Golden Compass Still Pointing North

Golden Compass Still Pointing North
By David Bradshaw
Editor, RMP
Dec. 16, 2008

Back in 2001 Swiss America announced the beginning of a new bull market in U.S. gold coins based on market trends, diversification principles and common sense. Every year since the momentum has been building, with gold prices touching $1,000 an ounce in 2008. The big question now: Is gold's 8-year uptrend your friend yet?

Before year 2000 gold was considered 20% below stupid ... and then the stock market peaked and fell into a grinding secular bear market cycle which may last another decade.

Until 2006 real estate was considered "a sure bet", yet USA Today experts say we may need to wait another decade to see those same lofty home prices again.

In 2008 investors are dashing into Treasury bills and bonds as a safe haven, yet by 2009 they will likely discover the high price of safety, i.e. negative returns.

As investors pound the pavement looking for financial safety with some possibility of growth in 2009 the prospects are few. A global recession, off-the-chart corporate scandals and failed government bailouts are just a few of the factors fueling the next stage of the gold rush. All major investment roads are blocked, except for gold. Here's why...


The dollar hit a 10-week low against the euro and a basket of currencies today, as investors fretted over the fate of ailing U.S. automakers and the Fed cut rates near zero and promised to flood the financial system with money.

The biggest problem with buying T-Bills or T-Bonds is that its shortsighted. Yes, you get safety, but you're also locking in a 3- to 10-year losing "investment" yield. Today the yield on the 10-year Treasury Bonds slipped to 2.37% -- which is unlikely to cover the rising cost of living over the coming decade.

Economists agree that the long-term impact of increasing money supply to cover trillions of new government debt will create inflation. Some say hyper-inflation. Rising inflation sends the value of U.S. Treasuries down, but gold prices go up.

"The dollar WILL NOT be king in a protracted recession as there is nothing to back it up. The Treasury's willingness to print money in order to satisfy the need created by huge government spending programs virtually assures a lower dollar," says Swiss America CEO Craig R. Smith.


The Dow slid back into a bear market in October 2008, and is now down over 40% since its 2007 peak of 14,000, in the wake of the worst credit crunch since the Great Depression. Many pundits have called a November 2008 bottom, but giant risks remain.

Wall St. Ponzi schemes: U.S. regulators never inspected Bernard Madoff’s investment advisory business, alleged to be a Ponzi scheme that cost investors $50 billion. “The government will help but they’re not going to protect you from losing all of your money,” former SEC commissioner Laura Unger told CNBC today.

More taxpayer bailouts: Detroit is waiting to see how much financial help the White House will donate to desperately avoid a "disorderly bankruptcy" in the auto industry. Obama has a trillion dollar plan ready to roll out.

Stock market and mutual fund investors today face a deadly economic cocktail; slowing growth, record high debt and a global credit crunch. Back in July 2007 Swiss America warned investors that Dow 14,000 is not a milestone, but rather a mirage concocted of smoke and mirrors.


"The Great Depression of the 1930s was preceded by a real estate bubble, also fueled by loose lending standards and shrinking down payment requirements. Those real estate problems — and solutions — echo today's," reports USAToday.

Back on June 12, 2005, Time Magazine chose this headline for its cover: "Home $weet Home: Why We're Going Gaga Over Real Estate." We did not share the euphoria, as we believed that the housing bubble was about to peak, and so it did in 2006.

Since then prices have fallen as much as 50% in peak bubble markets Florida, California and Arizona. Perhaps this time we will learn the lesson that a home is not to be viewed as an endless piggy bank or short-term ATM, but rather a long-term investment made by those who have saved up a down payment with monthly payments they can afford without gimmicky financing.

In 2009 U.S. government will likely take aggressive steps to help homeowners by expanding programs that restructure troubled mortgages to prevent a flood of foreclosed homes from coming on the market and driving prices down even further. Sadly this will likely further distort the market and prolong the downturn.


"Fed chief Ben Bernanke made his name studying depressions. He will slash rates to zero if necessary, and then - in his own words - drop cash from helicopters. But his solution is somebody else's dollar crisis," writes Ambrose Evans-Pritchard in London Telegraph. reports, "The Federal Reserve is likely to cut the federal funds rate as low as it can go at this week's meeting, and to begin shifting its focus to nontraditional policies. With this money flowing into the banking sector, many economists are worried about inflation down the road."

Mr. Smith writes, "I suspect the economy will be so bad by 2009 Q2 & Q3 that Mr. Bernanke will not use a helicopter to drop money to the public, but instead a C-130 air cargo transport to carry the vast amount necessary for real stimulus."

Currently we are in a short term, rapid "disinflationary" environment. Disinflation is defined as "a phase of the business cycle, in which retailers can no longer pass on higher prices to their customers, often during a recession." In contrast, "deflation occurs when prices are actually dropping." This will be followed by a dropping dollar and inflation.


Owning physical gold is safer, much more liquid and offers more profit potential than today's low-yielding T-Bills and Bonds, shaky U.S. stock markets or the slowly recovering real estate market. Gold is a brilliant alternative right now, according to 60 key market experts.

According to Mr. Smith, "A model diversification during uncertain times like these should be something like; 20% in real estate, 20% in stocks, 20% in bonds, 20% cash equivalents and 20% in gold. It's time we stopped looking at the day-to-day market movements and instead focus on having a decade-to-decade perspective."

Inflation will at some point become destructive. It will be brought under control by means of raising interest rates. Back in 1980 interest rates rose above 20%, which was the time to buy bonds and bills NOT now. Gold is profitable as the dollars value declines, Treasuries with a 0-2% yield are NOT liquid and will losing money during inflation.

CNBC anchor Joe Kernan recently said, given the low Treasury yields: "I'm starting to buy gold!" -- Shouldn't you be saying the same thing? The next big question is what type of gold to buy; ETFs, gold stocks, gold futures, physical gold bullion or classic U.S. gold coins?

The charts illustrate that while gold bullion prices are now right where they started the year ($835/oz.), Mint-State $20 Liberty gold coins are up over 30%. So, in addition to offering safety, liquidity and growth potential equal to bullion, classic Mint-State $20 gold pieces also offer 100% privacy of ownership and much better growth over the last year!

Discover Swiss America's strategy by reading our 2009 chapter of Rediscovering Gold: "The Financial Light of the World" FREE OFFER

Next Feature Article: 2009: A YEAR OF CHANGE

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