The “traditional” triad of very good reasons for gold ownership
Today's Financial News - Posted January 16, 2009
No matter where you look… gold, oil, bonds, savings accounts… yields have disappeared. And deflation has taken all urgency out of spending. So what do you do if you’re not happy to just put your cash in storage?
by J. Christoph Amberger
Baltimore—(TFN): The unheard-of drop in energy prices since July forced down overall consumer prices by 0.7% in December.
The resulting annual increase of just 0.1% made 2008 a year with the lowest devaluation of U.S. currency in more than a half-century.
Inflation is dead.
Consider that this almost break-even occurred despite rapidly increasing prices for energy and consumer goods in the first eight months. And that we had ended 2007 with a 4.1% increase in inflation. That may give you an idea of the magnitude of the deflationary forces at work right now.
What’s ahead?
Well, if you read the New York Times on Tuesday you know that idling oil supplies in storage has become so popular that onshore tank capacity is becoming scarce: “From the Indian Ocean to the South Atlantic to the Gulf of Mexico, giant supertankers brimming with oil are resting at anchor or slowly tracing racetrack patterns through the sea, heading nowhere.”
Why is that important?
Well, the decline of inflationary pressure was spearheaded by jaw-dropping falls in oil prices.
It looks like each of those floating storage facilities will be right at hand to sell their loads should prices ever move up again… instantly capping price increases by reactivating idled supplies.
The only commodity that still seems to find buyers these days is gold.
Not that there’s any inflation left that this traditional “safe haven” could reasonably hedge against. The dollar, too, is reasonably strong again… or at least no worse than the economic and financial base of competitor currencies.
The “traditional” triad of very good reasons for gold ownership—inflation, weak dollar, international calamity—is down to a “uniad”.
There’s always room for calamity!
Still, the world over, you find storefornt and internet companies offering top dollar for your physical gold. Imagine a giant vauum cleaner moving consumer-level gold from dressers and jewelry boxes back into dealer storage. They’re apparently thinking that things couldn’t get worse… or they wouldn’t be selling now.
Outfits like this used to melt the stuff down and re-sell the metal to jewelers. But thanks to vanishing consumer demand, jewelers are not exactly seeing inventories flying off their shelves anymore, either. Not in India. And not in Indiana, either.
Unless robust consumer spending—on luxury items no less—picks up soon, there will be thousands of cash-strapped gold hoarders biting their nails to see gold take the leap past $1,000.
The longer they have to wait, the shorter they will be on cash… and the larger the hoarded inventory will be that is released into the markets.
Looks like storage and hoarding are creating safety valves that will limit their upside as profitable investing strategies.
Meanwhile, central banks all over the world are paying lip service to the importance of household savings. At the same time, they’re cutting key interest rates… to almost zero in some notable cases like the Bank of Japan and the U.S. Federal Reserve.
Your “savings” accounts, at zero percent interest, thus have become cash storage facilities. They offer no growth, no yield, no gain… and have turned capital into dead money.
Thanks to deflation, there’s also no incentive to spend that dead money: Why would you buy anything today that you’re likely to pick up 10% cheaper a month from now… or 25% off in eight weeks?
So if inflation is no worry and you’re not earning anything on your capital, what are you suposed to do with it?
I think the answer is obvious: I, for one, am looking at the stock markets again. Not at broad index funds or blue-chips. But at select companies with good products and breakthrough potential.
Even that is not sufficient these days to guarantee that a good stock will produce good gains. You need an appropriate catalyst for it… a situation that can turn a good product into a great investment.
We’re currently putting the finishing touches on a report about one such company. It makes a simple, rapid test for a preventable kind of infection that kills almost 20,000 Americans in a year.
And it looks like it’s getting to market right at the time when a rejuvenated Washington trial lawyer lobby is gearing up to make up for 7 meager years under the Bush Administration.
We’ll have an explicit report for you on Tuesday!
Next Article: Can a senator save Harley?
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