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"...Only a lack of imagination can have allowed professional
investors to suddenly think of the US Dollar as today's quality refuge..."
ONCE
EVERYONE gets back from vacation and starts to focus on what's really going
on, we may be in for a torrid few months in the financial markets.
I believe the current lull
in gold prices could offer a good opportunity to defend yourself
before the real trouble begins.
Since the end of June there
has been huge damage done to the finances of hundreds of organizations
worldwide. But much of this pain is still hidden inside investment funds
holding obscure financial instruments which are now unmarketable.
Too many investment
professionals have been backing the same short-odds gamble –
residential housing – and the aggressive financial arrangements they
set up are unraveling a little more every day.
The underlying problem of
non-paying US
mortgage debt is getting worse, not better, but this fact is being forgotten
in the current rate-cut induced rally in shares and bonds. Short of organized
double-digit inflation I don't believe there is a force capable of halting
the slide in subprime US property prices.
On top of that, we still
have the extended pain of increasing rates hitting more US
home-buyers as their "teaser" deals end. Data compiled by Inside Mortgage Finance and Lehman
Brothers say this trend has barely begun. It won't peak until the end of
summer next year.
The world's largest
financial organizations have already taken big hits – quietly, for the
moment – but the collapse of the subprime
sector really is hurting, and we are seeing things that just shouldn't happen
in a well-ordered financial world.
- Fund managers are not
producing credible fund valuations; they have frozen values using old
prices, and are forbidding the normal result, which is
investors piling through the exits.
- No-one can price
mortgage-backed derivatives at the moment, and no-one really knows how
the underwriters of credit default swaps are pricing the insurance
time-bomb they're sitting on. These horrible investments are in many
cases worth nothing, and in the case of credit-default swaps, less than
nothing.
The current lull might
prove an opportunity for the prospective gold buyer. Gold has not yet moved
up; in fact, it has dipped a little as stretched investment funds have sold
whatever they can to raise cash and reduce their margin calls.
Nor can any serious comment
on the gathering storm fail to remark on the apparent "flight to
quality" which on Monday last week saw US Treasury bonds put in their
strongest day since Black Monday 1987.
US Treasury bonds are part
of the fast-growing and utterly irredeemable $9 trillion public debt now
outstanding in the United
States. The US trade deficit was also on
record-breaking form again last month. Only a few short weeks ago these
dreadful statistics drove the US Dollar to record lows against a basket of
major world currencies.
Only a lack of imagination
would allow investors to think suddenly of the US Dollar as today's
"quality" refuge. Any respite for the Dollar will surely be
temporary; indeed, the bounce we saw during the sharpest stock-market losses
so far may have simply been short-covering by Dollar bears (of which there
are plenty) rather than fresh buying of “quality”.
Everything that has just
happened in fact makes things worse for the US currency. At the heart of this
current crisis lies the bubble in poor-quality US home loans. It is US consumers
who are being pinched; it is the return on invested US Dollars which is now
being cut.
Lower US rates on the back
of America's
weakening domestic economy will re-kindle a Dollar slide in due course. So
the current lull may offer only a brief window, in which fewer, stronger
Dollars buy more gold than they soon will.
If you're interested in the
protections which owning gold – outright in your name – may
provide, then please do consider the option of buying and storing physical gold
bullion in Zurich, Switzerland, through BullionVault.
As the Financial Times reported in a
feature article about BullionVault at the weekend,
"private buyers [used to find] it extremely difficult and often
prohibitively expensive to acquire gold – not least because of the cost
of storing and securing high quality bars of bullion." Now BullionVault "dramatically
cuts the cost to customers of keeping their share of the precious metal,"
as the FT puts it.
And amid the storm now
gathering in the broader financial markets, I believe gold could offer a
serious defense against both volatility and losses
in stocks, bonds and the US Dollar.
Paul
Sustain
Director and Founder
Bullionvault.com
Paul Tustain is director and founder of BullionVault - the world's fastest-growing
gold ownership service, where you can buy gold today vaulted in Zurich
on $3 spreads and 0.8% dealing fees.
Please
Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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