James Turk: Gold headed to $8,000?

At a wonderful barbeque this past weekend a close (and very successful) friend of mine expressed his puzzlement at investors' fascination with gold recently.  As he pointed out, it has very little intrinsic value.  Well, maybe.

The thing is, as I tried to point out, is that it is very hard to watch your dollars drop in  value for a decade with no end to government spending in sight.  On top of that, we can never know when the Chinese will pull the plug on their treasury holdings, when the euro will implode overnight, or even what events like these would mean for the dollar.

In the words of James Turk at the 2010 World Mining Investment Conference:

". . . but even as the prediction may seem extreme, to some, the sting in the tail is that he does not see these levels in the gold price, or Dow, as suggesting real increases in wealth. Rather, such an increase would serve only as wealth preservation as the purchasing power of most currencies is devalued in a hyper-inflationary environment due to the huge volumes of fiat money being pumped into the market by governments in an attempt to stave off global recession."

And I guess that's really where I'm coming from now.  I don't expect gold or silver to make me rich, but I'd like to preserve some of what I've worked so long and hard to accumulate.


[ad]

What will happen in an honest precious metals market?

The National Inflation Association sent out a great letter yesterday.  It's a comprehensive look at the Andrew Maguire/CFTC situation.  Bottom line?  To feel safe buying precious metals now, you don't have to believe that metals will rise, only that the dollar will ultimately fail.

The silver market provides a window into what is happening in the gold market. Because the silver market is very small and its short position is so concentrated, its price is easier to manipulate than gold, but the same manipulation is taking place in gold on a much larger but less noticeable scale. In our opinion, the CFTC is under pressure not to do anything about the manipulation because the lower gold and silver prices are, the stronger the U.S. dollar appears to be. If we saw an explosion to the upside in gold and silver prices, it would result in a complete loss of confidence in the U.S. dollar.

I strongly recommend reading the entire letter, and subscribing to their newsletter while you're there.



[ad]

Marc Faber: Geithner and Bernanke in charge? He'll keep his gold.

In this interview Marc Faber says don't trying to time the gold market, but adds that as long as he sees Geithner, Bernanke & Co. in charge, he'll hold onto his gold.

Faber also:
Recommends at least a 50% portflio weighting towards emerging economies.
Expects Japanese stocks to outperform both Europe and the U.S.
Stresses the need to diversify and avoid the overuse of leverage.
Believes U.S. bonds will be disastrous over the next 10 years.

It's a great watch, and you can see the whole thing on FT.com.



[ad]

Is gold in a bubble?

"Tex Norton" writing for Whiskey and Gunpowder has some interesting thoughts on that subject.

Is gold in a bubble? Possibly, but if so, it still has a long way to go before the top is reached. The top will make itself known if you simply watch the market actions. In the meantime, what else can you do, if not invest in gold, to help protect your accumulated wealth?

Indeed, what else can you do?  Shorting stocks might be one reasonable possibility.   It just makes me very nervous.  How high can stocks go when the money supply is potentially unlimited?

Another idea that I'm currently considering is the purchase of 2 or 3 leveraged inverse ETFs.  The idea is appealing.  These ETFs are designed to achieve a return of 2 or 3 times the opposite of the benchmark they are based on.  (FYI, I'm considering small investments in EUO, SRTY, and TBT.)

I really don't like the idea of leverage.  Truth be told, I think these leveraged ETFs are built on the house of cards that is our financial system.  I wonder though, if a person whose investments are largely weighted towards precious metals might be well served to have a small (maybe 10%?) investment in one or more of these.

If you decide to, please be sure to research thoroughly before you invest.  Even the people at Proshares include this warning, among others:

ProShares ETFs may be appropriate if you intend to invest in them as a portion of a portfolio, not as an entire portfolio.

[ad]

China cuts holdings of U.S. Treasuries

This headline says it all for me.  Still, I did enjoy the following: 

WASHINGTON - The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

 ". . .could force the government to make higher interest payments at a time that it is running record federal deficits."

Really?  Do you think so?  And hey, what will the Chinese be doing with their money now?  I don't see the Euro is offering much appeal.  Other than gold, where do you put big money now?



[ad]