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The US trade
deficit hit an all time high today, and many people are blaming the Gulf
Coast Hurricanes. On the opposite side of the world, China reached a record surplus of $80.37
billion in 10 months and people are blaming China's "unfair"
trading practices, such as their currency and cheap labor.
Although the numbers are staggering in themselves,
what I find even more staggering is that government officials are still
reaching for excuses on why we have a US
trade deficit and why the deficit with China keeps on growing. In a way,
this reminds me of a gambling addict who keeps on making excuses on why he is
in the hole. Instead of realizing that his luck has run out, he keeps on
finding ways to borrow money and convince himself that his losses don't look
as bad. In addition, instead of realizing that his opponent has a stronger
hand, he accuses him of cheating.
In reality, the US
deficit is not the result of China's
growing strength or the damage that was caused by the Gulf Coast
hurricanes. The US
trade deficit has been increasing consistantly and
significantly over the last several years. Note these rising trade deficit
numbers: 2001(362.7 billion); 2002(421.1 billion); 2003: (494.8 billion);
2004: (617.5 billion). In 2005, we are on pace to reach a record trade
deficit of $706.4 billion!
The only way that we can begin to chop into this
deficit, is if we realize that irrational consumer spending does not help out
the economy. It might be a short term flow of cash, but it does not begin to
solve the greater problem. Borrowing money from your mortgage to buy goods
does not contribute to the overall strength of the US economy. As a country, we need
to start saving and funnel our capital towards investments and manufacturing.
Once we have actual goods to export, and once we stop relying on a service
sector economy, then we will be able to see a decline in the deficit.
However, I don't necessarily have confidence that
the above scenario will play out. Most likely, we will revert back to saving
and manufacturing only when our hand is forced. This is liable to be caused
by the inevitable rise of interest rates, overvalued real-estate market, and
the decline of the US dollar. Meanwhile, I believe that positioning your
assets towards gold or hard assets is one of the best ways of protecting your
wealth.
Gold Buying Opportunity
Recently, I was speaking to an Indian client who was
adamant about keeping Gold in his back yard (literally!). He stated that he
had no confidence in the local banks, currency, and current economic affairs
of his country. As a result, he decided that he would put most of his hard
earned money in Gold. The funny thing is, this client lives in the United States,
but I am not telling you where! As anecdotal as this story may seem, I
believe that this will become more and more commonplace over the next several
years. As Americans start realizing that they can
buy less and less with their dollar bills, they will most likely shift their
wealth into a "currency" that is rising.
Whenever we have a pull-back in Gold, like we have
had in the last couple of weeks, I view this as a buying opportunity. After
Gold reached an 18 year high, we experienced another round of profit taking. In
addition, as the price starting declining, it served as an opportunity to
shake loose investors who were not truly believers in gold. I believe that
these pullbacks and consolidations are actually good for the long term
movement of gold. If you notice the chart below, you can see that with every
sharp major pullback, Gold had a strong rally. Currently,
gold is rallying off the 455 lows and I see it as potentially breaking $500
before the end of the year.
 
As we continue to receive negative news about the US
economy, terrorist attacks, and other geo-political concerns, I believe we
will see more and more people flee towards what has historically been
perceived as a safe haven. Unlike currencies, which come and go and are
typically regionally based, Gold is recognized worldwide as stability and a
basis for wealth. The time to act is now! Keep in mind that we will
experience pullbacks and consolidations throughout the move up. However, the
fundamental reasons for the rise in Gold will outweigh any short term
profit-taking. If you do not have Gold as a part of your portfolio, this is a
good time to get in.
Palladium…Still heading higher.
A couple of weeks ago, I wrote an article stating
that we were in the midst of a Palladium breakout. Since my first
recommendation in August, Palladium has risen 25% in value. I see palladium
heading higher, especially with the recent news coming out of Russia that
reported palladium stockpiles are substantially less than expected. I believe
that the combination of dwindling supply and the increase demand for the
metal will serve as a springboard for the price to test the $260 level within
the next several months. I also expect some resistance near that level, but I
believe that we will eventually see a sharp run up towards the $320 mark.
If you are interested in learning more about the
commodity bull market, I urge to pre-order my forthcoming book, "Commodities for Every
Portfolio: How To Profit from the Long-Term Commodity Boom".
Emanuel Balarie
Senior Market Strategist
Wisdom Financial, Inc.
Direct toll free: 866-465-0017
International: 949-548-2021
Emanuel Balarie is the Senior Market Strategist at Wisdom Financial.
As an expert on foreign markets, foreign currencies, and the precious metals
industry, Mr. Balarie often speaks at public
engagements and his research is regularly published in investment
newsletters. You can find out more about Mr. Balarie
and his services at www.wisdomfinancilinc.com
The 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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