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Gold
has rallied to a 27-year high and continues to make headlines. It seems like
just yesterday Gold was trading around $300 oz. It has more than doubled to
$750 per/oz in the past five years. It's obvious we are in the midst of an
upward cycle in relation to Gold, and for that matter all precious metals.
These commodities thrive in times of uncertainty, and times are sure
uncertain. There are several reasons, but the most recent has been the
credit-crunch. There is also a terrible trade deficit within the U.S. and
geo-political tensions that continue to escalate. It becomes clearer and
clearer why Gold is rising. It is impossible to predict the ultimate high for
gold, but if things continue the way they have, I assure you we'll surpass
the all time high of $800 per ounce set back in 1980.
The
American monetary policy is out of control. The last ten years I've witnessed
two bubbles, both in stocks, during the late 90's, and more recently the
present day housing bubble. The thing to realize, of course, is that the
housing bubble is many times more dangerous than the stock market bubble,
because it affects the whole banking system. This is why interest rates were
sliced half a point on Sept 18th, trying to fuel our economy. There is huge
liquidity in the asset markets, but unfortunately it is all based on credit
not cash. This is an illusion. This is liquidity that could easily turn into
a savage deflation tomorrow. How much more can we continue inflating assets?
When this does stop and liquidity is gone, if there is a lot of leverage in
the market, it can collapse. It has not happened yet, but someone is going to
have to pay the piper. The effects can be felt today as credit is becoming
more expensive and difficult to obtain. But who needs credit when we having
savings, right. No, it seems the average American has abolished that a while
back. Clearly we are a consumption nation and this is weighing heavily on the
shoulders of our trade balance, especially when our manufacturing sector is
disappearing and technical jobs are being lost to overseas competitors. So
it's no wonder the dollar is weakening compared to other currencies like the
Euro and Canadian dollar, which has traded one to one with the US dollar, sad
to mention. The bottom line is a weaker economy, a probable recession, and
more uncertainty.
No
wonder gold and all precious metals have roared, and in my opinion will
continue to do so throughout 2008. From a fundamental perspective, time's
being what they are, the weakening dollar, the geopolitical instability,
global energy crisis with crude at all time high of $80 per barrel, to the
conventional Econ 101 imbalance of supply and demand make it clear that gold
should have a definite place in your portfolio. This is an asset you want to
own for protection against risk, and things are getting risky. Also, what
better hedge can you have against a falling dollar. The rest of the world
seems to have notice as there is plenty of demand from the flourishing middle
classes in China and India, and from central banks in countries that have
enjoyed gains from foreign trade, like Russia, the Persian Gulf states and,
again, China. China has been buying gold with US dollars, and there are more
than 1.3 billion Chinese. If investors buy the arguments for gold, they must
then decide how to buy access to it. They can acquire the physical metal but
that entails costs for storage to guard against theft and the hidden cost of holding
an asset that does not pay interest or dividends. If you are interested in
learning more about alternative ways to invest in gold and the strategies I
use please request information here.
Olivier Velasquez
Metals Market Strategist
Wisdom
Financial, Inc.
Direct toll free: 866-465-0017
International: 949-548-2021
Olivier Velasquez is
the Metals Market at Wisdom Financial. You can find out more about Mr.
Velasquez and his services at www.wisdomfinancilinc.com. . If you would like a free brochure on participating in
Gold and Oil Futures and more information on the strategies we're
implementing to participate in commodity trends please contact him at oliver@wisdomfinancialinc.comThe
risk of loss in trading commodity futures contracts can be substantial. You
should therefore carefully consider whether such trading is suitable for you
in light of your financial condition.
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