The news of the House passing the Obama $825 Billion Stimulus Package sent the price of gold over $900 an ounce. This seems to be the trend lately…each month a new higher trading range for gold prices.
“Central banks are going to start printing money and it’s not an ideal place for investors to be,” said Joel Crane, a metals strategist at Deutsche Bank AG in New York. “People don’t have faith in currencies at the moment. There is still an underlying faith that gold will go higher.”
I would consider this a reasonable conclusion as our Fed has never been very good at stepping on the gas or the brake in just the amount necessary. Monetary policy is a rather blunt instrument so this is to be expected.
Devaluation of fiat currencies world wide is gaining ground do to all of this spending and printing. Bloomberg again puts it like this,
Gold will rise in the longer term, “based on a growing distrust of all paper currencies,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland. “People are turning to the one true money, which can’t be created by governments and holds its value.”
I’m with Mr. Day…I don’t trust currencies including the US dollar right now. So convert your willowing US dollars into physical gold and watch it grow.
Don’t get me wrong, I hate Obama’s choice for Treasury Secretary in Tim Geithner, but it really helps gold prices. Geithner as Treasury Chief has had a boosting affect back when his name was first floated and again this week as his confirmation was pretty clear.
Gold Price Milestones and Tim Geithner
Back on November 21, 2008 when Obama announced his choice, Bob Pisani made note of the Geithner effect saying,
“Particularly strong throughout the day were gold stocks, including AngloGold Ashanti, Gold Fields, and Barrick Gold, each of which closed up 30% on the day. Gold stocks strengthened earlier on the heels of gold prices crossing $800 for the first time in a month.”
And here we are again…during the Senate confirmation hearings where it becomes clear Geithner will get confirmned…even with a strong dollar, gold prices hit $900 an ounce.
So it could be coincidence…or it could be that everyone knows a Geithner Treasury is going to be bailout happy. Since Obama will get all the funding bills he asks for through Congress, Mr. Geithner will have a lot of money to print so he can give it away.
And therein lies the cause of the gold price spikes…fear of inflation.
Fund Manager Charlie Dreifus interviewed on Bloomberg shares his view of gold as an investment class. Charlie Dreifus was noted as the Fund Manager of the Year…so he’s no slouch. He discusses his “method” for picking good investments. Surprisingly, gold is missing.
He touches on NOT picking a mutual fund only by yield. He say chasing yield can end up putting you in some of the riskiest companies.
Charlie Dreifus No On Gold
The interviewer then ask if Mr. Driefus held any gold or cash…looking for position size estimates from Charlie.
Said he does not hold gold…but said by pure luck ended up late fall with about a 20% cash position.
Reasons Mutual Funds Pass On Gold
1. Gold unlike stocks and bonds pays no dividend or interest
2. Except for the recent few years, gold was either moving down or sideways
3. Gold stocks with exception of the past few years were horrible investments
4. One has to paint a “doom and gloom” economic picture to sell which impedes his ability to sell other investments…and remember mutual funds can only legally invest to the up side…no shorting.
So even though Charlie knows how to manage a successful mutual fund, he really can’t recommend or hold gold without jeopardizing the faith investor must put in the other companies in the fund.
I wonder if Charlie holds any gold bullion in his personal accounts?
Here’s the Bloomberg video…enjoy!
You guys don’t really care about a mutual fund manager…you make your own investment choices. I hope you seriously consider adding gold bullion to the mix. You’ll be glad you did.
I wanted to point out even though it may be obvious, with the recent drop in Treasury yields at all maturities, gold is a much better investment choice. Many conservative investors are more concerned with the return OF their principal rather than the return ON their principal, so I thought I’d compare two “safe” investments to show why you should consider a precious metals investment…specifically gold…instead of the typical “safe” US Treasury Bonds.
Investing in Gold Vs. Treasury Bonds
Let’s look at the yields Treasuries are paying in the chart below I swiped from the US Treasury website. The first thing you’ll notice is even the longer term bonds are only paying about 3.00%!
3 percent! To tie up my money for 30 years and all I get in return is a lousy 3 % rate of return?
I don’t think so….
And remember even though US Bonds are “safe” they still have to keep up with inflation or I’m actually getting a negative return. Does anyone believe the US will not experience at least a few bouts of serious inflation over the next 30 years?
You couldn’t pay me to invest in the US Treasury market right now. Talk about a bubble…when that pops I’ll be sitting very happy in precious metals. You should be too…
Revisit your “safe” investments that really are not so safe or are not really investments. A money market, CD, or Treasury bond can’t at this point really be considered an investment when negative returns are more likely than not. Add the insolvency risk in the banks, insurance companies, and yes…even the US government…buying precious metals looks better and better.
Remember at this point I only recommend investing in the physical precious metal…not the futures, mining stocks, or even coins…just bullion. If you want to be sure to store your wealth where inflation or default risk can’t swipe it from you in these turbulent times…precious metals bullion is the answer.
