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.
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 ran across this video clip of Peter Schiff, chief of Euro Pacific Capital, who was on CNBC last week arguing there is a gold rally set for a next year….and get this…it will take the gold price all the way to $2,000 an ounce.
I don’t get the financial TV pundits who hate gold. It’s clear to me they hate gold and anyone who dares to defend it as the best asset class to be in right now. The attacks Schiff endures in this interview are unlike any another guess would have to endure. The attitude they take with Schiff is reminiscent of the attitude all the TV political pundits had with Ron Paul…dismissive, condescending, and outright hostile.
I take that back…I Do Get it….these financial TV shows are support by advertisers who sell stocks and bonds….not physical gold. They have to knock any asset class their sponsors don’t have an interest in!
Watch the clip below to see what I mean. If you want to skip just to the talk on gold…it starts about 3/4 of the way through…
Hey, did you catch ..right at the end…he said gold will go to $2000 in 2009….and then he said, “and then go higher”…so $2,000 an ounce is not the end of the rally!
This video is called – “Peter Schiff: The Man Who Called the Collapse” and rightly so. They play a clip from a show in February of 2007 where Schiff was predicting gold to go higher due a economic and financial collapse.
But in tooting my own horn, I called the collapse in the real estate market in the summer of 2005 calling for a liquidation of real estate in January of 2006 and reinvestment in gold…a full year ahead of Schiff! At the time, that was considered crazy-talk too. From January 2006 to the middle of May, gold went from $525 to $725!
Peter Schiff, as good as he is, was not only guy on the planet who could read the writing on the wall!
