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Gold Thoughts - Gold Outperforms US Stocks by more than 300%

Commodities / Gold & Silver Apr 18, 2007 - 10:41 AM GMT

By: Ned_W_Schmidt

Commodities

Much talk about this index or that index making a new high, or near a new high. The level for an index is interesting, but the return being earned is more important. A stock market index could conceivably make a new high each and every day without providing a desirable return. Today's graph compares the return over the past five years of an investment in $Gold and U.S. stocks, as measured by the total return on the S&P 500.

As is readily apparent from that graph, $Gold has substantially outperformed an investment in U.S. equities. Why these results? Gold's price is a mirror reflection of the global purchasing power of the U.S. dollar. As the Federal Reserve has grossly mismanaged U.S. monetary policy over the years, the global forex market has pushed down the value of the dollar. That depreciation of the dollar's value is not reflected in the equity market.


 

Is this situation like to change? The unwinding of U.S. monetary mismanagement will take some time. The housing & mortgage bubble implosion has much further to go. That bubble represented a massive misallocation of funds, not reversed in just a few months. Additionally, the U.S. economy is slowly moving into the recession necessary to purge the housing & mortgage excesses.

The risks for U.S. financial markets are not limited to the aftershocks of the mortgage earthquake. The massive foreign currency mismatch evident in the carry trade loans remains an overhanging danger to financial markets. Borrowing in one currency to invest in risky assets denominated in another currency is a sure way to ultimately destroy wealth. Gold is perhaps the only insurance against the financial agony to come from unwinding of the carry trade loans, and two decades of monetary mismanagement.

 

By Ned W Schimdt
Editor of THE VALUE VIEW GOLD REPORT

Copyright © 2007 Ned W. Schmidt - All Rights Reserved
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To subscribe to these publications go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html This month was the inaugural issue of The Agri-Food Value View , an exploration of how the rise of the Asian economy will benefit agriculture and food investments. To receive a trial subscription, write agrifoodvalueview@earthlink.net


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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