Gold's The Real Treasure...So Why Are Investors Dumping it For Treasuries?
Graham Summers, October 3rd, 2008
By Graham Summers
http://www.gpscapitalresearch.com/
Finally...
Throughout this year I've been pounding the table that this financial crisis would be worse than most investors expected. Frannie and Lehman have finally produced a 1-2 punch that even the most delusional perma-bulls can't ignore.
However, in the ensuing panic, investors have been indiscriminately selling everything¾ and I mean everything ¾ but bonds. It's at times like these that the linear relationships followed by Wall Street trading models are clearest.
And nowhere are they clearer than gold.
Gold is both a storehouse of value and a commodity. However it is the latter quality that has dominated gold trading recently as investors dump the precious metal along with soybeans, copper, and other commodities.
-----------------------------------------------------------------------------------------------
I've recently located a government authorized tax loophole that pays out cold cash into investors' accounts every quarter. Since 1998 it's paid out $10.3 billion. Click here to learn more:
--------------------------------------------------------------------------------------------------------------------
But gold isn't really a commodity; not like sugar or coffee, anyway. Gold doesn't have a utilitarian purpose¾ other than jewelry which is dubious in its usefulness. No, gold is a currency. It is a storehouse of value.
But tell that the droves of lemmings pushing it down along with nickel, wheat and the like. Gold has fallen nearly 10% from $820 to $740 in the last two weeks. And it's done this at a time in which economic announcements have been HORRIBLY dollar negative.
Consider that the US Treasury just put us all on the hook for several trillion dollars' worth of liabilities with Fannie Mae and Freddie Mac. As you know, the two mortgage giants have more than $5 trillion in mortgages on their balance sheets. They've already admitted roughly $1.2 trillion of this is in subprime or Alt-A mortgages. If these firms are anything like their troubled financial brethren¾ Merrill Lynch or Lehman¾ chances are they're understating the real trouble.
Now, the US taxpayer is broke¾ in fact tax revenues are falling rapidly. So the only real way to pay for Fannie and Freddie's upcoming losses will be by printing money... lots of it. The inflation we're already witnessing will prove nothing compared to what happens if $1 or $2 trillion worth of Fannie/ Freddie's mortgages collapse.
On top of this, the Frannie intervention has added $5+ trillion in liabilities to an existing $9 trillion in debt, which doesn't exactly inspire confidence in the US's solvency.
Like I said before, all of this is HORRIBLY dollar negative
However, investors, mindlessly seeking "safety" above all else, are selling gold and plunging into Treasuries. It's mind-blowing. They're selling an actual storehouse of value¾ one that's been used for millennia¾ to buy Treasuries when:
- Treasuries are yielding less than the current rate of inflation
- The US Government just took on a potential $5+ trillion in additional liabilities.
- The US Central Bank¾the Federal Reserve¾ is virtually tapped out pumping hundreds of billions into the system every day.
- The US budget deficit is expected to hit $400 billion this year and $500 billion the next.
Which would you rather own... a government guarantee from a government that is not only virtually bankrupt but at an all-time low in voter confidence and whose central bank has announced it will print money ad infinitum... or a finite resource that has been used by mankind for millennia as a currency and storehouse of wealth?
To me the answer is clear. And it's clear to a lot of "real" gold investors too. Paper gold may be plummeting, but demand for real bullion is red hot. Several dealers I've spoken to are having difficulty meeting investor demand for bullion. Heck the US Mint even stopped selling Golden Eagles because it couldn't mint them fast enough.
No, gold is the real treasure. And it's cheaper than it's been in a year. I cannot predict when this will reverse. But at some point gold's quality as an inflationary hedge will override its association with commodities. When it does, gold will erupt upwards past $1,000 and on its way to $2,000. The US Treasury and Federal Reserve can inflate the dollar all they like. But they can't produce gold.
And that's real value.
Best Regards,
Graham Summers
Graham Summers writes International Wealth Advisory, a monthly investment newsletter that shows investors how to profit from international markets without moving their money overseas. Graham's covered such diverse regions as Dubai, Switzerland, Singapore and more. He combines his firsthand knowledge with rigorous analysis to outperform the S&P 500.
