Wall Street consensus wrong on gold before and wrong again now

Posted on 16 June 2013 with no comments from readers

Nobody on Wall Street would have advised you to buy gold 10 years ago. Gold does not pay brokers a commission.

Yet even after the recent price weakness gold is up 500 per cent in the past decade and stocks would have hardly made you a dime except for some paltry dividends. As an investor inflation has wiped you out in stocks and made you rich in bullion.

Wall Street hot air

So do you take the advice of Wall Street today which is solid to a man or woman against gold? Basically their argument now is that interest rates are finally on the way back up because the US economy is recovering.

Somehow that makes stocks a good buy and gold is history. Never you mind that rising interest rates make current dividend yields look pathetic and if the economy is flat, as it is at best, then the only way for dividend yields to go up is for stocks to go down.

Besides what is also not clear is how bond holders will cope with the huge losses involved in raising interest rates, nor how the US government will pay the additional amounts required to meet its vast interest bill. Both are major market events with hugely bearish implications.

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IMF verdict

None other than the IMF has just criticized the US sequestration tax rises and spending cuts of this year and asked for a revision of this policy. This is the US version of European austerity. Where’s this US economic recovery going to come from then? It’s just Wall Street hot air recycled back into the economy.

What we are looking at is the top in a cycle of asset price recovery driven by a long period of low interest rates. If the interest rates really go up as suggested then gold will have been only the first of many asset classes to take a hit.

There’s no way stocks can carry on going up with interest rates on the rise, or house prices, and the impact on bond markets is automatic. Those US investors feeling rich and self-satisfied now are in for a shock.

Gold cheap, silver cheaper

Gold is currently cheap relative to these other inflated asset classes, so this is what you ought to be buying. Silver is an even better bet as it is leveraged to gold, up and well as down.

Anybody being suckered in by Wall Street now is buying in at the top of a trend which is actually showing the first signs of a major reversal. Valuations are already twice the levels of European stocks.

The share rally is the past, not the future. What direction have share prices been going over the past week or so?

The shills of Wall Street will soon come to learn the real value of gold as their paper empire collapses. Read the ArabianMoney investment newsletter to get an alternative view and actual investment advice (click here).