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Why should I have my wealth in gold right now?

*Dow Theory Letters, Richard Russell, October 2, 2006

“This is the situation — The central banks have flooded the world with too much liquidity. That has caused almost all financial assets to “float” higher, meaning that they are overpriced. That in turn is why there are such unattractive returns (dividends) on stocks and on bonds (interest). I know Bill Gross and many bears on the US economy are bullish on bonds, but my objection to bonds is that they are an “over-loved” asset class. Everybody in town is convinced that bonds are the place to be. I’m uncomfortable when everybody agrees that one sector is where it’s at. Too many cats on one side of the ledger.

How about the following? Let’s say that the widely-anticipated soft landing for real estate fails to arrive. Instead, real estate goes down and goes down hard. For this scenario you might read the article in the current Barron’s entitled “Florida Housing Hurricane.” Also, I’m receiving e-mails from all over the nation, and what they say is that the housing situation in their sector of the nation is bad, very bad. All in all, it makes me think that a hard landing in housing is very possible.

If a truly hard landing materializes, we could have a deflationary situation, and this is the last thing in the world that the Fed Chairman Bernanke wants. What would the Fed do in a deflationary situation? They could monetize Treasuries, and this could send the dollar heading south in a hurry. A declining dollar would hit bonds in the gut. Conclusion — I’m not lusting for bonds here. Frankly, I feel safer in 91-day T bills.

If the dollar was to tumble, it would be tumbling against the other major currencies. That’s where gold comes in. A route out of dollars would send gold higher. I would hardly be happy about a situation where the dollar was falling apart, but if it happens I want to be prepared. My idea of preparation is to own gold.

Yes, I know — owning Treasury bills and gold is hardly going to generate juicy income, but as I said above, my interest now is to preserve capital and purchasing power and to avoid losses. T-bills and gold, it seems to me, is the simplest and most fundamental way to avoid loss in a world where the Dow is near its record high but flagrantly unconfirmed by the Transports, where housing is unraveling and where both stocks and bonds are overpriced and therefore provide little dividend or interest protection.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Aftershock Investor