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Bill Gross is one of the most recognizable names in
the investment world. He is the founder and co-chief investment officer at
bond fund giant PIMCO. His long-term track record regarding bonds is among
the best and he still runs the world’s biggest bond fund, the PIMCO
Total Return Fund.
Gross is also known for speaking quite bluntly about
the United States’ growing debt problem. His latest monthly market
commentary came with a warning for the U.S. and investors alike. Gross stated
that a number of recent studies have concluded that “The U.S. balance
sheet, its deficit and its ‘fiscal gap’ is in flames and that its
fire department is apparently asleep at the station house.”
The recent studies Gross pointed to came from the
Congressional Budget Office, the International Monetary Fund and the Bank of
International Settlements. The studies calculated that the United States
needs to cut spending or raise taxes by 11% of GDP over the next 5-10 years.
This translates to $1.6 trillion per year. That compares to the country’s
8% of GDP deficit in 2011. Those numbers put the U.S. in the ‘ring of
fire’ with other countries with similar fiscal gap sizes. These
countries include Greece, Spain, Japan, France and the U.K.
Gross warned that the U.S. debt problems have put the
country in this “ring of fire” that will burn most investors. The
only investors who will not get “burned”? He says the lucky few
will be those that are protected by gold and other real assets, protected
from a severe U.S. dollar depreciation caused by the Federal Reserve’s
money printing.
In a white paper titled “GOLD – The Simple Facts”
posted on PIMCO’s website, PIMCO analysts Nicholas J. Johnson and Mihir P. Worah also said some
interesting things. Here is an excerpt, “Our bottom line: given current
valuations and central bank policies, we see gold as a compelling inflation
hedge and store of value that is potentially superior to fiat
currencies.” They pointed out the positive supply/demand
characteristics of gold as a big plus in their scenario. The PIMCO analysts
went on to say, “We believe investors should consider allocating gold
and other precious metals to a diversified investment portfolio.”
That is quite a statement coming from a
“mainstream” investment firm. Wall Street’s usual reaction
to gold is that it is a barbarous relic whose only use is in jewelry and that
no sane investor should put any money into it, even paper gold instruments
such as gold ETFs like the SPDR Gold Shares (NYSE: GLD)
and others.
After Bill Gross’ bullish words, gold prices
were trading a 7-month high on Thursday before falling Friday to finish the
week at about $1776.00 an ounce.
 
Gold Investing Newsletter
From a technical analysis point of view gold, silver
and gold miners have been holding value at key resistance levels. While we
could see a 3-5% pullback before they breakout and start the next rally
overall the outlook for precious metals remains very strong and I put a $2400
per ounce on gold for 2013. My daily analysis and trade ideas are available
at www.TheGoldAndOilGuy.com
Chris Vermeulen
Editor, the
Gold and Oil Guy
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