Time for an autumn rethink on the investment outlook
Posted on 06 September 2010 with 5 comments from readers
In August the number of ArabianMoney.Net readers surged by 76 per cent over the previous month, and we recieved a record number of new subscriptions to our newsletter.
The next issue is published on Friday and we have to reserve our finest investment ideas for the people who pay our bills. But clearly the end of Ramadan and the Eid Al-Fitr is a time for reconsidering the investment outlook.
Investment calls
August has been a good month for ArabianMoney. The financial astrologers called the downturn correctly and the three Hindenburg Omens followed with stocks having their worst August in a decade. We do not think the September mini rally will last as US investors return tomorrow from the Labor Day holiday.
Manufacturing orders have fallen to the lowest in 15 months; 54,000 jobs were lost in August; and the broad gauge of US unemployment is up from 16.5 to 16.7 per cent. The US economy is not working. It needs to create 150,000 a month just to stop unemployment rising.
Economic growth in the world’s economy is clearly falling, the housing market is abysmal and the trick of firing to keep profits up is a zero sum game. Old Arch Crawford’s stars show a market crash through to the end of October, and that will also be good for bonds.
Precious metals could still get caught up in this downturn. But we see this as increasingly unlikely given the strong performance of gold and especially silver in August. You would have expected silver to fall harder than gold in an equities rout.
Silver the new gold?
But silver out performed gold which also did well. Ergo this does not look like a repeat of the autumn 2008 precious metals’ slump, on the contrary it looks like time to buy. When, how and what to buy in precious metals will be considered in detail in the next issue of our newsletter so we will not be explaining this here.
On the other hand, ArabianMoney reckons this autumn is about wealth preservation. Do not get caught in another stock market crash. Shorting it would be much better. Be ready to dump bonds too as they look in a bubble. Real estate is also still heading down, both in Dubai and pretty much everywhere else.
Your options are really cash, bonds or precious metals with future inflation and higher interest rates on the horizon to consider with the first two. Looks like gold and silver win by default this autumn.
5 Comments posted by readers:
I would be careful buying gold, other than in the form of gold coins. Because gold has a known density, and coins have an exact size, coins are more difficult to counterfeit than bars. The most common gold and silver coins may be more easily traded in a crisis. They might be more convenient for bribing the right people, should the need ever arise.
And should anyone produce counterfeit USA gold coins, they will become the target of the most efficient agency of the US Government, the Secret Service. They have an unlimited budget to go after counterfeiters. And nearly everyone they catch goes to jail for years.
And you can impress your friends, because only a small fraction of the population of this planet has ever seen a gold coin.
Seasonal factors are starting to come back into play in the gold & silver markets. As I wrote to the ABC Bullion investors last week “….Many analysts see new highs for gold (and silver) in the coming months as the seasonal doldrums pass, especially as Indian gold demand looks set to be robust as the festival season kicks off on the subcontinent. Monsoon rains in India have been particularly good this year after several years of drought and the floods in Pakistan will be bringing down more water and soil to region. This is expected to result in a bumper harvest season and higher incomes for the rural areas, which should translate into higher levels savings being stored as gold and silver jewelry.”
Add to this the Indian Diwali festival on 5 Nov and we could see significant Indian gold and silver imports over the next 2 months.
Silver the new gold? – I opened a storage investment account for an Indian couple last week for both silver and gold. A rare event as such customers usually buy a few ounces of gold and take it with them. Will let you know if this becomes a trend.
To respond to Bill Simpson above. Bullion bars are a safe as bullion coins as long as the bar is from a well known company, such as the ABC Bullion bars pictured in this story, or PAMP bars from Switzerland to name just two.
Good commentary, Peter . . . you already know that the two “most active” commentators on your blog are Bill Simpson & obewon; and while we agree with you sometimes, at other times we offer provide another “slant”. Since Bill has provided his excellent two cents worth, I’ll offer mine as well.
First, <——Go Back to Read Bill Simpson's comments. Excellent, I must say.
Second, Beware of Bonds:
While I believe there’s still “a little” wiggle room left for bonds to rally, the bond rates (1 year, 2 year, 5 year, 10 year, and 30 year) are very close to their historic lows. I had money in medium term bonds until last month; if part of your investment portfolio is in these bonds, be very careful and nimble.
One of the best things that the bond market has going for it right now is the fact that the US will continue down the deflationary path for another 6 months… maybe a little longer (but beware of QE 2, QE Lite, QE Heavy, etc.). But in Europe, experts predict that the UK rates will rise quickly, starting next summer. So methinks it’s time to exit UK bonds, either NOW, or in the near future. For more info on UK rates, go here:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7982303/Warning-of-sharp-interest-rate-rise-in-2012.html
Third, Don’t Forget Silver Coins:
Personally, I believe that silver, because of its heavy manipulation and suppression every trading day, is deeply undervalued. Yes, I’m in that camp! While gold and silver are good long term plays (for capital preservation), silver is:
a) in extremely short supply,
b) not only a monetary metal, but also an industrial metal, but most importantly, is also a “strategically” important metal (the US used to have over 1 billion oz of reserves back in 1950. Today, the US has none,
c) being depleted at an extremely rapid rate.
If you not specialize in economy keep to physical possession of gold and silver, then you have a possibility to retain values.
All classical economic investments retain no values.
@ Tears of the Moon:
Very interesting commentary about your Indian couple who opened a storage investment account!
If this event is the beginning of an Indian “investment trend” . . . as I suspect, then it’s an early warning sign that is flashing for the next big move up for global gold prices. The current gold price is not a reflection of worth, since it is constantly being suppressed by the corrupt FED, the US government and their fraud agents, JPM, GS, HSBC, and Citi.