An Open Letter To Congress – STOP!

 Today, the big 3 shorts tried to push and manipulate Gold beneath $950, however once again, they failed. Gold hit a low of $946 before bouncing back up and closing at $953. $950 is the new base of support for Gold. The Stock Market did manage to claw it’s way back to basically even/ unchanged for the day.-Good Investing! – Jschulmansr

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Subject: Two trending markets revisited and analyzed for you

Here is a video analysis of the S&P and Gold markets. The technical analysis was right on at the time, but those markets have changed quite a bit in the last few days. The S&P had a huge rally and Gold is climbing at a  steady rate, so what’s the new analysis? Glad you asked!

 Below are two free videos, one on Gold and one on the S&P, that gives us an in depth technical look into these markets. Again the videos are free and very informative. Just

Click on the Links Below…

 

          S&P Video Analysis:                                                    Gold Projections:

Also- Here’s your chance to analyze that stock you have been thinking about adding to your portfolio. Just enter the ticker of any company, name of a commodity, or forex pair and get your complimentary technical analysis. It cost you nothing and no payment info will ever be requested.

Click Here To Enter Your Symbol/s

I Decided to Make my voice heard today.

Today I decided to become involved and take action, here is the letter…  

Sent to my elected officials in congress; John McCain, Harry Mitchell,

and Jon Kyle.

 
An Open Letter To Congress – Stop!
 
By: Jeffrey S. Schulman Sr.
 
 
Dear Hon. Represenatives’s John, Harry and Jon;
 
     I have written to you many times before on various issues. Since my last communication, I am in process of becoming a District Committeeman for AZ. 5, 21. In addition I will be posting this letter and the results (actions you take), on my Blog, Dare Something Worthy Today Too! (https://jschulmansr.wordpress.com).
 
     Why I am writing to you this time is the question, “what are we doing to the financial futures of our present country, our children, grandchildren, and even great-grandchildren?” I am gravely concerned in light of the following…
 
     In May of last year the U.S. money supply stood at roughly $834 billion. Now, 1 year later, the Federal Reserve has created an additional $941 billion out of thin air. Pay close attention to those numbers…
 
·         The amount of new money (FRN’s) the Fed has created is roughly $107 billion     more than all the money that was in circulation just a year ago.
 
·         In other words, the U.S. money supply has more than doubled!
       Think about what this does to the value of your dollars, to your savings, to your paycheck, to your retirement income? A doubling of the money supply means your money is worth half what it was.
 
     Of course, your money’s loss of value won’t manifest itself overnight. It will take time for the Fed’s counterfeiting to drive up prices. But those who get the new money first will be able to spend it while prices are still low, increasing their wealth at your expense. 
 
     In addition, The Fed regulates banks, influences interest rates, and determines the size of our money supply through a complex process, called Open Market Operations, that involves buying and selling securities (mostly government debt). The Fed’s policies determine the value of your money, the health of the economy, and the
rates you pay to borrow.
 
     The Fed’s decision-making process is secret, using confidential information.
 
     Minutes of these secret meetings aren’t due until three weeks after decisions are announced.
 
     Transcripts of meetings don’t become available until five years later.
  
     Aside from the Chair, Fed board members serve the longest terms of any federal bureaucrat (14 years), and they can’t be fired for political reasons.

     The Comptroller General, head of the Government Accountability Office, is legally prohibited from auditing the Fed’s Open Market operations, and several other important Fed activities.
 
      The Fed is part of the Federal Government, but acts without any of the regular checks and balances.
 
     Next, The Fed and the federal government has made a lot of promises in our names. It has committed us to pay most of the health care expenses of the elderly (Medicare) and to provide them with a small stipend (Social Security). It has also borrowed trillions of dollars, to pay current expenses, which your children and
grandchildren will have to repay.
 
     Unfortunately, future revenues will be insufficient to fulfill these promises.
 
The Government Accountability Office estimates the future shortfall in funding at $53.3 trillion. Other experts say the number is almost certainly higher. This means that every full-time worker owes a staggering $440,000+, courtesy of government excess. Eventually, that debt must be paid, either in higher taxes, or in reduced benefits. These numbers represent a looming crisis of staggering proportions.
 
     Fortunately, there is still time to fix and reverse this crisis…
 
     The first thing I am asking you to do is co-sponsor and support Congressman Ron Paul of Texas bill that he introduced H.R. 1207, the Federal Reserve Transparency Act.
 
     This bill requires an audit of the Fed by 2010. Senator Bernie Sanders of Vermont has introduced the similar S.604 in the Senate. Please support and vote for these bills.
 
     Next I am aware that the federal government has future unfunded liabilities estimated at $53 trillion. Please stop ignoring this problem. Please start reducing spending now. Balance the budget now. And start retiring the debt now so you can stop spending so much of my tax money on interest charges.
 
     Finally and of critical importance (actually all three requests are of critical importance), In the 110th Congress, Rep. Ron Paul introduced three bills that would have brought the above benefits. He will re-introduce them this year, and they should be combined into ONE simple bill. The benefits in addition to stopping or at least
curbing inflation are these:

     Ending inflation would cause your money to buy more and more as the economy grows, instead of less and less, as it does today. Stopping inflation would also end bubbles and booms, and the recessions they cause.

       The three bills which should be combined into one simple bill are
these:
 
    The 15-word “Honest Money Act” would repeal the 41-word legal
tender law, which gives the Federal Reserve a monopoly over the money supply.
 
     The 104-word “Free Competition in Currency Act” would repeal the
69 words of Title 18 Section 489 of the U.S. Code, which gives the
United States government a monopoly over the creation of coins for use as currency.
 
     The 193-word “Tax-Free Gold Act” would prohibit federal and state
taxes on precious metal coins and bullion.
 
     The explanation on why we should repeal the Fed’s legal tender
and coinage monopoly is this:
 
     Every paper dollar you own carries the words “Federal Reserve Note” (FRN). This means they were issued by the Federal Reserve System (the Fed), a national bank created by Congress. The legal tender law gives the Fed monopoly control over what you use for money.
 
     When a currency is legal tender you are legally compelled to accept
it in payment for debts, even if you’ve made a contract to be paid in
some other currency or commodity, such as gold. Abolishing taxes on precious metal coins and bullion, and repealing both the legal tender law and the federal coin monopoly, would free you to use other currencies, gold, silver, or all of them at the same time,
including FRNs.
 
      If this seems like a strange new world to you, please realize that
you already live in this world to a certain extent.
 
     When you check-out at a store you can already pay using cash, check, debit card, or credit card, and you probably also have different accounts you use for various purposes. Repealing the legal tender monopoly would simply give you more choices.
 
     Choice is good because it allows competition. Monopoly is bad because it leads to price-fixing. And monopoly control over what you may use as money provides the greatest price-fixing power of all. It impacts ALL of your economic transactions. The Fed can manipulate the price of everything by increasing the number of circulating
dollars (inflation), or by decreasing that number (deflation).
 
     You already know what it means when counterfeiters inflate the money supply. They use their fake money to get something for nothing, taking wealth from others without creating any wealth of their own. It’s a form of stealing. But the long-term consequences of counterfeiting are even worse than the initial theft.
 
     If the counterfeit dollars were allowed to stay in the economy, instead of gradually being removed from circulation, the result would be an ever-growing inflation of the money supply. This inflation would trick businesses into making a disastrous mistake.
 

     Thus, if you were a widget maker you would see an increased demand for your widgets because of the extra dollars pumped into the economy by the counterfeiters. A sense of increased demand and increased wealth would be the “bubble,” or “boom,” that always follows an inflation of the money supply.
 
     Your widgets would start to fly off the shelves faster than you could make them. You would have to increase prices to maintain inventories and invest in new production to meet the increased demand. But this increased demand would be an illusion,
because . . .
 
     Everyone else would raise their prices too. And they’d increase them for the same reasons you did. Rising prices would remove the perception of increased wealth and soak up the extra spending power created by the counterfeit dollars. This would cause the demand for your widgets to shrink back to its old level, but with a wicked twist . . .
 
     The increased inventories and expanded production capacity you created in response to the inflationary boom would turn out not to be needed. Your widgets would start to gather dust on the shelf and you would have trouble paying your bills.

The result?
 
     You would lay-off recently hired employees and close your recently expanded production facilities.
 
      First came the inflationary boom, or bubble, and then the bust, or recession.
 
     Extra FRNs created by the Fed work exactly the same as extra FRNs created by counterfeiters. They allow those who get the dollars first to get something for nothing, followed by a boom, and then a bust.
 
     The Fed has numerous ways to create new FRNs out of thin air. Economists cloud these methods in complicated jargon, and the talking heads on TV make it all sound perfectly normal and even necessary, but the result is exactly the same as with illegal
counterfeiting.
 
     Given the above explanation it should come as no surprise that the greatest boom and bust in American history happened immediately following the Fed’s birth in 1913. Fed inflation put the inflationary “roar” in the “Roaring Twenties” followed by the biggest bust ever, the Great Depression.
 
     Past inflations, booms, and busts were created through essentially the same process, including the recent stock market and housing bubbles. The Fed is simply the government’s latest-and-greatest tool for legalized counterfeiting.
 
     Imagine what would happen if FRNs had to compete with gold, a form of money that can’t be significantly inflated or deflated because of its scarcity and durability. . .
 

     People would begin to have gold accounts that they would use to buy and sell. The ownership of the gold would be transferred back and forth using checks, debit cards, paper certificates (currency), and a few coins, just like with FRNs.
 
     When you went shopping you might start to see two prices, one in FRNs and one in a certain weight of gold. If the Fed inflated the number of FRNs you would see the FRN prices rise while the gold price would stay roughly the same.
 
     You would begin to prefer to pay the gold price, so you would want to be paid in gold too.
 
     How could the Fed stop the flight to gold? Only one way, Stop inflating the number of FRNs (printing more new U.S. Dollars).
 
     Congressman Paul has hit upon the easiest way to end inflation, and the booms and busts that follow in its wake. Simply repeal the legal tender monopoly enjoyed by FRNs, and the coinage monopoly held by the United States government. Stop taxing exchanges in commodity metals. Allow monetary competition. This would help end inflation.

But that’s not all . . .
 
     Forcing FRNs ( the U.S. Dollar) to compete with gold would also confer one other benefit. Over time the prices you pay will tend to fall as increases in economic efficiency (for example, technological improvements) lower the cost of production and increase the supply of goods and services. A stable money supply tends to become more
valuable over time, unlike an inflationary currency that constantly loses value.
 
     Once again I am asking you to Audit the Fed and support HR 1207, S.604. Next, reduce spending now! Balance the budget and start retiring U.S. Debt. Stop the manipulation of Gold and Silver Prices. Finally, Please sponsor and support “The Honest Money Act”, “The Free Competition in Currency Act”, and the “Tax-Free Gold Act”.
 
     We will remember your choices and actions, and your votes with our votes in the next elections.
 
Sincerely,
 
Jeffrey S. Schulman Sr.

My Note: Please Join me!, write your elected represenatives and ask them to support all of the measures listed in my letter.- jschulmansr

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• ·        Who’s been driving this record bull-run in gold?
• ·        What Happens When Inflation Kicks In?
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Nothing in today’s post should be considered as an offer to buy or sell any securities

or other investments; it is presented for informational purposes only. As a good investor,

consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and

related information carefully before you make any investing decisions and/or investments.

–  jschulmansr

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Gold Taking a Breather but Fundamentals are Stronger!

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Currently Gold is down $14-$15 dollars per oz. around the $914 level. As I wrote in my last post if we hold this level then $950 will be our next target. If it fails here then we may have a test back to $885 – $890. Either way I’m taking the opportunity to buy on dips since long term inflation is certainly due to happen and Gold is where you want to be when that happens.  Personally, I think $900 to $925 is the new base and we have avery real possibility of $1000+ Gold price before the summer truly begins.- Good Investing – Jschulmansr

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Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Update on the Gold Trade – Seeking Alpha

By: Trader Mark of My Mutual Fund

Last Friday we said gold might finally have it’s real breakout here [Jan 23: Could be the Real Breakout in Gold] I wrote:

Things to like:
1) a series of higher lows
2) the trendline of lower highs has been penetrated

Things to see for confirmation:
1) any pullback is bought
2) price prints over October 2008’s highs, signaling the end of “lower highs”

This was what the chart looked like at the time:

Now?

Without benefit of the orange line – you can see condition #1 has been fulfilled – we “backfilled”, tested the area we broke out of and people were eager to buy. On that, an aggressive trader would be buying. A reader mentioned this outcome last week.

For someone more conservative in orientation, you want to see #2 “a price point over October 2008’s highs” – then we end our half year of lower highs. We are withing spitting distance here with GLD at $91.40 and the October intraday high at $92.

It’s hard to get behind gold fully because there is no “earnings” behind it; it’s all about sentiment. But the theory is that as all the world’s troubled countries race to devalue their currencies (print, print,print) to “save the system,” a hard asset should retain its value. Silver is likewise breakout out, although silver has a lot of industrial uses as well.

I hate to chase a move, but from a technical set up, a lot of institutional money could be set to finally jump in here….

Now the question of what instrument to use – keep it simple or go with a miner? etc.

Disclosure: No position

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My Note- Great call by Trader Makr but I have to ask, why no position Trader Mark? – jschulmansr

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Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Fed Monetizes Debt Leading Investors to Embrac Gold – Seeking Alpha

By: Boris Sobolev of Resource StockGuide.com

In January gold rose significantly against all major world currencies. In most currencies except in the US dollar and the Japanese yen, gold actually made an all-time-high.

January Performance

GOLD / USD 5.3%

GOLD / EUR 16.7%

GOLD / AUD 16.5%

GOLD / JPY 4.4%

GOLD / GBP 5.8%

GOLD / CHF 16.3%

10-Yr Yield 13.0%

click to enlarge

At the same time, most capital markets have been falling.

January performance

DOW -11.5%

S&P -11.4%

NASDAQ -9.0%

FTSE -6.4%

DAX -9.8%

Nikkei -9.8%

Shanghai -9.3%

The governments around the world are trying to take initiative while private capital is sitting on the sidelines, preferring the safety of government bonds and precious metals.

Investors typically do not trust the governments to implement any effective economic solutions. Moreover, this lack of faith in central planning continues to grow since the US government has no other plan of action than to save the old, compromised and untrustworthy financial system.

What the Federal Reserve together with the Department of Treasury has shown is that they will inject a vast amount of newly created money into a hugely ineffective financial system.

While in the fall of last year, in fear of devastating deflation, analysts were competing in downward projections for the price of gold, now the competition is to estimate the amount of losses incurred by the financial institutions around the world. The maximum assessment is now at $4 trillion, with Nouriel Roubini coming in close second at $3.6 trillion.

But the main problem is not so much in the amount of credit losses or the amount needed for recapitalization efforts but in that the new government is committed to continue to transfer huge capital into the hands of the same group of people who were largely responsible for the world financial crash in the first place. Wall Street, though transformed, will remain in control.

The lack of trust in the ability of insolvent financial institutions to run the modern financial system is moving investors into gold.

An even more important gold catalyst was the Federal Reserve. In comparing the two latest Fed statements, two things stand out. Here is the evolution in wording:

December Statement: “In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.”

January Statement: “In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”

December Statement: “The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.”

January Statement: “The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.”

First, the FOMC sees a threat of deflation and second it is prepared to counter this threat by purchasing longer-term treasuries.

Purchases of long term bonds is the most inflationary move that a central bank can undertake because it represents direct monetization of the government debt and hence an unconcealed debasement of national currency. (This is happening at the same time as the new Secretary of Treasury is chastising China – the main US creditor – for currency manipulation.)

Why did the Fed make such a determined statement, with one member even voting to begin long term treasury purchases immediately? First and foremost, the real estate market is not showing any signs of life. House prices are falling, time required to sell new homes is rising and most importantly, after a steep fall in December, average mortgage rates began to rise again, reaching 5.34% as of last Friday.

Since mortgage rates are closely tied to the 10-year treasury yield, the Fed stands ready to buy government debt and help make housing more affordable via low mortgage rates. The hope is that such action would help put an end to a decline in asset prices and stop the deflationary spiral.

In fact, the latest Fed balance sheet showed that long term treasury purchases have already started, with around $1 billion in notes (5-10-year maturity) purchased for the week ended January 21^st. This is a modest amount, but it is a statement that the Fed is ready to do more than just talk. Traders have indeed sensed this development and Treasury Inflation-Protected Securities (TIPS) (TIP) are also beginning to reflect greater inflation expectations.

Gold investors are also sniffing out the coming price reflation as they piled into the SPDR Gold Shares (GLD) at an increasing rate.

For the month of January, GLD gold holdings rose 8.2% or close to a record setting 63 tonnes. At this rate, GLD will soon surpass Switzerland in its gold holdings, thus becoming the world’s sixth largest gold owner after the US, Germany, the IMF, France and Italy.

If the Fed continues to purchase long term treasuries, it is clear that there is only one way for gold and gold stocks and it is up.

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Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Gold as Part of a Portfolio – Seeking Alpha

By: San Olesky of Olesky Capital Management

Many investors have been thinking about gold recently. Some have considered it because it has been a relatively strong performer with the iShares COMEX Gold Trust (IAU) closing up 5.4% in 2008. It’s up 2% year-to-date as of Wednesday’s close. The iShares S&P 500 Index ETF (IVV) was down 36.94% in 2008 and is down 6.17% year-to-date as of Wednesday’s close. Other investors or traders have bought or considered gold as a classic safe haven.

My inclination is to refute the efficacy of buying or holding gold for security either in the form of an ETF or, more so, in the case of gold bullion bars or gold coins. However, as the financial crisis became more severe last year, a couple of clients approached me about adding gold to their portfolios. Rather than diplomatically rejecting the proposal, I told them that I would investigate the historic effects of holding gold in a portfolio. Long story short, I found that adding a small, reasonable allocation to gold reduced portfolio volatility substantially and increased return slightly.

A simple diversified portfolio consisting of 1/3 S&P 500, 1/3 Real Estate Investment Trusts (REITs), and 1/3 10 year U.S. Treasuries would have produced a compound annual growth rate (CAGR) of 8.47% with 11.15% volatility (standard deviation – SD) from 1993 to 2008. For comparison, the S&P 500 produced a 6.67% CAGR with a 20.16% SD. Although few investors would implement this 1/3 – 1/3 – 1/3 allocation, diversification is proving its strengths here. All of these statistics incorporate rebalancing annually.

Let’s take the same 1/3 – 1/3 – 1/3 portfolio and alter it to include a relatively small allocation to gold. That allocation will be 30% S&P 500, 30% REITs, 30% Treasuries, and 10% gold. Over the same timeframe the portfolio with gold produced an 8.49% CAGR with a 9.86% SD. The portfolio with gold produced a slightly better CAGR with volatility that was 11.6% lower than the 1/3 – 1/3 – 1/3 portfolio. The diversified portfolio with gold produced a CAGR that was 27.3% higher than the S&P 500 and 51.1% less volatile than the S&P 500. The S&P 500 had 4 losing years with the worst being a loss of 37% last year. The 1/3 – 1/3 – 1/3 portfolio had 3 losing years with the worst being a loss of 18.15% last year. The portfolio with gold had only 2 losing years with the worst being 15.74% last year.

In constructing sound and productive portfolios we would like to include assets that have high returns, low volatility, and low correlation to the other assets in the portfolio. Looking at gold’s average annual returns, relative volatility, and relevant correlations, one should expect that gold would be a constructive addition to many portfolio allocations. In fact, gold even has a relatively low correlation with commodities in general (S&P Goldman Sachs Commodity Index). However, we should learn from the past but not expect it to repeat itself exactly. There is much to be learned from historic returns, volatilities, and correlations of asset classes. With all due respect to history and math, we must use reason when constructing portfolios. I view gold as a very narrow and idiosyncratic asset. So, I do not feel that it is wise to strategically allocate as much as 10% to the asset although the historic, mathematically optimal amount would be higher in the context of some portfolios.

What did I do? Based on my tests and observations, I bought a little gold last year for some of my clients. I have incorporated a small allocation to gold into their continuing strategic allocations.

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My Note: This is great news even the Non Gold Bugs are become cautiously bullish!-jschulmansr

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Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Finally and extremely interesting article you want to read! Be sure to click on the chart links too…- jschulmansr

Economy Watch: What if Stocks Were Priced in Gold?- Seeking Alpha

By: Paco Ahlgren of Ahlgren Multiverse

“Everything has its limit — iron ore cannot be educated into gold.”

— Mark Twain

Several charts have been floating around the Internet for some time, showing the historical Dow Jones Industrial Average, priced in terms of gold. The simplest explanation entails thinking of the Dow divided by one ounce of gold; if the Dow is at 5000, and gold is at 500, then Dow-to-gold is 10. But it’s important to remember as you’re considering this ratio that the Dow is calculated in terms of dollars. So essentially, when we determine the Dow-to-gold ratio, it’s not just a simple ratio of gold to shares in the Dow, but rather it is a three-part ratio — Dow, expressed in dollars, to an ounce of gold.

Wouldn’t it just be easier to express gold in terms of dollars, or the Dow in terms of dollars? Well, those are certainly useful ratios — and we use them all the time — but what we’re really going after when we look at a historical Dow-to-gold chart is how well the Dow has performed, relative to the dollar, and relative to gold. What have inflationary pressures done to the Dow, in terms of gold and the dollar, over the past century? How have the three components moved in the various historical boom-bust scenarios? The results are interesting.

Let’s shift gears for a moment. Just off the top of your head, what would you expect stocks to do in periods of inflation? The dollar loses value rapidly, right? And that means prices of goods and services move higher, presumably with wages. So wouldn’t it stand to reason, intuitively, if corporations were making more money as prices increased, profits would increase too? And if profits increase, shouldn’t share prices go higher in response?

It turns out that inflationary price increases are bad for the stock market, and no period in history establishes this more concretely than the late 1970s and the early 1980s. Interest rates and prices soared, along with the price of gold, but stocks were flat. I want you to think about what I’m saying here: prices in general were going up, and yet the stock market was not. What this means is while stocks, in nominal terms, looked to be relatively stagnant, in real terms they were getting crushed. This is why the Dow-to-gold ratio is so significant as an indicator of relative value.

There is an elegant, simple truism that comprises every single transaction between buyers and sellers, and yet most people don’t even think about it: whenever you buy something, you are selling something else. When you buy corn, you are selling dollars. When you buy a Ford, you are selling dollars. If you are in Mexico and you buy a chicken, you are selling pesos. Of course, if you came from the U.S., you first sold dollars, bought pesos, and then sold pesos to buy the chicken. I know most of you already understand this concept, but I’m trying to emphasize that even when currency is used, every transaction is merely a trade; that is to say, the transaction is nothing more than negotiation that results in the exchange of two things — whether goods, services, or currency.

With that in mind, consider this: when prices rise because of inflation (printing of money), it isn’t so much that goods and services are getting more valuable — rather it’s much more accurate to say the currency is simply getting less valuable relative to everything else. If the dollar collapses, for instance, and the cost of a loaf of bread goes from $1 to $20 at the same time a share of Microsoft (MSFT) goes from $20 to $30, then Microsoft is severely under-performing — in inflation-adjusted dollars. A loaf of bread will cost you 20 times what it used to — not because it is more valuable, but because the dollar is less valuable. Meanwhile Microsoft is worth only 50% more. Relative to the dollar, shares of Microsoft are actually losing money — in a big way.

If you look at a chart of inflation from 1978 to 1982, you’ll notice a huge spike. If you look at a chart of the Dow Jones Industrial average during the same period, you’ll see that stocks traded sideways in a fairly well-defined range over the same period. But that doesn’t tell the whole story; if you adjust for the meteoric rise in prices during that five-year period, the stock market actually performed much worse than the nominal dollar fluctuations presented in the historical chart. In other words, the price of just about everything was going up dramatically, but stocks were not. So if you adjust prices back to “normal” levels, and adjust stocks accordingly, the picture for equities would have been horrible.

Now for the pièce de résistance…

Here is a series of charts of historical nominal gold prices (not adjusted for inflation), in several different currencies — the first of which is U.S. dollars. Take a look at the spike in the price of gold from 1977 to 1981. Now, if we go back to our original chart above, showing the Dow Jones Industrial Average, in direct relation to an ounce of gold (Dow-to-gold), you can see that the ratio went roughly 1:1 in 1980 — at the peak of the inflationary price surges. To clarify, the Dow was at about 750, as was gold.

But didn’t we say that, relative to rising prices, the Dow actually underperformed dramatically? So if you bought gold in the mid-1970s, not only was your investment skyrocketing, but the stock market — which was flat in nominal dollars — was actually doing very poorly relative to rising prices. Bear in mind that both the Dow and gold were priced in terms of nominal dollars at the time; they essentially “cancel out” — that is to say, relative to rising prices, gold also failed to perform as well as the nominal dollar-price. Still, it did offer an excellent hedge against rising prices, and even outperformed during the period.

What does all this mean? Well, for starters the average Dow-to-gold ratio over the last century has been about 9.5, and we are currently at about 8.5. So you’re probably thinking we’re oversold and due for a correction. In other words, the Dow-to-gold ratio is probably going higher, right? Well that was my first conclusion too, but actually on closer examination it turns out that’s probably not right at all.

For much of the last century the dollar was tied to gold, and while the relationship was never perfect — and the U.S. government betrayed the union many times, in many different ways — there was at least some relationship, which helped pull the ratio down. Eventually, excessive inflationary printing caught up with the government in the 1960s, and it became clear it wouldn’t be able to honor redemptions against the dollar at the price it had fixed. Nixon essentially defaulted on the U.S. promise to redeem dollars for gold by taking the U.S. off the standard in the 1970s — and this, more than anything else, allowed inflationary pressure to drive general prices into the stratosphere. This was the moment the Dow-to-gold ratio approached 1:1. To fight rising prices, Paul Volcker, the Fed Chairman at the time, pushed the Fed’s target interest rate past 20% and barely saved the U.S. economy from collapse.

For most of the next 20 years, gold fell and stock prices rose. Meanwhile, the U.S. government capitalized on the lie it had created and printed more and more money. Who really cared? Everyone was making money in the stock market, and prices remained relatively stable. In fact, every time prices failed to act “correctly,” the Fed simply changed the rate at which it would lend to banks. But the illusion of the monetary policy game couldn’t last forever; people used easy money printed by the government to buy assets they couldn’t afford throughout the economy — especially houses. Finally the pressure was just too much, and everything started unraveling in 2007. But the gold market seemed to understand the game couldn’t last, and around 2000 it started a slow, steady rise.

Relative to everything, the number of dollars in the system in early 2009 is almost incomprehensible. Once de-leveraging reaches its nadir — and it’s coming soon — those dollars are going to hit the economy and drive prices much higher.

What have we learned about stocks in such periods of rising prices? Not only do they fail to perform, but adjusted for inflationary price pressures, they actually under perform. General prices and unemployment will continue to rise. The consumer will continue to be unable to consume. Corporate earnings and dividends will continue to collapse as a result. Stocks are going lower — probably much lower.

And what about the price of gold? It will almost certainly continue to increase — not only because people will flock to its long historical stability and consistency, but also because there are simply so many more dollars (and yen, and rubles, and euros) in the world. Remember, the U.S. isn’t the only country printing innumerable sheets of currency. And in that context, remember also that inflationary price increases have almost nothing to do with increased demand, but rather they are the result of currency devaluation and destruction — through printing.

I just want to share two more charts with you. The first should give you a little perspective — it is a historical chart of gold, in both nominal and real dollars. Notice the real price of gold in 1980 (in 2007 dollars) was $2272 per ounce. If I’m correct about inflation and the fate of the dollar — and I’m confident I am — then we are nowhere near the historical high in gold. But I don’t think we’re merely going to re-test that high — I think we’re going to blow through it as the dollar loses value.

In the 1930s, as corporate earnings and dividends disintegrated, the Dow lost nearly 90% of its value from peak to trough. The U.S. was a creditor nation with a huge manufacturing base. The dollar was tied closely to gold. Since its peak in October 2007, the Dow has lost less than 50% of its value. The U.S. is a debtor nation with a relatively small manufacturing base. I can’t say it enough: we borrow profusely, we manufacture very little, and we consume gluttonously. Nonetheless, the consumer has now lost almost all his purchasing power, and corporate earnings and dividends are going to suffer massively as a result.

In 2007, the Dow peaked at about 14,150. To give you some perspective, an 85% drop in the Dow from peak to trough would put it at about 2100.

I know it’s easy to imagine the Fed has magical powers. I’ve fantasized about such things myself at times of extreme weakness — that maybe the Fed will “somehow” figure out a way to fight and defeat the unprecedented evil specter of inflation it is foisting on its unsuspecting children. Sometimes I do believe that our Lord and Savior Barack Obama will wave his charmed “unicorn horn of change” and all will be well again. Likewise, at times I feel like I could let Uncle Ben Bernanke take me just about anywhere in his helicopter of prosperity. My faith in the reverend John Maynard Keynes runs deep, as I hope, and hope, and hope. I find myself gleefully clicking my heels together and repeating, “the dollar is almighty, and the Stars and Stripes will prevail.” And when I am in this wonderful place, I have confidence that someday soon, we’ll all be buying houses with no money down, and with no jobs. Our driveways and backyards will once again overflow with boats, motorcycles, and sports cars.

Then I think about the 1930s. And suddenly I am wide-awake.

Let me ask you a simple question, and I want you to actually think about it. Do you really think we can’t get to the 1930s again? Do you really think that we’re going to return to the exuberant excess of the past few decades? If so, let me disabuse you of the notion: the United States was in much better shape, economically, going into the Great Depression than it is now. Prosperity is not coming back to the U.S. as we know it. We are in a lot of trouble.

Is a Dow-to-gold ratio of 1:1 so incomprehensible? Again, it has happened before — several times. But I’ll even take it a step further: what about a Dow-to-gold ratio of .5? Or less? I promise you, if the Fed fails to soak up all the dollars it’s putting in the system, that’s exactly where we’re going. And what, you may ask, does the Fed use to “soak up dollars?”

I’ll be glad to tell you that too. When the Fed needs to take dollars out of the system, it sells Treasuries (which means it buys dollars). The problem is, the U.S. debt-load is astronomical. Who, exactly, is going to buy that debt from the Fed? And at what interest rate? Remember, if the Fed is desperately trying to take dollars out of the system, there can be only one reason: it is scared of rising prices caused by inflation. But if the Fed floods the market with Treasuries, it will achieve exactly the opposite effect it’s looking for — it will cause rates to rise, probably dramatically. Do you really think the Chinese and the Japanese are going to buy Treasuries at a 2% yield if the Fed is panicking and trying to buy dollars to stop an inflationary price explosion? If so, you’re delusional. Chinese and Japanese people are smart. They’re not going to fund an inflationary dollar at 2%. Ever.

In the past it might have worked. Of course, in the past, the U.S. money supply was much smaller, and our ability to borrow was much stronger. But those days are gone.

As if I haven’t terrified you enough, the last thing I’m going to leave you with is really scary. It is a link to an excellent article by Mark J. Lundeen, whose insight into this economic catastrophe has been stupefying since long before all of this even started. Embedded in the article is a chart that shows historical dollars-in-circulation, relative to U.S. gold.

With that, I think I’ll let you do the rest of the math. Sleep well.

Disclosures: Paco is long gold.

Copyright 2009, Paco Ahlgren. All Rights Reserved.

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If you have done the math…

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That’ it for now – Good Investing – Jschulmansr

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments, it is presented for informational purposes only. As a good investor, consult your Investment Advisor, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investments. –  jschulmansr

Is this the Move? Gold is Breaking Out!

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As I write Gold currently is up another $9.30 oz today! Even more importantly it is well above the psychologically important price level of $900 oz. A new high will confirm the breakout and BANG! we’re off to the races. Todays past has some good articles detailing why could could be breaking out here. Enjoy and Good Investing!- jschulmansr

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Could There Be a Real Breakout In Gold?— Seeking Alpha

By: Trader Mark of Fund My Mutual Fund

After a series of head fakes much of the past half year, the most watched move in the market might finally be “real” this time. With all the world’s printing presses going on overdrive, and currencies being mocked – gold “should” have been rocketing. Many theories persist on why it hasn’t, but really it does not matter. The price action is all that matters and this type of movement will get the technicians very interested.

Things to like
1) a series of higher lows
2) the trendline of lower highs has been penetrated

Things to see for confirmation
1) any pullback is bought
2) price prints over October 2008’s highs, signaling the end of “lower highs”

When last we looked about 6 weeks ago [Dec 11: Dollar v Gold – Can we Trust this Change?] , it was just another headfake – this formation on the chart does look more promising.

These are 2 names; one in gold and one in silver we’ve had our eyes on.

Or just play it simple and go double long gold

 

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Happy Days For Gold? —Seeking Alpha

By: Jeff Pierce of Zen Trader

Gold was in the spotlight on Friday in a big way, nearly moving $39. Is this a hat tip to the big move that many goldbugs have been anticipating? Is all the money printing that the Federal Reserve finally catching up with the US Dollar? Should you have bought gold on Friday because it’s a straight line up from here? Let me preface my answers by saying that I’m a short term trader that will sometimes allow a trade to turn into a longer term trade but that doesn’t happen very often. I’m currently flat precious metals but will be looking for a good risk/reward, but for anybody reading this know that this analysis is from a momentum based perspective.

So the answers to the previous questions I believe are yes, yes, and no.

I’m a big fan of gold for a number of reasons (fundamental, technical, historical) but I know from experience that it trades much different from a momentum point of view. It tends to sell off once it goes outside it’s upper bollinger band as seen by the arrows above. Just when it looks like gold is going to bust out and move to blue skies it seems to run out of buyers and reverses. As you can see GLD and many individual gold miners moved outside this indicator on Friday and I expect a small pullback before it begins a new wave up.

Judging by the negative divergence on the RSI you can easily see that momentum is waning. As the stock has been making higher highs, the RSI has not been confirming the move. We could possibly move up to the 92 level before profit taking hits, but I just don’t see a good entry at this point if you’re not already invested in these stocks. It would be more prudent to wait for a slight low volume pullback before entering. The only problem with this way of thinking is there could possibly be many with this outlook and that could actually propel gold to higher levels, but I’m willing to risk that because if it does move up even more, then that will confirm the strength and I’ll buy even more on the eventual dip.

If you are long from lower levels I would consider taking some profits off the table now to prevent yourself from giving up any of your gains.

“I made all my money selling to soon.” ~ JP Morgan

I like silver’s chart a tad better from a technical aspect as the base that it’s been building since last September seems a little more stable. The RSI trendline has been steadily moving higher as the price has been trending higher which is very bullish. I think we’re a tad overbought here and will be looking to get long stocks such as PAAS, SLW, and SSRI when we pullback or move sideways for a week or two.

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Now- Some Commentary by Dennis Gartman

Dennis Gartman on Gold, Oil, Government and the Economy- Seeking Alpha

Source: The Gold Report

With a real roller-coaster year behind us, how would you characterize your macro overview of major economic trends for 2009?

Dennis Gartman: It’s abundantly clear that we have been in recession; we’re in a recession; and we’re likely to remain in a recession through the greatest portion of 2009. The monetary authorities around the world have done all the things they’re supposed to do, which is during a period of economic weakness throw liquidity in the system as abundantly, as swiftly, as manifestly as possible and expect the liquidity eventually to wend its way through the economy and strengthen economic circumstances. That may be sometime late in 2009. In the meantime, we’ll see continued bad economic data and continued increases in unemployment. It’s going to seem like things are really, really, really bad.

But let’s remember that things are always their worst at the bottom. By definition, recessions begin at the peak of economic activity when all economic data looks its best. So while things will start to look very bad through the rest of 2009, I bet that by late this year and early 2010 we will start to see economic strength coming at us because of the liquidity injections going on everywhere.

TGR: What will be the first signs that we’ve reached the bottom in terms of the recession and are starting to turn around?

DG: The signs of a turnaround will be that everybody believes that there are no signs of a turnaround. We’ll see Newsweek writing a series of cover stories talking about the end of Western civilization. The Financial Times of London headlines will read, “The Recession Seems Endless” and “Depression Is Upon Us.” Every day’s Wall Street Journal articles will be just manifestly bleak in nature. That’s what the signs will be.

And then all of a sudden, things shall begin to turn around. But the signs are always their worst at the bottom. That’s how things function.

TGR: So the popular press is in essence on a delay mode.

DG: Oh, it always is.

TGR: By three months, by six months, by a year?

DG: It’s probably a little less slow to react than it used to be, but let’s say three months.

TGR: So you like the fact that the monetary authorities have put liquidity into the system?

DG: Absolutely.

TGR: And it sounds as if you think it just takes time to work through the system.

DG: Always has; always will. That’s how these things go about. You have recessions because you had an economic advance where, in Greenspan’s terms, “irrational exuberance took over.” You have to dash that irrational exuberance and make it into irrational depression. Irrational, manifestly bleak, black philosophies have to make their way to the public. That’s just how these things happen; it’s happened time and time again.

The recession that I recall the most clearly is that of ’72-’74. We have to remember that unemployment was high up in double digits. We saw plenty of articles in the press about the new depression. If you go back and read articles from July through September of 1974, you will be convinced that we will never have an economic rebound in our lives again. Well, clearly, that’s just not the case.

TGR: What about the bearish people who say we’ve never seen worldwide conditions like this and that we’re in the “new era”?

DG: We probably haven’t seen the world going into recession at one time such as we are now. But I think that’s simply indicative of the fact that today’s communications are so much better. People in the United States or Canada or Europe really never would have known much about a recession in India 20 years ago, because the news media would not have covered it. Nothing told you about economic circumstances abroad. Now, with the Internet, information comes at you absolutely one-on-one.

All correlations have gone to one in this present environment. When stocks go down in the United States, they go down in India. When they go down in India, they go down in Vietnam. When they go down in Vietnam, they go down in Australia. That wasn’t the case 20 years ago; you didn’t have the small world united through communications that we have now. And now the correlations of emerging markets and large markets have all come together.

TGR: If that’s true, and worldwide financial markets are all tied together, could any given country “emerge” as a growth country while the rest remain in recession?

DG: Oh, it’s possible, but I don’t think we’ll call them “emerging markets” anymore. You’ll just find that one country pursued better economic policies, probably by cutting taxes or increasing government spending or doing away with some onerous legal circumstance that might have previously inhibited economic activity. The Chinese are doing any number of good things at this point, and that country may just have been more enlightened and it may come out of the recession faster than the others do. But now they won’t do it on their own, and anybody who does do it will be watched and understood much more swiftly than in the past. For example, did you ever know what was going on in Iceland 10 years ago? Of course not; but now you do.

TGR: Right. The only emerging markets we heard about were China and India. No one ever discussed South America.

DG: And now they’ve emerged. But now we understand. We hear news from Venezuela every day. Now we hear news from Sri Lanka every day if we want it; we can get it very easily. We couldn’t do that 10 years ago; 20 years ago clearly we couldn’t. That’s been the big change. Information travels so much more rapidly. That’s why all the correlations have gone to one. We are now one large economic machine that maybe one of the component parts does a little bit better, but it won’t shock anybody, and there won’t be anything “emerging.”

TGR: Back to the bear people. You referenced the ’72-’74 economy, but this time, many are pointing to the debt situation that the U.S. and probably a bunch of the world economies are in and the fact that we’re committing to billions—and in the U.S., trillions—of dollars more. Won’t that influx of new money have some kind of significant bear impact going forward?

DG: No, it will have a bullish impact. Unless all the rules of economics have been rescinded, money pushed into a system will push economic activity higher.

TGR: But it will also push inflation higher.

DG: Oh, that’s very likely to happen. The question is whether it will be inflation of 1%, 2%, 5%, or will it be a Zimbabwean-like inflation? The latter isn’t going to happen, and 1% isn’t likely going to happen. But 2% to 5% inflation? Yes, that’s likely to happen several years down the line.

TGR: Gold bugs are saying, “Buy gold now.” What would be your advice under these circumstances?

DG: I happen to be modestly bullish on the gold market, but not because of inflationary concerns. It’s more that I think gold has quietly moved up the ladder of reservable assets, a reservable asset being one that central banks are willing to keep on their balance sheets, all things being equal. Dollars are still the world’s dominant reservable asset. The Euro is next and gold is probably the third.

The Fed has thrown off a lot of other assets and taken on securities, debt instruments, mortgages and the like, but I think they’re doing exactly the right thing. Some central banks with a lot of U.S. government securities on the balance sheet may decide that going forward, they may buy more gold rather than more U.S. government securities if they’re running an imbalance of trade surplus. For instance, if I’m the Bank of China and I hold a minuscule sum of gold, maybe I should own a slightly larger minuscule sum.

TGR: That’s really diversifying your monetary assets.

DG: I think that’s all that will drive the gold prices quietly higher. I am not a gold bug; I don’t think the world’s coming to an end. I think the history of man is to progress. And yes, we have relatively large amounts of debt, but you can go back to the recession of 1974; you can go back to 1980-81; you can go back to the recession of 1907, and you will see the same arguments—that the world is too debt-laden. And the same arguments, the same language, the same verbiage was always written in exactly the same circumstances. Guess what? We moved on. This time might be different, but I’ll bet that it won’t be.

TGR: What would your recommendation for investors to do in gold? If they want to do any type of holding assets in monetary value, should they be looking at holding physical gold or buying ETFs or buying into the equity?

DG: For the past several years, I’ve told people that if they’re going to make the implied bet on gold, bet on gold. The gold bugs tell you that you have to own bullion. I say, no, you should really own the GLD, the ETF. It trades tick-for-tick with gold. If some truly untoward chaotic circumstance ran through the world’s banking system I guess maybe GLD and bullion would diverge at some point, but we’d have other problems long before that would occur. So if you’re going to make the implied bet on gold, bet on gold. Do the GLD.

TGR: But not physical gold?

DG: I do own some physical gold. But do I own a lot of it? No. And quite honestly, I hope I lose money on the physical gold I have. It’s an insurance policy. Nothing more than that.

TGR:: Are you looking at physical gold as the insurance policy or any investment in gold as an insurance policy?

DG: There’s the old saying, “Those aren’t eatin’ sardines; them is trading sardines.” Some gold I consider to be tradable, and that’s ETF-type stuff, and I have a small amount in the lockbox in the form of gold coins. That’s my insurance policy.

TGR: That would be what the typical investment broker might advise, 5% to 10% in gold.

DG: That’s it. Exactly, that’s it. Don’t get overwhelmed by it.

TGR: How about mining stocks?

DG: If you’re going to bet on gold, there’s nothing worse than being bullish on gold and owning some mine—especially in some junior fly-by-night—and walking in one morning and finding out that the mine you thought you had got flooded or all of your workers were unionized and walked off or management was somewhat derelict. You may have been right on the direction of gold, but your stock went down. So I’ve told people to stay away from the juniors; that’s a terrible bet on gold. If you’re going to bet on gold, bet on gold.

Maybe you’ll want to start punting on Barrick Gold Corporation (NYSE: ABX) or Newmont Mining Corp. (NYSE: NEM) or the real large names, rather than the juniors. There’s just too much risk in the juniors. Yes, everybody says, “I bought this junior at a nickel and now it’s at 15 cents.” Well, jolly for you, but you probably bought 15 others at a nickel, and they’re all bankrupt. If you’re going to bet on gold, bet on gold.

TGR: So you’re saying with that advice that if you want to bet on gold equity, bet on blue-chip gold equity stocks that have just been hammered down through the market.

DG: That’s correct, Agnico-Eagle Mines (TSX: AEM), ASA Ltd. (NYSE: ASA), the Newmonts, the Barricks, that sort of thing.

TGR: If we take that logic and look across the broad array of sectors, would you also recommend looking at other blue chips that have just been battered? Or do you think that some sectors will recover faster than others? Such as the financial sector, the energy sector, the housing sector, the precious metals sector?

DG: I’m really quite bullish on infrastructure—the movers and the makers of the things that if you drop them on your foot, it will hurt. I think I want to own steel and copper and railroads and tractors because I think we’re going to be building roads and bridges. That’s probably one of the things that probably will bring us out of the economic morass. Along those lines, I wouldn’t mind owning a little bit of gold at the same time.

TGR: Unlike gold that you can buy and own, if you look at steel and copper, are there specific companies and equities that are appealing to you?

DG: Again, as in gold, if I am going to buy gold equities, I’m going to buy the biggest names. If I’m going to buy steel, I’m going to buy the biggest names. U.S. Steel comes to mind. That’s the easiest; that’s the best; that’s where liquidity lives. It has been bashed down from the highs made last July; it’s down—what?—75% from its high. Recently it stopped going down and is in fact starting to go up now on bad news. So if you’re going to buy steel, buy the most obvious ones—U.S. Steel or buy Newcorp.

TGR: You talked about the energy market being weak in one of your recent newsletters. Do you see this weakness continuing or do you see a turnaround happening in ’09?

DG: The one thing that we can rest assured in the rest of the world is that OPEC chiefs cheat on each other—they always have and they always will. So when OPEC says that it’s cut production, that’s a lovely thing. No, they haven’t, and they don’t. Because the problem OPEC has is they’ve all raised their standards of living and the expectations of their people, and they all have cash flow requirements. You have to sell three times as much $50 crude oils as you sold $150 crude oil to meet the demands of your populace that you have increased. So the lovely thing from a North American perspective is that Chavez finds himself in a very uncomfortable position and needs to produce a lot more crude oil to keep his public happy. It’s rather comical, isn’t it, that Chavez was giving crude oil away to the Kennedy family to be distributed to people in the Northeastern United States until two weeks ago when he had to stop. He had to stop because he needs the crude oil on his own to sell, not to give away, to meet cash flow demands.

Iran is in exactly the same position. Isn’t it lovely to see that Putin, who was really feeling his military oats six months ago with $150 oil, has to pick fights with Ukraine and smaller countries now with crude at $45 a barrel? Where is crude going to go? I wouldn’t be surprised if we make new lows.

TGR: Will there be new lows for ’09? Are you buying into this whole peak oil argument that production eventually will be unable to meet demand?

DG: Do I believe that we’re going to run out of crude oil in the next 100 years? Not on your life. Sometime in the next 10,000 years we probably will run out of crude oil. In that instance, I am a peak oil believer. It’s not going to happen soon though. I remember they told me when I was in undergraduate school back in the late ’60s that we would be out of crude oil by 1984.

TGR: Do you mean out of oil? Or at a point where demand exceeds production?

DG: We would be out! Gone, done! There would be no more. Isn’t it interesting? We’ve pumped crude oil for 28 more years. This is an interesting statistic: We have either seven or eight times more proven reserves now than we had in 1969. And I think we have used a bit of crude oil between now and 1969.

TGR: Just a wee bit.

DG: A wee bit, and yet we have seven or eight times more proven reserves. Every year we have more proven reserves. So, yes, I’m a peak oil believer. Sometime in the next 10,000 years we will run out of crude.

TGR: With Obama now in office and talking about getting off our reliance on foreign oil, what’s your view of the future on all the alternative energies that are being so pushed by many people in the U.S. government?

DG: I think it’s wonderful job-creation programs, none of which will prove to be of much merit at all. All of the Birkenstock-wearing greens will feel very good about having their rooftops covered by solar panels, but is that going to resolve any energy problems we have? No. No. Nuclear power will do that. Maybe using the oceans will do that, but wind power, probably not. Solar power, probably not. It makes everybody feel good, but are we going to power our cars in the next 40 years with solar power? I doubt it. Do I expect some sort of material technological breakthrough in the next 100 years that will change what we use as energy? Oh, absolutely. Do I have any idea what it will be? Of course not.

TGR: If the price of oil if it remains low, is there a role for nuclear in the next 50 years?

DG: Oh, absolutely.

TGR: What will drive that?

DG: It’s absurd that we don’t use nuclear energy. Even the French derive 80% of their electricity from nuclear energy, cleanly, efficiently, without any problems whatsoever. Why we don’t do the same in the United States other than the left and the eco-radicals keeping us from doing it is really quite beyond me.

TGR: So, given that we still have eco-radicals and a big push toward alternative energies, do you see anything happening in the U.S. in nuclear in the near future?

DG: Yes, actually. It’s interesting. There are a lot of new nuclear facilities on the drawing boards, and they’re probably going to be approved. If there’s going to be one surprise by the Obama Administration, it will be that you don’t get nuclear energy advances under a right-wing government; you always get them under a left-wing government. Obama will be smart enough to understand that that’s the only way—that’s the best and cleanest methodology to use. And the left won’t argue with a fellow leftist pushing for nuclear energy. Only Nixon could go to China; only Obama can push nuclear energy.

TGR: And you think that he will?

DG: Oh, yeah, he’s smart enough to understand that.

TGR: Going back to your investment strategy, which big blue chip players in oil and nuclear would you point out as good investments?

DG: In oil, I’d want to take a look at companies such as ConocoPhillips (NYSE: COP), which dropped 70% from its highs. How can you go wrong with the Conocos and the Marathons and the large oil companies whose price-to-earnings multiples are down to at single digits and their dividend streams are 5%, 6%, and 7%? Why would you not want to own those? That’s the best investment.

And at the same time, the volatility indices on the stock market are so high that, gee, you can buy Conoco, get the dividend, and sell out of the money calls at very high premiums and ramp your dividend yield up. It’s like a gift; it’s like manna.

TGR: Well, what about in terms of the nuclear sector and uranium?

DG: I really don’t understand uranium. I don’t know where to go, and I don’t how to buy it yet. So I’ll just say there’s a future for it, but I don’t know what to do with it.

TGR: What other sectors should be looking at for 2009?

DG: Banks, banks.

TGR: They’re making a comeback. Do you think there will be more consolidations?

DG: There will be more consolidations; there has to be. But look at the yield curve—what a year to be a bank! The overnight Fed funds rate, the rate banks are going to pay depositors for their demand deposits or checking accounts is zero. And you’re going to be able to lend that out to hungry borrowers at 7%, 8%, 9%, 10% and 12%. The next three years will be the greatest three years banks have ever seen. Banks will just make money hand over bloody fist in the next three years.

TGR: Are you talking about the big boys?

DG: No, I’m talking about the regionals. The big boys have problems in toxic assets. I am not even sure there is a Peoples Bank & Trust in Rocky Mount, North Carolina, but a bank like that—or the First National Bank of Keokuk, Iowa or the First National, or the Peoples Bank & Trust of Park City, Utah—those are the banks that are going to make lots of money.

TGR: Do you see an explosion in regional banks? Will move of them come into the marketplace?

DG: I think we’ve probably got all we need. It’s just that they’re very cheap.

TGR: What will the role of the international banks be?

DG: Mopping up the disasters that they’ve created for themselves for the past decade, trying to survive, being envious of the decent regional banks that are going to be earning enormous yields on this positively sloped yield curve and wishing they were they.

TGR: Do you see a role long term for international banks?

DG: Oh, sure, of course. How could there not be? It’s a smaller world; it’s an international world; it’s a global world. International banks will be back in full force a decade from now. They’ve got some wound-licking to do, and they’ll do it.

TGR: In addition to regional banks as being a great play to look at for ’09, ’10, any other interesting plays to bring up?

DG: You want to own food and grains again.

TGR: Are you talking about grains or food producers like Nabisco?

DG: No, I think you want to own grains. If you’re going to make a speculation, I think you want to own on the grain markets again.

TGR: Grain for human consumption or grain for livestock consumption?

DG: Yes and yes.

TGR: Are you looking at buying that on the commodities market?

DG: You can actually buy that on ETFs now. The wonderful world of ETFs is just extraordinary. You can actually buy a grain ETF now. DBA (DB Agriculture Fund) is one; JJG (iPath Grains) is another. Those are basically long positions in the grain market. Wonderful things to use.

TGR: You like ETFs; but the naysayers will say that ETFs could be encumbered and there’s actually no guarantee that they hold any assets.

DG: That’s true; that’s correct.

TGR: But you’re comfortable that people should go into an ETF for grains?

DG: I didn’t say that. What I said is if you wish to trade in grain, there are ETFs that will do that. Do I know for sure that they will all perform perfectly and that if the world were to come to a chaotic banking circumstance that there wouldn’t be problems? I don’t know that. Does that bother me? No. It doesn’t bother me even slightly.

Should you worry about [not trading] an ETF just because there might be some problem under an untoward economic environment? No, it’s illogical. And shame on those people who say those sorts of things or who tell you not to use them because they ETF may not function properly if there is some total breakdown in the banking system. Well, if that happens, we have other problems.

TGR: And what’s your projection for the overall investment market? We’ve been hearing speculation that it will rise through April, bottom out even deeper than it is today, and then a slow climb in 2010.

DG: Gee, I have no idea. I just think that stock prices will be higher six months from now than they are now, much higher 12 months than they will be six months from now, and higher still in 24 months than they will be 12 months from now. But where will they be in April? Golly, I don’t know. I think the worst is far behind us and better circumstances lie ahead. And that’s the first time in a loooonnnng while that I’ve said that.

TGR: Yeah, now if the media will just catch up with you, we can enjoy watching it again.

DG: It won’t. Watch the news; it will just get bleaker and bleaker as the year goes on. And watch the unemployment rate; it’s going to be a lot higher.

TGR: Other than Barack Obama saying we’re going to start building infrastructure, do you anticipate any dramatic changes in the U.S.? Right now we’re a services country, and we need to move back to being a manufacturing country.

DG: We’ll never move back to being a manufacturing country. Won’t happen. Here’s an interesting bit of data. Do you know what year that we had the absolute high number—not just as a percentage of population—but the absolute high number of manufacturing jobs was in the United States?

TGR: Somewhere around the World War II era.

DG: Very good, 1943. We have lost manufacturing jobs since 1943. I think that’s a fairly well-established trend.

TGR: Is there a future for the services sector, though? That’s the key.

DG: It will be larger. And so what? It’s like saying we need more farmers. No. We need fewer farmers. We have one-hundredth as many farmers as we had at the turn of the 20th century. We now 500 times more grain? Seems to me every time we lose a small farmer, we get better. So, we need fewer farmers. And we need fewer manufacturing jobs.

TGR: But doesn’t that put the onus on the United States as the economic world leader? Considering the fact that, as you mentioned, information now is instantly available everywhere, just in terms of worldwide confidence; it seems like every time we hiccup, the planet hears it?

DG: There is probably some truth to that fact. But it is probably not us that will lead; it’s probably Australia or New Zealand or the Baltic States or some smaller country that actually changes policies and frees up markets and cuts taxes, and all of a sudden their economy starts to turn around. Then people elsewhere will say, “Oh, look! That’s the right thing to do. Let’s us go do that.”

TGR: Really? Economic recovery worldwide will not come from the United States?

DG: Well, if we don’t recover, the rest of the world won’t, but we won’t be the first. What I am saying is that some smaller country will do the right things faster than we do.

TGR: Isn’t what Australia does irrelevant to what the U.S. needs to do?

DG: No, it’s dramatically relevant. If Australia starts to do things properly—if Australia were to suddenly come out and slash taxes and go to a flat tax and cut paperwork by 50% and it’s economy starts to turn higher, wouldn’t that be a good incentive for us to do the same thing?

TGR: But that implies that every country should use the same economic strategy; that we’re all basically at the same state in our economic development. That what will work for Zimbabwe or China will work for the U.S.

DG: I think anywhere in the world that you have smaller government, lesser taxes—every time you do that, that economy, no matter where it is, does better. It does better. And anywhere you put higher taxes and more government, that economy usually does worse. It does; it just does.

TGR: You’re looking at it from a macro point of view.

DG: I’m looking at it just from an economic point of view, whether macro or micro. Look at Ireland, for example. Why was Ireland for many years the “Celtic Tiger” of Europe? Their tax regime was lower than the rest of Continental Europe. The Germans and the French, who are statists, who are collectivists, instead of emulating the Irish, kept trying to drag Ireland down to their level. Now, that was stupid, wasn’t it? That didn’t work.

My favorite example is New Zealand back in the 1980s. Every year from the 1970s through the 1980s, New Zealand ran a budget deficit and a trade deficit. Every year the IMF said, “You must raise your taxes and cut the value of your currency to try to balance your budget and run a trade surplus.” So New Zealand would do that, and every year the deficit got worse and their trade imbalance grew larger. They did this for five or six years and it got worse every time they did it—every time they followed the IMF tactic of raising taxes and cutting the value of the currency.

Finally New Zealand Treasury Secretary Graham Scott (Secretary from 1986–93) told the IMF, “Don’t ever come back here. Everything you’ve told us to do has proven to be utterly worthless. We’re going the other way. We’re slashing taxes.” From I think a 75% marginal tax rate, over the course of five years, they cut it to like 18%. And every year they took in more money—more money—every time they cut taxes they took in more money. And when they strengthened their currency, their exports picked up; as their currency got stronger, they exported more stuff. Isn’t it fascinating?

TGR: That’s the paradox.

DG: It got to be so interesting—it wasn’t Gordon Campbell—I’m trying to remember; I just went blank for his name. But he passed the baton on to a woman by the name of Ruth Richardson, who was a little more leftwing than her predecessor—the tax rate was down to a flat 18%. They asked her if she was going to cut it again, and she said, “You know, I don’t think I can cut it any more; I can’t spend the revenue I am taking in now.” It’s a classic line. So, what does she do? They actually started raising the tax rates again, and what happened? Tax revenues fell.

But New Zealand had taught a lot of people that cutting taxes and strengthening your currency is the best thing you can do. And as they were cutting taxes, they kept cutting prohibitions and regulations; they kept chopping them back. They were the real precursors of the Free Market Movement that developed in the early ’90s and the early ’00s.

TGR: Let’s hope the United States learns from that. Obama announced his tax cuts; we’ll see what comes of that.

DG: He said entitlements are even on the table. Can you imagine a Republican ever making that statement? They would boo him. But here’s a leftist who puts it on the table. He can say that.

Irreverent, outspoken, entertaining, sardonic and—in his own words, a “glib S-O-B,” Dennis Gartman has been producing The Gartman Letter for more than 20 years. His daily commentary on global capital markets as well as short- and long-term perspectives on political, economic and technical circumstances goes to leading banks, brokerage firms, hedge funds, mutual funds, energy companies and grain traders around the world.

A 1972 graduate of the University of Akron (Ohio), he undertook graduate studies at North Carolina State University in Raleigh (where he remains involved as a member of the Investment Committee.

Before devoting himself full-time to The Gartman Letter, Dennis analyzed cotton supply and demand in the U.S. textile industry as an economist for Cotton, Inc.; traded foreign exchange and money market instruments at North Carolina National Bank, went to Chicago to serve as A.G. Becker & Company’s Chief Financial Futures Analyst and then become an independent member of the Chicago Board of Trade, dealing in treasury bonds and notes and GNMA futures contracts; and moved to Virginia to run Virginia National Bank’s futures brokerage operation.

In addition to publishing The Gartman Letter, Dennis delivers speeches to audiences around the world (including central banks, finance ministries, and trade groups), teaches classes on derivatives for the Federal Reserve Bank’s School for Bank Examiners, and makes frequent guest appearances on CNBC, ROB-TV and Bloomberg television.

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Finally for the Technical Analysis Junkies (like me!) here is an awesome article!

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Market Leaders Hesitate on Stimulus Plan— Seeking Alpha

By: Chris Ciovacco of Ciovacco Capital Management

Proposed Economic Stimulus Plan May Not Stimulate Much

The new administration is proposing an $825 billion “stimulus” plan. Most of the package is geared toward helping existing or expanded programs such as unemployment assistance, law enforcement, food stamps, etc. Much of this spending will “save” existing jobs or keep existing programs already in place. This may help prevent things from getting worse, but it will offer little in the way of providing new stimulation for the economy. Another large portion of the stimulus plan is in the form of tax cuts. While depreciation incentives may spur some new business spending, credits to individuals may offer little incentive to spend given the state of their balance sheets and concerns about employment. After all the hype about infrastructure spending, only about 25% of the package is geared toward this area.

Tug of War Between Liquidity and Economic Weakness

The chart below was created on the website of the Federal Reserve Bank of St. Louis. It shows the eye-popping expansion of the money supply as financial institutions have swapped securities and other “assets” for cash via borrowing from the Federal Reserve. Borrowing prior to this crisis is barely visible on the graph. Recent borrowing is an extreme example of the term “spike” on a graph. Despite the never before seen tapping of the Fed, financial assets show little evidence of reflation taking place.

U.S. Stocks: Downtrend Remains In Place

If you compare the long S&P 500 ETF (SPY) to the short S&P 500 ETF (SH), it is clear the short side of the market is in better shape. There is little in the way of fundamentals, except hope of government bailouts, to expect any change to these trends.

Recent weakness in the S&P 500 Index leaves open the possibility that we will revisit the November 2008 lows around 740 (intraday). If those lows do not hold, a move back toward 600 becomes quite possible. On Friday (1/23/09) the S&P 500 closed at 832. A drop back to 740 is a loss of 11%. A move back to 600 would be a drop of 28%. These figures along with the current downtrend highlight the importance of principal protection and hedging strategies. SH, the short S&P 500 ETF, can be used to protect long positions or to play the short side of the market.

Gold & Gold Stocks Still Face Hurdles

Friday’s big moves in gold (GLD) and gold mining stocks (GDX) have some calling a new uptrend. While recent moves have been impressive some hurdles remain.

Gold stocks (GDX) look a little stronger than gold, but any entry in the market should be modest in size. If $38.88 can be exceeded, our confidence would increase and possibly our exposure.

Run In Treasuries Is Long In The Tooth

Investments with the highest probability of success are those with positive fundamentals and positive technicals. Conversely, the least attractive investments have poor fundamentals and poor technicals. With the U.S. government issuing new bonds at an alarming rate, a continued deterioration in the technicals could signal the end of the Treasury bubble.

TBT offers a way to possibly profit from the negative forces aligning against U.S. Treasury bonds.

Strength In Bonds Shows Little Fear of Price Inflation

The government’s policies are attempting to stem the tide of falling asset prices. They hope to reinflate economic activity along with asset prices. The charts here show:

•  
  • A weak stock market (see SPY above), and
  • An improvement in many fixed income investments (below: LQD, AGG, BMT, PHK, and AWF).

Weak stocks and stronger bonds tell us the government’s reflation efforts are thus far not working. If concerns about deflation remain more prevalent than concerns about inflation, fixed income assets may offer us an apportunity. With money markets, CDs, and Treasuries paying next to nothing, we may be able to find improved yields in the following:

•  
  • LQD – Investment Grade Corporate Bonds
  • AGG – Investment Grade Bonds – Diversified
  • BMT – Insured Municipal Bonds
  • PHK – High Yield Bonds
  • AWF – Emerging Market Government Bonds

With the economy in a weakened and fragile state, we need to tread carefully in these markets. Some key levels which may improve the odds of success are shown in the charts below. Erring on the side of not taking positions is still prudent. The markets remain in a “prove it to me” mode where we would like to see the markets move through key levels before putting capital at risk.

U.S. Dollar Remains Firm

From a technical perspective, the dollar continues to look strong. Its strength supports the continuation of concerns about deflation, rather than inflation.

Disclosure: Ciovacco Capital Management (CCM) and their clients hold positions in SH, GLD, and PHK. CCM may take long positions in GDX, TBT, LQD, AGG, BMT, and AWF.

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Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments, it is presented for informational purposes only. As a good investor, consult you Investment Advisor,  Do Your Due Diligence, Read All Prospectus/s and related information before you make any investments. – jschulmansr

Scary, they’re actually Going to Pass This?

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Curious?… to find out what I am talking about? Read On… Congress shouldn’t be allowed to do this! Not only am going to include the TIME magazine article, I am including the actual link to the bill itself, the press release version. The coming runaway Inflation Train and what to do to protect yourself! Read Below…Good Investing! – jschulmansr

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First Here are the links…

The American Recovery and Reinvestment Bill of 2009

The American Recovery and Reinvestment Bill of 2009 Press Summary

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A Guide to Reading the America Recover and Reinvestment Bill- TIME MAGAZINE

Source: Time Magazine

Brendan McDermid / Reuters

“Madness is to think of too many things in succession too fast, or of one thing too exclusively” — Voltaire

The American Recovery and Reinvestment Bill of 2009 should be required reading for every citizen from billionaires to the average person. It was issued by The Committee On Appropriations and is the road map for the $825 billion that the Congress and Administration intend to put into the U.S. economy to jumpstart the economy out of the recession.

The most important part of the document may be the description of how the country was dragged into the worst economic period in its history. ( See pictures of the Top 10 scared traders.)

At the beginning of the bill, the authors write: “Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefiting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing … and borrowing … and borrowing, and when they couldn’t borrow anymore, the bottom fell out.”

If that analysis is true, then two other things must be accurate. The first is that the cause of the recession was Americans becoming overextended in their use of credit. The other one, which is a consequence of the first, is that if the government can facilitate future consumer borrowing, the economy will be righted again in short order. That would mean that more complex methods of solving the problems of the recession, such as spending money on infrastructure, would be unnecessary. It would be simpler to take $825 billion and make it available for home equity loans, enlarge credit card lines, and auto loans.

But, the authors of the bill are not willing to follow their own logic, so they have crafted another plan. The first assumption of what the program will do, and among the most important of its goals, is only mentioned in passing. “This package is the first crucial step in a concerted effort to create and save 3 to 4 million jobs.” This is a little twist on what is being said in public.

The general assumption about job creation under the program is that it will add 3 to 4 million jobs. But in the introduction to the bill the assumptions about job loss are laid out quite clearly: “Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and we are expected to lose another 3 to 5 million in the next year.”

The mathematics of the two sets of employment analysis taken together would show then that no new jobs would be created. The three million or so jobs which will be lost in 2009 will simply be replaced by three million new ones. The jobs lost late in 2008 will not be replaced in this program, leaving a two million job deficit Joblessness will stay at about 7.2%

Other than those details, the money will be well spent.

The states need help, and the federal government means to provide it: A sum of $79 billion in state fiscal relief will be provided to prevent cutbacks to key services

After the plans to help the states, cut taxes, and provide new infrastructure for the nation, the programs get a little off track.

The bill means to spend $44 million to repair the U.S. Department of Agriculture’s headquarters. About $400 million will go to repairing national monuments in Washington, which are somehow considered essential to national infrastructure.

Additionally, Congress plans to pay out $200 million to provide financial incentives for teachers and principals to do their jobs better. Another $100 million will be used to establish a set of grants to provide $100 to local governments and nonprofit organizations to remove lead-based paint hazards in low-income housing.

Perhaps the best investment in the bill is for $80 million to ensure that worker protection laws are enforced as recovery infrastructure investments are carried out. In other words, there will be a police system set up to make sure that no one with a new job working on national infrastructure with money provided by the government will have his or her rights violated.

The bill calls for over one hundred programs which Congress plans to enact. These include addressing problems as diverse as community block grants, upgrading the forestry service, bridge removal, and NASA research funding. The remarkable thing about the legislation is that almost every program is ill-defined and subject to broad interpretation and a wide variation as to how it might be enacted.

In a sentence, The American Recovery and Reinvestment Bill of 2009 will have to build a bureaucracy larger than any ever created by the US government in order to manage its many parts.

The first sentence of the bill reads “The economy is in a crisis not seen since the Great Depression.” If it requires all of these plans to get America back on the road to recovery, the process will take a decade.

— Douglas A. McIntyre

See pictures of the global financial crisis.

For constant business updates, go to 24/7wallst.com.

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*** My Cure for the coming runaway inflation train? Read below…

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Gold Will Shine Again in 2009 – Seeking Alpha  Part 1

By: Sean Hyman of mywealth.com

I think this one may be a shocker to many…that gold is going to be much higher at the end of 2009 than it is right now. I think it will take out its highs just above $1,000 an ounce and will head for at least $1,250 an ounce. (Gold is presently trading around $853 an ounce.)

When I was a stock broker, I hated gold. To me it was the dumbest investment on the planet. Of course I worked as a broker when gold was in a multi-year bear market.

But the more that volatile booms and busts have caused the need for more government intervention, the more of a believer I’ve become in gold.

Let’s look at several of the dynamics that have helped to form my view for gold in 2009.

South Africa is home to some of the biggest gold mines in the world. In 2008, their gold output shrank as exploding input costs caused them to close some of their most expensive mines. (Produce less of the metal and the speed of the supply shrinks which helps to support the price.)

This has been one dynamic that has helped to support prices in 2008 and that has kept gold in an 8 year bull market. Even in 2005 and 2008 when the dollar rallied, gold still held its ground. This shows a lot of strength for the metal since the dollar and gold largely trade somewhat opposite of each other (being that gold is denominated in dollars and when the dollar is rising, it tends to calm the fears for the currency which typically dulls the demand for the precious metal).

In fact, had it not been for tons of hedge fund failures and liquidations, I think gold would actually be much higher than it is right now.

Helicopter Ben & Obama will do their part to help gold out!

With the credit crisis in full swing, the Fed has responded by turning on the printing presses at full speed. This enormous increase in the money supply (which is temporarily clogged up in the banks) will eventually be unleashed on the economy. Once this happens, you will quickly see deflation erased and we may actually move into a period of hyper-inflation.

Why would I go so far as to think that? Heck, the Obama administration may print as much as a few trillion dollars to help out the banks according to former central banker Volcker.

We’ve also got another stimulus package coming within weeks according to the Obama administration.

Another reason why I feel that a huge bout of inflation will return is because of interest rates. If you’ll remember, Congress got pretty harsh with Alan Greenspan for taking rates down to 1%. They even went so far as to accuse him of causing the recent bubbles in the economy, which he denies.

Well, if the “1% cheap money” inflated things into the stratosphere, what do you think will happen with Ben Bernanke’s interest rate range of 0% to 0.25%? Could you say it would have any less of an effect? No, it will have an even greater “bubble effect” in time as the cheap money actually is released out into the economy.

Tomorrow, I’ll continue with “Part 2” of this “gold story”… So stay tuned!

Gold Will Shine Again in 2009 Part 2

by Sean Hyman

Get ready for the “economic pipes” to be unclogged and for a tidal wave of inflation to head our way!

I assure you that Obama’s economic advisors will be the “drain-o” that gets the pipes unclogged. When this happens, the Fed knows that it will have to “mop up” this excessive liquidity in the financial system.

However, here’s what I predict will happen: The Fed, while it wants to be a forecaster of the economy really just ends up becoming a “responder” after the fact to what’s going on in the economy. Therefore, between the time that the Fed starts to see the inflationary signs in the economy and starts the process of draining the excess liquidity from the economy, it will be too late. The hyper inflationary effects will already be in play. They will be “late to the ball game” yet again.

When all of this starts to happen (and possibly a bit beforehand), savvy gold investors will sense it coming and will buy up gold ahead of time…positioning themselves like a surfer that gets out ahead of the coming wave that will propel him forward.

The Fed will do its best at that point to drain the money supply and hike rates, but there are delays from when they start to act and when it actually starts to effect the economy. This “lag time” will cause a huge return of inflation in a big way that will propel gold ever higher and will eventually dilute the dollar as well.

You see, when there’s more of something in existence, it begins to hold less value. So as the money supply is quickly increasing, the dollar will eventually feel the effects of it. Remember, there’s that delayed “lagging” period which is why it hasn’t already been felt even now.

However, as sure as the sun is coming up tomorrow…it’s coming. So get prepared ahead of time. For, the key to successful investing is to buy just ahead of the massive move. This requires an investor to “think ahead”. You can’t just see what’s happening at present and prosper like you should in your investing. It requires one to be “forward looking” and thus “forward thinking”.

When all of this unfolds, investors will buy gold (which is essentially exchanging their dollars for gold) as they seek safety, liquidity and an “insurance policy” against runaway inflation.

Gold production will continue to shrink and Central Banks will hold onto their gold in 2009!

So with the economy deeply damaged, unemployment claims hitting almost 600k as of this writing, there’s not going to be a huge incentive for investors to sell gold. That’s why gold has only come off of its top by 17.9% and stocks have been 40+% off of their highs on average. You can see its underlying strength just in that fact alone.

Also, remember that gold supplies will continue to tighten in 2009 just as they did in 2008. Why? Africa’s production of gold sank 14% which was the lowest levels since 1899. That’s serious! But it’s not just a South Africa story. U.S. gold production fell 2% last year. While China (which has now become the world’s biggest producer of gold) had their production rise 3% last year, the “net” result collectively among all countries is a net slowdown in gold production.

Central bank selling in gold was down a full 42% last year. And you’d be an idiot of a central banker to sell a bunch of gold in 2009 with the U.S. and global economy still hobbling along. Therefore, you can count on these guys not adding to the selling.

Therefore, get ready to buy gold, sell dollars and buy foreign currencies like the euro and especially the Aussie dollar which is greatly helped by rising gold and other commodity prices.

Most of the increase in gold and selling of dollars may come more in the 2^nd half of the year than the 1^st half due to the delayed effect of Fed policy and as the Obama administration starts to get its feet wet in tackling the economic woes.

But be aware and watch for the change just in case it happens even a bit sooner than I think.

Gold consolidates its multi-year gains as it catches its breath and prepares to run “ever higher” in 2009!

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2009 Gold Outlook

2009 Gold Outlook

How To Invest in Gold in 2009

By Luke Burgess
Monday, January 5th, 2009

The investment markets are yielding to the fact that the global economy will remain weak for the better part of 2009.

As a result, investors will continue to seek safe havens.

Under normal conditions, these safe haven investments would include land and real estate. These assets have intrinsic value; or in other words, their value will never fall to zero. But with falling prices, investing in real estate is out of the question for most people right now. And there’s little doubt that investors will look elsewhere for safety against financial crisis.

The best safe haven asset in the world right now is still gold because it is never considered to be a liability.

And we believe that safe haven investment demand will drive gold prices during 2009. With this in mind, we would like to present a broad overview of Gold World‘s 2009 gold outlook. But before we get into that, let’s review what happened to gold prices in 2008.

Gold Was One of the Best Investments of 2008

In March 2008, gold prices hit a record high of $1,033 an ounce as the gold bull market entered its seventh year of life. This was followed by a normal 18% correction, which drove gold prices back down to $850 an ounce.

Gold prices subsequently rebounded and were once again closing in on the $1,000 level in mid-July. At the same time, however, the fundamental and psychological effects of the slowing housing and credit markets were just beginning to devalue significantly the investment markets across the board.

As a result, many long gold positions had to be sold in order to cover losses from investments in other markets. Over the next several months, this forced selling pressure pushed gold prices down.

Gold prices were also held down during the second half of 2008 as the U.S. dollar enjoyed a +20% rally. Foreign governments, institutions, and banks began buying the U.S. dollar, which despite a legion of problems continues to be the world’s most important reserve currency, as a hedge against domestic economic turmoil.

These factors contributed to a significant drop in the price of gold, which officially bottomed out for the year at an intraday low of $683 an ounce in October 2008.

Gold prices have subsequently bounced off of the $700 level as major selling has dried up, and fresh buying has come into the market.

Despite three 20% corrections and serious deflation in the market, gold exited 2008 with a positive 5.4% gain for the year. Although subtle, this gain outperformed every major equity index and commodity in the world. Here are just a few examples…

Index/Commodity	Percent Change During 2008
Dow Jones	-34%
NASDAQ	-41%
S&P 500	-39%
TSX	-35%
TSX Venture	-74%
Oil	-55%
Silver	-23%
Copper	-54%
Gold	+5%

This made gold one of the best investments of 2008.

And the 2009 gold outlook looks just as strong.

Despite a bit of downside in the immediate future, we expect gold to have a stellar year.

Global economic turmoil and deflation will undoubtedly continue to influence gold prices in the near-term. A short-term pullback in gold prices from current levels to $800—maybe even a bit lower—before a recovery is not out of the question. However, we expect gold prices to break new records during 2009.

For our current perspective, we expect gold prices to reach as high as $1,300 during 2009, which would be a profit of over 50% from current levels.

Gold prices in 2009 will be supported more heavily by supply/demand fundamentals than in the previous years of this gold bull market.

As we’ve previously discussed, during the third quarter of 2008, world gold demand outstripped supply by 10.5 million ounces. This deficit was worth $8.5 billion and was the largest supply/demand deficit since the gold bull market of the 1970s.

Official 4Q 2008 world gold supply/demand figures will be calculated and reported later this month. Gold World will report them to you when the data is released.

In the meantime, though, all estimates suggest that there will be another very large deficit in world gold supplies from the fourth-quarter, with investment demand continuing to drive the market.

We expect that a continuing surge in investment demand could push gold prices as high as $1,300 at one point during 2009.

There will likely be a bit more volatility in the gold market in 2009 as more and more speculators come into the market. It is likely that the gold market will experience three or four price peaks (selling points) during 2009.

How to Invest in Gold for 2009

As we expect a near-term drop in gold prices as a result of continuing deflation, we are advising our readers to hold off on any physical gold buying for the immediate future. As previously mentioned, gold prices could dip back down to $800 before recovering again.

Nevertheless, we expect 2009 to be another great year for gold investors.

Good Investing,

Luke Burgess and the Gold World Research Team
www.GoldWorld.com

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Tomorrow we’ll check on what’s the latest on the Obama eligibility issue.

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