Gilded Christmas wishes for my fellow Americans - why gold is different this time around!
The following is a reply I wrote to a fellow Caps member based upon his recommendation of the gold ETF "IAU" [his original text appears below as a reply to this post]. What started out as a short response quickly became a sort of thesis statement for my view of the American economy at this time. I hope my fellow CAPS members will give this topic some thought, as I believe the opportunity to get started now could be our last best opportunity for those not already heavily weighted in gold, silver, energy, etc.:
Ludraman, I fully respect your take on gold since I think it accurately describes what gold has done/meant for investors throughout the past half-century or more. But, I think the true nature of gold over the next several years will be something we've never seen in the past (or at least not since the Great Depression). There is a perfect storm developing, a perfect storm of hyperinflation, the reality of which is masked from the markets by the Fed's misleading inflation indicators (they exclude food and energy!), and one which will be more dramatic than previous inflationary cycles because of the extent to which foreign governments have bankrolled our debt.
There is no support for the dollar, and below a certain level no self-serving foreign nation will continue to finance our uncontrolled spending. China alone could sink the dollar overnight by cashing in just a portion of its US treasuries. OPEC actually spoke last session of switching to the Euro for trading oil! With the dollar already in unchartered territory, any further decline could precipitate this type of snowball effect and land us in a depression overnight. Add to this mix the incredible mess we made of the housing market by tempting Americans with unsustainable levels of credit, and the lack of global liquidity to cover that deteriorating credit, and there you have the perfect economic storm ahead for the US, and, consequently, a perfect reason to buy and hold gold through all of this as the only true investment of immutable value in the world.
Conventional wisdom would have Joe Investor holding about 5% gold, whereas I would argue that 50% or more is fully prudent today given the circumstances. Gold is going nowhere but up from here, though the wealthy and powerful elite will cause the media outlets to decry the coming reversal of the gold bull market, that is merely a headfake. Gold will punch beyond $2,000 before we can even be thinking about a reversal. Silver has a great story too, as it has been manipulated downward throughout this bull market and so has perhaps an even more meteoric rise ahead as it ultimately catches up with traditional gold/silver price ratios. Silver will be at $20 before the Spring of '08, and then it's a quick trip to $50!
And so, I urge you to take a fresh look at gold and silver, because though it may seem counter-intuitive to purchase more at these historically high levels, the circumstances at play here are purely unprecedented and collectively create a very compelling case for the prices of gold and silver. I am concerned for my fellow Americans as we head into this Christmas season. I think we stand on the verge of a horrible economic collapse, and I worry for those who are not prepared... for those who are mired in debt, or perhaps purchasing homes because they think the housing market couldn't possibly get worse from here, or spending more than they can afford for Christmas just as the rug is about to be swept out from beneath them.
My Christmas wish?: that Americans will spend their Christmas budgets on food, water, and other emergency supplies to care for their families when distribution networks are disrupted by the economic tsunami ahead; that they will shift to much greater proportions of energy and precious metals equities within their investment portfolios, and that they will each purchase a small amount of physical gold to hold for all time. And my New Years' wish?: that we will all remember to be kind to each other when the chips are down. I think we will all encounter challenges like we've never before faced (as individuals and as a nation), and I sincerely hope that we can all find that deepest well of humanity within us, and work together as brethren and countrymen through the crisis. May peace and prosperity abound, but failing that, may humanity and liberty endure forever!