:26 AM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleLarry Edelson writes: In late 1865, to cover the staggering costs of the Civil War ... to bail out financial institutions on the verge of bankruptcy ... and to help stem the financial losses in towns and municipalities ... Washington issued tidal waves of government bonds, to the tune of almost $29.5 billion per day.

Money was printed with reckless abandon, and inflation shot to the moon.

As a result, the Confederate and Union currencies lost so much value that a pair of boots cost $2,361 in today's dollars. Butter was the equivalent of $177 per pound today.

No one wanted to hold U.S. paper currency, period. Investors from all walks of life opted instead for real money, gold.

Between 1861 and 1863, the price of gold shot up from $20.67 to more than $35 an ounce, a 75% gain ...

In 1864, gold exploded another 52% to $53.35, or $800 in today's dollars ...

It went even higher, nearly tripling to $162.50 on September 24, 1869. That's $2,252 an ounce in today's dollars!

Since then, 24 U.S. presidents have come and gone, yet gold has never fallen back below its pre-Civil War level (once you adjust for inflation). Clearly, the characters have changed, but the song remains the same. In fact ...

In the 1860s, inflation and gold both soared because of reckless government spending!
In the 1860s, inflation and gold both soared because of reckless government spending!

Today's Economic Circumstances Are Eerily Similar to those in the 1860s

The war on terror is costing the U.S. about $275 million every 24 hours. To date, the conflict has cost an estimated $510 billion.

And just like in the late 1860s, the national debt is now mushrooming out of control — currently at $9.24 trillion. That's more than $30,370 of debt for every man, woman, and child in the U.S.

As a matter of fact, in the time it takes to read this issue of Money and Markets , the national debt will have grown by another $798,000.

But that's not even the half of it!

The total IOUs the government is now liable for — including unfunded Social Security, Medicare, government pensions, military benefits, and more — is an estimated $55 TRILLION .

That debt breaks down to $288,515 for every man, woman, and child in America!

Meanwhile, just like in the 1860s, the U.S. dollar is plunging, creating the equivalent of a financial black hole. In the past four years alone, the dollar has lost 36% of its value against a basket of the world's currencies.

And today, despite numerous attempts to lift its head off the mat, the dollar remains firmly trapped in a massive bear market.

It's not even close to the end of its decline, either. When all is said and done, I figure the dollar will lose another 30%, for a total, whopping loss of 66% of its international value since the beginning of its bear market in 2000.

Why is the dollar in such terrible shape? In addition to the reasons I already cited ...

First, U.S. interest rates are headed much lower. That would seem obvious based on the Fed's recent meaty cuts (125 basis points in the last two weeks).

But what isn't obvious is the fact that we're ALREADY in a recession and rates will go much lower.

Bear in mind, ultimately the Federal Reserve does NOT control interest rates. The market does. And when investors are uncertain of the future, they don't want to borrow money. No demand for loans means the cost of that money — interest rates — must fall.

This is a fundamental economic principle and one that is critically important to your investments. So I repeat: Interest rates are nothing more than the cost of money.

The cost of money is falling, because uncertainty is rising. So in a very real sense, the price of money is DEFLATING — while the price of tangible assets, which investors now perceive as more valuable than paper money, is INFLATING.

I want to drive this point home because when someone tells you there's no deflation in the world, they're wrong. The price of money IS deflating!

And by money I don't mean just any old money. Specifically, the price of the U.S. dollar is deflating. The price, or interest rate, to borrow Swiss francs ... British pounds ... Australian or Canadian dollars ... New Zealand dollars ... and a host of other currencies remains steady, or is even going up, as demand for those other forms of paper currencies exceeds that for the U.S. dollar.

Second, the subprime mortgage crisis is far from over. No one knows for sure how much deeper it will run ... how big the losses are ... nor how many institutions are affected and will go belly up in the months ahead.

But we do know this: It is by far the worst financial crisis to ever hit the United States!

We have yet to see the real core of the problems. Therefore, we have yet to see all the dominoes fall.

What stands at an estimated $500 billion in losses now could easily DOUBLE and even TRIPLE as municipalities get hit ... as bonds get downgraded ... and bond insurers fail.

I can't imagine that savvy investors anywhere will want to have large holdings of U.S. dollars in this kind of economic environment.

Dollar Index Chart

Third, the chart action on the dollar is extremely bearish. Look at this weekly chart of the U.S. dollar index. As you can see, the dollar's last attempt to rally failed miserably.

And now the buck is scraping along the bottom, just shy of new record lows.

You don't need a deep background in technical analysis to see which way the dollar is going to head with this chart. There may be more rally attempts, but the downtrend in the buck is about as powerful as any I've ever seen.

All this is why I think ...

Gold Remains Your Single Best Protection

I've long said gold could easily hit $1,000 an ounce. Given last week's high of $940, I consider my first major target for gold to have arrived.

And today, I'm more certain than ever that by the time this bull market ends we'll see gold trade for more than $2,000 an ounce!

Every basic economic principle points to higher inflation and a lower U.S. dollar. Meanwhile, gold is the single best protection against the economic uncertainty that's unfolding. Hence, I think the yellow metal is the single best investment to hold for the next several years.

Gold is money ... real money ... real wealth. It has stood the test of time, like no other asset in the world. Its history goes back over 5,000 years. And its position as an unrivaled storehouse of wealth should go on for another 5,000.

That doesn't mean you should allocate 100% of your money to gold. Far from it! I suggest keeping no more than 10% of your net worth in physical gold or the equivalent, using today's gold bullion Exchange-Traded Funds, like the streetTRACKS Gold Fund (GLD) .

You might also consider putting another 10% into gold mining shares, where you get upside leverage on the price of the precious yellow metal. If you choose to go this route, follow these three simple rules ...

Rule #1: Never invest in just one mining company. Rather, invest in a minimum of three at a time for diversification.

Rule #2: Stay away from mining companies that hedge more than 50% of their in-ground gold reserves, or their annual gold production. In a rising gold market, those so-called "hedges" could cause serious losses.

Rule #3: For gold mining shares, I like to use a trailing 10% stop loss to help reduce risk. Don't lower the stop when the market moves against you.

But do raise it each time the stock gains 3% from your entry price on a closing basis. If you're stopped out, don't fret. Assuming there hasn't been any serious adverse fundamental change in the company, there should be ample opportunity to get back in — either on the next dip, or when the stock shows renewed strength.

Bottom line: Always keep the big picture in view. The gold strategies I'm talking about here are designed for your core, long-term portfolio. What the price of gold does from one day to the next should not be an issue for you.

And for specific recommendations and all my signals, subscribe to my Real Wealth Report .

Best wishes,


P.S. If you're in Asia, be sure to tune in to CNBC Asia's Morning Squawk Box Monday, February 11 from 9AM to 10AM. I'll be hosting the show live from Singapore!

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in