A Call to Gold
08/25/2006 12:00 am EST
Larry Edelson paints a less than-hopeful view of a devalued dollar, volatile interest rates, and rising natural resource prices in the near future. Here, he advises his subscribers to stay safe—in gold…
“Other than a few rallies here and there, expect the value of the US dollar to continue plunging. The US government is the most indebted government in the history of civilization. Between actual borrowings and future obligations, the government owes close to $44 trillion—money borrowed from foreign private investors, governments, and overseas banks…money owed to millions of employees on government payrolls…obligations to millions of victims of broken pensions…the list is endless.
“By devaluing the dollar even more, these debts become less burdensome. So, the Fed will re-inflate the economy and pump money and credit into the system—all in a desperate attempt to avoid debt and deflation. The pause in rate hikes this month was one signal. Another is the massive increase in the M3 measure of money supply. Since May, it’s been rising at a 10% rate. That implies inflation of 10% or more down the road.
“Inflation pressures will only be compounded by the rise of Asian economies. Nearly three billion people—half the word’s population—are simultaneously starting to demand better lifestyles, more material goods, and additional services. This increased demand will equal increased prices.
“Investors should expect interest rates to go through some wild gyrations. While the Fed may hold off on raising short-term rates to boost the economy, long-term interest rates—which have remained near historically low levels—may start screaming higher. Reason: Foreign and overseas investors see what’s happening to the value of the US dollar and they will want higher and higher returns on the money they lend to Washington.
“Also expect unthought-of, now unfathomable prices for natural resources. What to do? Investors should keep the majority of your cash in short-term Treasury-only money market funds or the equivalent. Second, from your investment funds, keep 5% in gold bullion—not rare coins or even gold bullion coins. Buy one and five-ounce gold ingots from your local dealer and keep them in your bank safety deposit box.
“Alternatively, buy the streetTRACKS gold Trust (GLD NYSE). It trades like a stock, but each share represents one-tenth of an ounce of gold. And for gold mining shares, keep in mind not all are necessarily worthy of your investment dollars. Some hedge their gold holdings, making it virtually impossible for them to profit wildly as gold explodes higher. Some will even bankrupt from higher gold prices.”