Gold & Silver – Has Anything Changed?

September 19, 2008 | By | Reply More

Yesterday saw the Dow soar on the back of the latest plan to rescue the financials.

This morning the European markets took off on the back of the news with some UK and Irish banks showing gains up to 50% or more.

As the euphoria extended to other sectors, gold and silver were notable losers. Gold traded down to below $830 an ounce at 11.00am Central European Time and looks set to weaken further.

The notion that Uncle Sam is riding to the rescue is totally misplaced. It is extraordinary that market players did not immediately realise that the latest attempts to shore up the financials could only lead to further devaluing the dollar and deepening recessionary pressures.

As seems likely, the UK will follow suit as its Prime Cretin, already spinning the lie to Brits that it is his ideas and efforts will, single handed, rescue the nations’ banks in an attempt to save his short but disastrous premiership.

The effect on sterling, already showing considerable weakness, could be catastrophic.

To its credit the EEC has yet to come up with plans to pass lifelines to its financial institutions on the same scale as the US and UK so it would be logical to expect the euro to strengthen against the dollar.

Weird isn’t it that the reverse has happened? Dollar up, euro down this morning.

Ah! You are saying, what is he on about? The dollar looks good, our financial institutions are saved so they can start lending us cash to spend in the stores, on cars holidays and HD flat screen TVs, just like it was a year ago.

Think again buster! Credit will remain extremely tight as new regulatory powers take effect and lessons have been learned.

These extra trillions of US government debt will result in a sharp surge in the cost of living in an already inflationary environment.

Businesses that rely on domestic consumer spending will suffer badly with many going to the wall, companies with an excess of debt over assets will be vulnerable and many will cease trading. Just look at the number of listed public companies that have huge borrowings but have not turned in a profit in years.

Will the Fed work out a rescue plan if Ford or GM goes under putting tens of thousands out of work? Can it afford to?

Yesterday saw the US jobless claims rise yet again.

Can anybody really believe that throwing taxpayers money at the banks is going to reverse the unemployment trend?

Is it likely to lead to wage increases so that the average working family can keep up with surging inflation?

Can the government help out with benefits, or increased spending on public work programs to help alleviate unemployment as tax revenues fall and the consequences of the financial bailouts come home to roost?

To say that things look bad is an understatement. What a scenario for the next president to inherit. It will need a man of strong nerve, determination and who is not afraid of the unpopularity that the stringent measures required to resuscitate the economy will bring, even if it means jeopardising his chances of re-election in four years time.

Does Obama or McCain have what it takes?

The general stock market has already become a minefield where only the very smartest of specialist players will flourish once the cabal of hedge fund speculators get their just desserts.

That is in the future, for now it appears that the rush back into stocks is not due to a considered appreciation of the present circumstances but the result of a collective euphoria bought about by the perception that the government is, and will continue to be the saviour whatever financial crisis occurs.

It is a herd mentality that the sharpest operators will profit from as they have done so often in the past.

Every fundamental indicator is pointing ever more strongly to gold as a safe haven from the extreme volatility of the general stock market and as a store of value as the dollar accelerates its downward spin to near oblivion.

Stay out of gold and silver at your peril.

Do not be tempted by the short term attraction of a stock market built on shifting sands and motivated by group hysteria unless you are very confident that you can recognise the early warning signals of a psychological change in attitude amongst the investment masses.

Even the price of oil falling back to the levels of two years will only sooth some of the pain, it will not rectify the underlying accumulating problems of the US economy.

Of course there will always be companies, or sectors, that will present investors with profit opportunities however bad general markets become.

However we believe that the precious metal sector offers the best long term safety net for those who cannot or do not want to be dedicated to routinely following the markets and do not want to see their the value of their dollar on deposit go down the drain. 


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