Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

7 Trillion Reasons to Own Gold

Commodities / Gold & Silver Oct 08, 2008 - 12:03 PM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis ArticleSean Brokerick writes: In just a few short weeks, America has gone from looking at a potential economic downturn to staring into an economic abyss.

In a matter of days , confidence in the Federal Reserve's ability to unfreeze our nation's credit markets has nearly vanished.


And now, to add insult to injury, the Fed has decided to start financing business corporations directly.

No wonder investors are looking for an escape from this madness! And no wonder gold is performing far better than virtually any other commodity!

Here's how this crisis has unfolded and where it could be headed ...

Wall Street's Vote of No Confidence

The market has shown how ineffective it thought the $700 billion bailout would be on Friday when stocks cratered ... again on Monday ... and still a third time with yesterday's 508-point plunge in the Dow.

It's about time Washington gets the message that they're bailouts, handouts and special lending programs are not working!

The real problem is that, despite all the bailouts all the Fed's wacky lending programs, the corporate credit markets remain frozen up.

Buying up some toxic debt won't do much to fix that because banks simply won't lend to each other for fear that other banks may follow IndyMac and Washington Mutual down the road to insolvency.

Result: A breakdown in the interbank system — no bank is lending to anyone else. Respected economist Nouriel Roubini says that we face the risk of a total systemic financial meltdown where ...

The next step of this panic could become the mother of all bank runs, a run on the trillion-dollar-plus ... short-term interbank liabilities of the U.S. banking and financial system.

Roubini adds that "a silent cross-border bank run has already started."

The Federal Reserve realizes that the problem remains in the credit market, and just yesterday announced the creation of a Commercial Paper Funding Facility (CPFF) to help provide liquidity to the credit markets by purchasing commercial paper from issuers.

But the jury is still out on the CPFF as well.

So, again, do I think it's a good time to own gold? Buddy, I think it's a GREAT time to own gold ...

Gold Is the Ultimate Safety Play!

Traditionally, portfolio theory suggests putting 5% or 10% of your assets in gold as "portfolio insurance" — to guard against a crisis in paper investment vehicles triggered by war, political instability, severe inflation, or financial panic.

In other words, gold is a good investment for a rainy day, because, unlike many paper assets, gold's value has never gone to zero.

And while I'm not saying that the major markets are going to zero, they have had a very tough year.

The S&P 500 has lost nearly a third of its value in the last 12 months. The Chinese market, as measured by the FXI, is doing even worse — cut in half.

Meanwhile, gold, despite its ups and downs, is UP 12.49% in the 12 months ended last Friday.

Percentage Change in Last Year

And paper assets are looking worse all the time ...

The 7-Trillion Dollar Question

The first $700-billion bailout is already perceived as a failure. At some point, Uncle Sam will have to mount ANOTHER bailout to recapitalize the banks or risk the entire system falling apart.

That second (or third ... or fourth ... ) bailout is probably going to be very expensive. The question is, how much.

Part of last week's bailout package included a provision to raise U.S. Federal Insurance Deposit Corporation insurance to $250,000 per individual per bank.

This means the FDIC is now insuring about $5.2 trillion in deposits ... but it only has $45 billion in its insurance fund.

And while $250,000 may seem like a lot, nearly a third of small-business accounts still won't be entirely covered!

Economist Nouriel Roubini says we might soon see total systemic failure of the world's financial system.
Economist Nouriel Roubini says we might soon see total systemic failure of the world's financial system.

If Mr. Roubini is right — and I'm pretty sure he is — then the U.S. may follow the lead of central banks in Ireland and Greece and guarantee ALL deposits in ALL banks while it sorts out the good banks from the bad banks and recapitalizes the good ones.

That is enormously expensive and potentially very inflationary.

Remember, there is about $7 TRILLION deposited in U.S. banks.

Even if the U.S. doesn't have to pay up on all or even most of that money, providing blanket coverage would send the potential debt of the U.S. soaring.

That, along with recapitalizing the banks deemed worthy enough to save, could send U.S. printing presses into overdrive.

And a lot more dollars in the system should drive up the price of gold.

By the way, you know that debt clock in New York's Time Square — the one that logs how deep in the hole American taxpayers are? It ran out of spaces to display the $10 TRILLION in red ink that the government hit last week with the cost of the bailout!

When the government's paper debts are getting too big to measure, it's time to think about gold, the ultimate currency.

The yellow metal has been used as money throughout history, and has some great things going for it ...

Permanence: Gold does not tarnish and is immune to the ravages of water and even most acids. Unlike paper money, it will not decay, shred, break or be eaten by mice in the basement.

Convenience: Can you carry a little over eight pounds in a bag? Then you can walk around with $100,000 of gold. Not that you would want to do that, but it shows how handy gold is. Try walking around with $100,000 worth of real estate in your pocket.

Real wealth: Most importantly, the Good-Time Charlies in Washington can't print gold!

An Important Question:
Can Gold Go Up If We Have a Recession?

The short answer: 08

Just look at this chart ...

Consumer Price Index For Urban Consumers

I've charted the year-over-year change in inflation with gray areas showing U.S. recessions. On top of that, I've added the U.S. gold price.

You can see that in the 1970s, the U.S. went into recession, yet inflation kept going higher, and so did the price of gold.

Today, America is paying for a war that is ruinously expensive in both blood and money. In many ways, it's a repeat of what we had in the 1970s. Inflation has been red-hot, and gold is going higher — and we aren't even officially in recession yet.

So, yes, I think that gold is going to continue higher longer-term. However, recessionary forces ... even deflation ... could push gold prices down in the short term.

If so, this should give us a great set-up for new positions, because Ben Bernanke will not sit by and watch deflation strangle America.

Bernanke, the chairman of the Federal Reserve, is well aware of how bad deflation and economic depression are. He's an expert on the Great Depression. In fact, you can read a paper he wrote in 1990, which is posted online: " The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison"

After last week's bailout bill was passed, Bloomberg News quoted Bernanke as saying:

"We will continue to use all of the powers at our disposal to mitigate credit-market disruptions and to foster a strong, vibrant economy."

That sounds like a guy who's willing to pump up the money supply. Damn the inflationary risks — printing presses full steam ahead!

Three More Reasons Why I Like Gold Right Now

#1. Central banks are holding on to their gold. According to the World Gold Council, just over 357 metric tonnes of gold were sold by European Central Banks in the year through September.

Under the terms of the Central Bank Gold agreement, which limits gold sales, the banks could have sold A LOT more — 500 tonnes.

Germany — holder of the second-largest gold reserves in the world after the U.S. Federal Reserve — said on Tuesday it would make no gold sales over the next 12 months.

Switzerland, another big holder of gold, also said it has no plans for future sales.

If central banks thought gold prices were going down, wouldn't they be selling?

Maybe they realize that with all their paper assets wilting, they had better hold on to the gold they've got!

Plus, other central banks — China and Japan for example — are holding a lot less gold as a percentage of their foreign reserves than they should.

If they start to stock up, as some of their critics have suggested, that could really light a fire under gold.

#2. There's still a gap between physical and paper gold prices. I talked about this in depth last week , and it's only gotten worse. Gold closed Friday at $833. If you wanted to buy a 1-ounce American Gold Eagle, it would cost you $876, and you'd have to wait two to eight weeks for delivery.

How can the price of paper gold be less than for the actual metal? Obviously, the demand for physical metal is bordering on frantic — and it has become disconnected from the paper price.

That disconnect will have to be corrected — either the paper price of gold will go up or the price of real, physical coins will have to go down.

And with the financial crisis careening from calamity to full-blown catastrophe, my money is on paper prices going up.

#3. Gold ETFs are loading up. Assets in the SPDR Gold Share ETF, which held $17.4 billion in its coffers at the end of August, surged in September to above $21 billion.

In fact, the three highest-volume days in SPDR Gold's history were all logged in the past month!

As the banks melt down ... and other investments turn to dust ... investors will likely turn more and more to gold. And the GLD, XAU and other gold ETFs and funds make buying gold easier than ever.

Bottom line: This is one of those times when you might want to have some physical gold on hand. I'm not saying a lot ... but I keep some just in case, and it lets me sleep at night.

And I think the SPDR Gold shares (GLD) or one of the other gold ETFs is a good way to get an additional gold stake in your portfolio.

Yours for trading profits,

Sean

P.S. There are also other, extremely powerful ways to play gold's continued rise.

It's only a matter of days until I release my new report, "Your Golden Parachute," which will tell you exactly how to use these powerful investments to play the gold move to the hilt.

I suggest you reserve your copy right now. Not only will you be among the first to receive my picks, but you'll also get a valuable pre-publication discount.

My exclusive special report, plus a minimum of four follow-ups over the course of the year, is normally priced at $199. Order now , and it's yours for only $99. Are profits guaranteed? Of course not. As with any investment, you CAN lose money. But I'm convinced each of my picks is loaded with value and on the verge of blast-off.

Don't wait. Reserve your copy now by calling 1-800-291-8545. Just say you want "Your Golden Parachute for 2009", plus all my follow-up reports on all my picks. Or, order online here .

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 http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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