US Treasury Secretary Tim Geithner Tuesday announced his plans to help banks rid themselves of their toxic assets and restore stability to the banking system. He was “rewarded” with a stock market sell off as investors decided their money was better off invested in Treasury bonds and precious metals.

Gold Rally On Bailout News

Investors are smarter than politicians and central banker stooges and we see this demonstrated again today with the rally in the price of gold.

As stock prices fell almost 5% percent yesterday (and the sell-off continued today until the announcement of the House and Senate reconciliation of the Stimulus Bill…DJIA closed up only .38%), gold ran up and is doing so today as well…up over $15 an ounce.

Investors know Geithner, Paulson, Summers, and the lot have no idea how to cure the weakening US economy or “fix” the credit markets. With this idea firmly implanted, smart investors know the worst is yet to come. The worst for the US dollar, the stock markets, and the bubbling over bond markets are still out there waiting to clobber the unprotected or overly optimistic.

Gold Is Safe

Safety is the main concern for smart investors now. Sure, go ahead and chase news stories or be “contrarian” if you want, but don’t come crying to me when gold hits $3000 an ounce once the bond and MBS markets crash.

Get in now while you still can…once the central bankers figure out even they don’t have enough cash to support the mortgage backed securities (MBS) market (which is BIGGER than the Treasuries market…did you know that?) and Treasuries market, gold will soar.

Happy Investing!

UPDATE: Found a Bloomberg video today discussing the gold rally…Enjoy!

The speaker discusses the price move in gold is still undervalued and the current price is supported NOT by speculators but by sober investor seeking safe haven. He also suggests holding a combination of gold stocks and physical gold as part of a long term investment strategy.

Silver prices rose 11% for January outperforming gold in the precious metals sector. Usually gold is the leader with silver following close behind.

Silver price volatility compared to gold is a given as well. This means big swings to both the high and low side make owning silver more of a roller coaster ride.

Silver is trading above the 200 day Moving Average line at $12.18, and has had a rising profile setting higher lows and higher highs since its $8.40 low on October 28th. Silver is trading above the 50 day Moving Average as well which is new behavior starting in December. See the chart below…

Adding a little silver to your precious metals portfolio, would not be a bad idea.

Happy Investing!