October 29, 2012
The markets closed early today due to Hurricane Sandy and trading in gold was subdued due to so many New York traders and investment houses hunkering down for the storm.
So, rather than review today’s inconsequential market results, we decided to look in our archives for articles that we might have overlooked that are particularly relevant to hard asset investors.
We think we found two from just under two weeks ago that everyone should stop and take a closer look at.
First, recently, Pimco, the parent company of the largest bond fund in the world, warned that a further downgrade of America‘s sovereign credit rating is in the cards. They think it’s inevitable and will probably happen just after the first of the year…
Second, Mark Hulbert, esteemed editor of the Hulbert Financial Digest, one of the oldest and most respected investment newsletters out there, has pointed out that extensive academic research indicates that a 1987-like stock market crash is “inevitable.”
Both of these articles are relevant for investors because they should both serve as warnings that paper assets that might seem secure today, may not actually be so secure tomorrow. If US Treasuries are no longer rock solid and the stock market crashes, gold investments will likely be the most secure assets that an investor can own.
June 21, 2012
Today the financial markets were hit hard by the announcement that Moody’s Investors Service had downgraded its ratings of 15 major investment banks, including all of the world’s top 10 investment banks.
Household names like Bank of America, Citigroup, J.P. Morgan Chase, Goldman Sachs and Morgan Stanley were among the financial institutions downgraded because Moody’s sees them as vulnerable to downturns in global investment markets and the world economy.
It was no surprise the US stock markets took the news hard, falling over 2% on the day, but many investors are no doubt bewildered by gold’s reaction to the news, since the yellow metal fell as well.
Gold’s reaction was actually in keeping with its cyclical role in such crises. Often at the outset of a financial crisis, the price of gold will fall as investors use their gold holdings as a certain source of liquidity to cover losses in other parts of their portfolio. This is exactly what happened in 2008 when the US financial system nearly melted down. Gold fell at first, but eventually rebounded sharply and finished the year in positive territory, while the Dow was down 33% for the year.
We expect a similar reaction this time and recommend that our clients view current levels as exceptional buying opportunities for physical gold investments of all types.