Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Preserve Your Wealth Buy Gold

Commodities / Gold & Silver Jun 27, 2008 - 12:54 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis Article"...Turn up the gloom! Investors will do well merely to preserve wealth from here..."

IT'S HARD TO BE BULLISH on gold when there's so much bad news in the world.

After all, Gold offers a refuge against bad times ahead. Like all good insurance, it's best bought before trouble arrives – not during or after.


And just how much worse can the news get from here?

  1. The Dow's on tracks to close out its worst June since the Great Depression, down almost 10% for the month;
  2. GM's stock is trading at a 54-year low, taking it right back to when CEO Charles Wilson declared "what was good for the country was good for General Motors and vice versa";
  3. US Dollars – the bedrock of world forex reserves – now buy one-third less against the rest of the world's money compared with 2002;
  4. The price of crude oil has risen more than five times over since US and UK troops liberated the oil fields of Iraq in 2003;
  5. Libya is threatening to cut its oil production in protest at US anti-terrorism laws; Tehran just pulled $75bn worth of investments from Europe to avoid sanctions against Iran 's nuclear program;
  6. Global inflation has risen from 3% last June to more than 5.2% per year today; analysts at Barclays Capital believe US inflation will hit 5.5% by August;
  7. Real estate prices have turned sharply lower in the US (down 15% year-on-year), Ireland (down 13%) and the UK (down 3.6%) as well as in Spain , Australia , South Africa and the emerging economies of east-central Europe . Price in Riga , Latvia dumped 38% in the year to May;
  8. Western consumer confidence has sunk to multi-year lows; emerging-market consumers face the worst rates of inflation in more than two decades, rising 25% year-on-year in Vietnam and more than 13% in India; surging fuel and food prices have sparked protests and riots in Asia and now unionized strikes across Europe.
  9. Investment and lending banks are being forced to take back "securitized" debt onto their balance sheets, destroying their capital adequacy ratios and halting new lending as pension & insurance funds try to flee risk. In the UK alone, new lending fell 95% in May after allowing for such "de-securitization";

Watch out below! It's every man for himself – women and children included! Or so the financial pundits now claim.

Makes you wonder where they've been during the bull market in Gold starting in 2001. But with inflation surging and new credit shrinking, "w e're in a nasty environment," said Tim Bond, head equity strategist at Barclays bank in London , this week.

Above all, "there is an inflation shock underway," he said in Barclays' latest Global Outlook . "This is going to be very negative for financial assets. [So] we are going into tortoise mood and are retreating into our shell.

"Investors will do well if they can preserve their wealth." And investors who choose to Buy Gold are usually looking to achieve just that.

Indestructible, un-inflatable, and instantly priced in the world's only true globalized market, gold bullion stands apart from all of those boom-time investments. Stocks, bonds, securitized debt, real estate...you can keep 'em when the end of the world strikes.

These happy assets promise to pay you income. They also rise in value as the economy grows. Whereas gold, in sharp contrast, just sits there – neither smiling nor frowning, and never paying an income. Its value comes from, well, from its gold-ness alone.

And as the spike above $1,000 an ounce showed in mid-March – just as Bear Stearns collapsed – you need the end of the world to make Buying Gold worthwhile.

Right?

Well, perhaps not.

Because the value put upon gold – as BullionVault has noted all-too often before – should also be expected to benefit from sub-zero real rates of interest. War and terror be damned! The only sure push that gold prices need is low interest rates colliding with rising inflation.

And right now the world's got that in spades.

"Figure 8," notes Michael Lewis of Deutsche Bank in a recent paper for the London Bullion Market Association (LBMA), "illustrates the strong performance in gold returns as US real interest rates decline. We find that when real interest rates in the US move below -3%, gold returns have tended to be significant."

Listen up at the back! Because the Federal Reserve's key interest rates stands at just 2.0%, scarcely half the rate of US consumer-price inflation. And with a real return paid to cash of minus 200-basis points, you really should doubt the Fed's true intent towards the value of money from here.

Even with the Euro trading above $1.57 on the foreign exchange markets, however – and even with the European Central Bank (ECB) promising to raise interest rates to defeat inflation next week – the Eurozone's 320 million consumers are also suffering a 12-year record rate of wealth destruction. Here in the United Kingdom, after inflation and tax since the middle of 2003, the real returns paid to cash savings have stuck right on zero since mid-2003.

The fast-growing economy of India , meantime, offers negative real interest rates of 3% and worse. Taiwan 's real interest rates sit slap bang on zero after a rate-hike this week. And Chinese cash savers are way under water with inflation running at 7%.

Any wonder that "the number of credit cards in circulation jumped 93% in the year ending March 31 to 104.7 million," as the Asia Times quotes the People's Bank of China this week...? Central banks everywhere want you to spend money, not save it, forcing the issue by destroying the value of money itself.

So any wonder that the world bid for Gold – a tangible asset that can't be inflated and can't be destroyed – just keeps rising higher...? "The purpose of money is to be a store of value," said Dr.Marc Faber – the infamous fund manager behind the Gloom, Boom & Doom letter – to CNBC today.

(He kept laughing for some reason. No doubt he's long gold...)

"When interest rates are negative, it destroys the wealth of honest depositors who have their money in the bank and don't want to speculate," Faber went on. "Now what people should do, basically, is to Invest in Gold . Because when it comes to action, the Fed show no concern about inflation...

"The policies pursued by Mr.Bernanke have damaged the American public enormously by pushing commodity prices – specifically food and oil prices – much higher. And so real incomes are going down and discretionary spending is being hurt very badly."

Gold represents wealth, in a word. Just remember that it won't actually grow wealth, because it's not a productive asset. Whatever else you might want from a metal, wealth preservation is the gold buyer's best hope.

And that might prove all investors can ask if the news on inflation and rates, stocks, bonds and jobs, doesn't start getting better.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules