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Buying gold appeals most when everything else fails
to hold value...
SO YOU GET BACK after Labor Day as summer ends, and what do you find...?
Deposit accounts are still paying zero, the stock-market's trading way
above its average price-earnings ratio, housing could have another 15% to
fall before finding rock bottom, and central bankers would be drowning in ink
if they didn't use photons to create money instead.
Little wonder a small but growing number of private investors want out.
"With this current crisis, and all the money that's being
printed, gold looks a sensible thing, more stable than currencies," said
one BullionVault user in a call on Tuesday. It's a hedge against holding
cash..."
"For now, I'm as sure as I can be [in gold] that my money is
safe," said another. "The stock-market rally looks like fool's gold
to me. There's no real value being created. I don't believe cash will be
useful either. We're printing more money than the Weimar
Republic, and that's
got to have an impact at some point."
Buying Gold appeals most when everything else fails to hold value.
Hence the panic of late 2008...a flood of new money into coins and small bars
that pushed premiums so high, buyers need a 10% move just to break even as we
explained to CNBC this morning.
Getting in before that failure strikes, in contrast, soon looks a
smart move in hindsight. Your risk is buying the top, and forecasting a panic
ahead that never shows up.
"Mr.Bernanke is the greatest money-printer in
history," said Asia-based Swiss investment advisor and manager Marc
Faber in a webcast for US Global Investors
on Wednesday.
Noting the huge leap in US cash and cash-savings relative to the
current value of stocks – as in the chart above – "All that
money has to go somewhere," he said. And yes, it may well go into
stocks; the German hyperinflation of 1919-23 saw Berlin
equities rise more than 340,000 times over.
Armageddon aside, however, even Jim Cramer knows that
stock-markets bulls get slaughtered by inflation sooner or later. But what he
might not notice – unlike foreign investors – is the real loss of
purchasing even a rising stock-market can deliver when the currency craters.
And this decade's bull market in gold, rather than simply signalling a
decline in the Dollar, has in fact come against all currencies...rising
three-fold and more versus the world's major moneys.
So far, investors still remain underweight for anything like a true
"crisis" peak, meantime. Bullion and coin were reckoned (by the World
Gold Council) to be around 0.7% of world financial assets at the end of
last year. That ratio stood nearer
5% in the late 1960s. It reached 20% and more in the
early 1930s and '80s.
Put another way, "Is gold still in a bull
market?" as John Hathaway of Tocqueville Asset Management asked in October '08...back when the price of
bullion had dropped 15% from its Bear Stearns peak...but hadn't found its
floor, a further 23% lower still by month's end.
"The question seems absurd," Hathaway
answered himself. "It is tantamount to saying that paper currencies have
bottomed out and that the coast is now clear for financial assets."
Adrian Ash
Head of
Research
Bullionvault.com
Also
by Adrian Ash
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment
gold, 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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