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June 15, 2009

Why are investment experts saying you need to own gold?


"Down the road many of our 10 investment experts fear there will be a bitter price to pay for today's spending, in the form of hyperinflation and a run on the dollar. Hence, their fondness for that great inflation hedge, gold. In the near term, alas, the only other corrective for the debt-fueled binge of the past decade would be a great cleansing of the economy and the markets, and that's not something politicians -- or the folks who elect them -- want to bear."

"In the 1930s the money supply was falling even as the Federal Reserve cut interest rates. Now not just the Fed but other central banks are pumping money into the system like madmen. China's money supply has grown by 25%. The money isn't going into the economy; it's going into asset prices. Oil has doubled from a $32-a-barrel intraday low. Copper is up 80%. Russian stocks have rallied 80%. The situation is reminiscent of the past 14 years, when the Fed primed the pump and created bubbles everywhere.

Recently there have been some signs the insanity might be ending: The dollar has fallen, and yields on U.S. Treasuries have risen dramatically. But to short assets in the next six months would be suicidal. I haven't been short since October, even though the long-term direction is down. How much longer will the Chinese be willing to sit on $800 billion of Treasuries and $2 trillion of mostly dollar reserves and watch our currency drop and our government spend $2 for every $1 it takes in?

At the moment, the alternative might be worse.

Not printing money and letting the system cleanse itself would be very painful. It would mean a great recession -- not something politicians like. Therefore, the discipline will have to come from an external source -- the Chinese. Ultimately, the dollar will collapse and we will be forced to defend it, as happened in the 1930s. Or, we will have horrific inflation. But we have put off the day of reckoning.

In that case, tell us what to buy in the next six months.

Buy value, and protect yourself against the threat of the dollar's collapse and the return of inflation. I've been riding the gold wave for a decade, and the major secular bull market in gold isn't over. I'm twice as adamant now as in January about the need to own gold."

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. 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.

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