Investing In Gold And Silver For Capital Preservation And Appreciation

How’s Gold?

The relative trickle of investment funds moving into Gold today will very shortly become a torrent, completely outrunning available Gold supplies and sending prices through the roof.

The relative trickle of investment funds moving into Gold today will very shortly become a torrent, completely outrunning available Gold supplies and sending prices through the roof.

Although no one I know can say when the big spike in Gold will begin in earnest, given the World’s Financial Fragility, it could literally happen over night. While the focus in recent months has been on the troubles in the Euro zone, don’t forget that the “straw that broke the camels back” was ultimately the crashing U.S. housing market and its mortgage backed securities.

While financial institutions and Governments around the world are at least attempting to recapitalize and are attempting to address their structural problems, US policy makers and their economists have their heads stuck in the sand and are fighting the patient’s symptoms without even offering or even thinking of a possible FIX. Moreover, the U.S. is not addressing its own structural deficits, increasing the risk that America’s Deficit Viruses will morph into a full Malignant Cancer, destroying all that it comes in contact with.

First and foremost, it is important to acknowledge that the GSEs, FMN and FRE were fundamentally ill conceived; so how can they possibly be saved? Without subsidies, home prices will continue to fall – But that would make homes more affordable!!! Policy makers don’t seem to be interested in affordable home prices, they are only interested in the short-sighted belief that preserving the value of overpriced homes through government interference will get them re-elected. After all, the election cycle is never more than 2 years away resulting in Extend and Pretend since it seemed to have worked for the last 40 years or so. But all good things eventually come to an end.

The stock market always attempts to discount the future, which means that economic weakness is only ever a threat when it hasn’t been discounted. This is why the stock market often makes a sustained up-turn, months before the economic data begins to show its true colors. However, there is an exception -Should the FED and the Government decide that the only way left to get money into the hands of the people and Main Street is to BUY SECURITIES with their out of thin air money, instead of creating assets for the FED and Reserves for the Banks, that are NOT lending, then we could be in for a hell of a suck-in rally that will create the Biggest BULL Trap in recorded history.

With the Case-Shiller house price index still 37% above its value in January 2000, just about matching the CPI rise during that same period, house prices are still at least15% to 20% above their long-term average in terms of incomes (the recession reduced incomes has not helped). However in certain areas such as New York, Boston, and Washington DC and its suburbs along with coastal California, house prices remain far above their historical norms.

Global commodity prices are rising inexorably, driven partly by rapidly rising demand in emerging countries that consume a large proportion of hard products (rather than services), but also by persistent negative global real Interest rates. Gold prices, which are once again about to break out to all time record highs, are only a symptom of this. The World Gold Council recently reported that global demand for Gold increased by 40% in the second quarter of 2010 and is running far ahead of supply. Needless to say, the immense liquidity among central banks are increasingly finding Gold a better investment than each others’ currencies, and hedge funds and corporations in general, are also feeding the rise. However, little of the global inflation has yet affected US prices (which are in any case carefully “managed” by the Bureau of Labor Statistics) but its force cannot be denied much longer; By the end of the year, US inflation figures are likely to look considerably less benign than they do today.

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