Inflation Fuse has Been Lit, Protect Your Wealth With GOLD
Commodities / Gold & Silver Jul 04, 2008 - 11:37 AM
Larry Edelson writes: First things first: Your family and your health. With a long holiday weekend coming up, enjoy both!
Then, when you get back on Monday, I want you to make darn sure you have plenty of gold in your portfolio. Why? Because your wealth is at stake. The Federal Reserve has lit the inflation fuse, and is bound and determined to devalue the U.S. dollar even more than they already have.
Let me expand upon this by putting it in the words of a few names you might recognize ...
Ernest Hemingway, in September of 1932 ...
"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."
Ayn Rand, in Atlas Shrugged ...
"Destroyers seize gold and leave to its owner a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it."
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| Macroeconomists including Ben Bernanke, the current chairman of the U.S. Federal Reserve Bank, have agreed that cheap credit in the 1920s was one of the root causes of the Great Depression. |
Ben Bernanke, in November 2002 ...
"The U.S. government has a technology, called a printing press — or today, its electronic equivalent — that allows it to produce as many U.S. dollars as it wishes at essentially no cost."
"Under a paper-money system, a determined government can always generate higher spending and hence positive inflation."
George Bernard Shaw ...
"You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you to vote for gold."
John Maynard Keynes, in 1920 in the Wealth of Nations ...
"By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose."
I'm going to ask you a question now, and I want you to think about it over the holiday weekend:
Which one are you going to be ...
A.) One of the 999,999 people who do not understand, or worse yet, are ignoring what the government is doing to your money?
Or
B.) The one in a million who does, allowing you to protect your wealth, and even profit from the government's actions?
How you answer will not only determine your investment results over the next 12 months, but may prove to be the deciding factor in your long-term financial future. And now's the time to decide because ...
The Dollar's Eight Year Slide Looks Like It's About To Get A Heck Of A Lot Worse!
The supply of money in the U.S. is suddenly surging at an annualized growth rate of more than 16%. By some estimates, that's the highest rate of growth in the money supply since 1971!
The scary part — things will only get worse ...
- There is no way the U.S. dollar can hold its current value when fiat money is being created with abandon out of thin air.
- There is no way the U.S. dollar can hold its current value when the Fed refuses to raise interest rates ... while other countries around the world are actively raising rates to bolster their currencies and put a damper on inflation.
- There is no way that the U.S. dollar can hold its current value when foreign economies are outgrowing the U.S. economy by miles.
- And there is absolutely no way that the U.S. dollar can hold its current value when so many overseas investors — who have lent Washington hundreds of billions of dollars to prop up the economy — are now waking up to the fact that holding dollar-denominated assets is a losing proposition.
Foreign investors are losing loads of money on their investments in U.S. Treasury bonds. They're even further in the red on mortgage bonds, real estate and stocks.
As a result, I believe the U.S. dollar is now reaching that critical point. If its recent lows are tested and key support levels are breached, all heck will break loose. Foreign investors will head for the hills, en masse, driving the dollar into its worst decline yet.
But it's not just overseas investors who are getting creamed in the dollar ...
SO ARE YOU!
Take a look at some stats I've compiled for you on the dwindling dollar. And keep in mind that most of the loss of purchasing power you see below doesn't even include the dollar's recent losses, which take from 12 to 18 months to work their way through the pricing mechanism (in other words, prices are about to explode higher) ...
| Category | 1980 | 2007/2008 | % Change |
| Median price of a home in the U.S. | $62,200 | $196,300 | 215% |
| Average monthly apartment rent | $300 | $1,082 | 260% |
| Per capita food expenditures (at home) | $828 | $1,935 | 134% |
| Per capita food expenditures (dining out) | $529 | $1,842 | 248% |
| Per capita healthcare | $1,086 | $7,129 | 556% |
| College Tuition - 2-year public college | $391 | $2,361 | 503% |
| College Tuition - 4-year public college | $804 | $6,185 | 669% |
| College Tuition - 4-year private college | $3,617 | $23,712 | 556% |
| Annual average household spending on gas | $885 | $2,950 | 233% |
| Average U.S. movie ticket price | $2.69 | $6.88 | 155% |
| Average cost of new car | $7,200 | $26,950 | 274% |
| Average cost per year of car maintenance (15k miles per year) | $165 | $739 | 347% |
| Cost of postage stamp | $0.15 | $0.41 | 173% |
If You Haven't Already Increased Your Gold Holdings, I Suggest You Do So Immediately ...
As a result of the plunging dollar, the Dow Jones Industrial Average has now also been hit hard with selling, breaking through the key 11,600 support level that I've been warning you about. That means — and I'm not mincing words here — U.S. stocks, and by default the U.S. economy, are going over the cliff.
As I've told you in previous issues of Money and Markets , stay out of all stocks except natural resource plays.
Also continue to steer clear of all long-term government and corporate bonds. They are the next disaster on the horizon. Their prices will plummet as investors flee the dollar in droves.
Instead, think about keeping your liquid money safe in short-term money market funds. But first, make sure your gold portfolio is up to snuff.
Since the beginning of gold's bull market way back in 2000, my position has been that all investors should have a minimum of 5% in gold. That was when gold was trading under $300 an ounce.
In September 2007, I suggested doubling that to 10%, when gold was trading at the $660 level.
And in February of this year, when gold hit $900, I advocated doubling the allocation to 20%, with half of that in gold bullion or the equivalent in terms of an exchange-traded fund, and the second half in gold mining shares.
Now, because of the imminent next phase of the decline in the dollar, I urge you — if you have not already done so, to seriously consider allocating 20% of your net worth to gold investments. You might want to put half in pure gold investments, and the other half in mining shares.
Here are four of my favorite gold investment vehicles ...
1.) The SPDR Gold Trust (GLD). This exchange-traded fund owns physical gold on your behalf, but without the storage hassles. Each share of the GLD equals 1/10 of an ounce of gold.
2.) The Tocqueville Gold Fund (TGLDX). I consider this one of the very best gold funds around. It boasts a five-year average annual return of 24.59%. Plus there are no front-end charges, and its expense ratio is about 1.43%. Minimum initial investment: $1,000.
3.) U.S. Global Investors World Precious Minerals Fund (UNWPX). Another one of my favorites, I think this is also one of the best gold funds around. Manager Frank Holmes truly understands what I've been talking about in this article.
The fund's five-year annualized return is a hefty 36.49%. Again, it has no front end charges, and has a low expense ratio of just 0.99%. The minimum initial investment: $5,000.
4.) Gold Mining Shares. Consider buying the Market Vectors Gold Miners Index ETF (GDX) , an Exchange Traded Fund that holds a basket of the top gold miners.
Some of the top gold mining stocks on Wall Street are best suited for the well-honed timing signals I issue in my Real Wealth Report . If you don't already subscribe, and want to get my specific buy and sell recommendations, join now .
Best wishes,
Larry
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