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All That Glitters Is Safety

10/09/2008 2:00 pm EST


Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Jim Lowell, editor of Forbes/Lowell ETF Advisor, says gold is a good place for investors during the market turmoil.

The price of gold soared last month, and I view such price action as an excellent gauge of investor panic. In a single day, we saw gold prices surge $84, meaning, on that day, I think we saw panic that nearly broke into a de facto capitulation in the market.

Still, panic passed the gold test, as gold buying delivered a gold rush for the month; the most obvious sign of this was that the US Mint said it was temporarily halting sales of its American Buffalo 24-karat gold one-ounce bullion coins as demand outstripped supply. (The Mint also said it was building supply so that sales could resume shortly.)

Look for gold to push even higher unless and until evidence of an economic and market recession here, and a global market meltdown overseas, abates.

A US recession remains basically inevitable, as does the likelihood of it protracting through (at least) mid-2009. The US recession engenders a global slowdown which impacts economic and earnings growth rates negatively both here and abroad. Inflation becomes a monetary concern (the Fed and the global banks have been pumping liquidity into the system, which can have the negative effect of swamping the very boat they’re trying to float), not a commodity-based one as commodity prices will likely decline as demand slows.

We’re experiencing the trying year we thought we’d get, and for the reasons that we thought we’d get it. While the losses have been steep and the emotions high, this market is still moving along rational lines to price itself according to the economic and earnings facts on the ground.

Right now, we’re being told by leaders at the Federal Reserve, Treasury, and federal government that our economy’s and the market’s future—and by extension, our own—hang in the balance.

The only rational response to such a pronouncement is fear. But we know that fear in its depth has always been the ultimate catalyst for market highs. This time will be no different. That’s why despite all the forecasts for an endless winter on Wall Street, my confidence in better days ahead is beginning to build.

Mid-month, we moved to gold [in all of our portfolios]. The iShares COMEX Gold Trust (Amex: IAU) pegs to the actual price of gold bullion. The objective is for the share price to represent the price of gold held by the trust at a certain time, minus the trust’s expenses. The goal of IAU is to provide investors with a simple and affordable way to access the gold market. (It closed above $89 Wednesday—Editor.)

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