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.

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.

Geithner = Bailouts, Bailouts = Inflation, Inflation = Higher Gold Prices

Don’t miss out…buy physical gold while it’s still cheap.

Happy Investing!