Why Gold Could Fall 50% from its Highs

Below is a messege fro Dr. Steve Sjuggerud from DailyWealth.  It has an alarming title, especially considering how much he and his team have been recomending gold lately.  However, this isn't a worry for long-term investors. He says at the end of the article that DailyWealth is still in a long-run bull market.  They're just warning people not to expect short-term gains and thereby recomends against investing in gold for the short term.

This really isn't anything new for them, actually, which makes me feel really good about them.  DailyWealth has Always generaly recomended against short-term investing, and for long-temr investing.  They also always recomend a varied investment portfolio.  Don't just invest in gold, invest in other things like options on the Japanies Yen Trust (FXY), they say.

Anyway, have a good read.

From Bergen, Hordaland, Norge,

Christopher D. Osborn 

Why Gold Could Fall 50% from 
its Highs
By Dr. Steve Sjuggerud
January 13, 2008

Who's bearish on gold?

I dare you... Name one analyst who thinks gold could crash now.

What, you don't know any? That's what scares me... Everyone I know is bullish on gold... Everyone but my friend Jack Crooks.

I've mentioned Jack once or twice in DailyWealth as a true, successful contrarian. Over the summer, Jack was the only man I knew who was bullish on the U.S. dollar. He essentially said everything keeps getting worse, but the dollar has stopped going down, so it's bottomed. He nailed it. The Dollar Index soared from 72 when he wrote that to a peak around 88 a few months later.

He's at it again, this time on gold... with similar reasoning. Yesterday, he pointed out several circumstances that should cause gold to go up... but haven't lately:

How much more stimulus is possible to pump out and cheapen paper currency the world over? How much closer can we get to all out war in the Middle East? How much more dangerous can the Pakistan-India on-going quagmire become?

This is nasty stuff...Yet the supposed supreme safe haven – gold – continues to fade [fall] on all this stuff.

Jack says gold investors have gotten the exact circumstances they want for higher gold prices... and yet gold keeps falling. This is not a good sign.

Here's another ominous sign: Gold is breaking down.

In worse news for gold prices, gold broke below its key long-term moving averages. Jack points out that the recent highs have been lower and lower – another bad sign.

You may not put much faith in technical indicators like these. But some actually work...

I ran the numbers today. I use a 45-week moving average as a signal of general uptrends or downtrends (above the moving-average line is a bull market, below is a bear market).

Since late 1970, gold has risen at about 6% a year, compounded. But amazingly, when the price of gold is above its moving average, it compounds at a double-digit annualized rate. And when it is below the moving average, you lose money. That is a huge difference.

We at DailyWealth do believe gold is in a long-run bull market. But the near term could be difficult...

Gold jumped from $35 to $850 from January 1970 to January 1980. That sounds like a rip-roaring bear market. But did you know, from March 1974 to September 1975, the price of gold fell by half? We could see that again. We're already down about 20% from the highs... and nobody is even particularly worried yet.

Look, my friend Jack Crooks is good at what he does. Between Jack and the current downtrend, I wouldn't make big bets buying gold right at this moment.

In short... own gold for the long run. But don't take big risks speculating on it in the short run – it could cost you.

Good investing,

Steve

P.S. I've known Jack since we worked 15 feet away from each other at a firm specializing in international investing. That was more than a decade ago. I can tell you Jack is a smart, uncompromising currency trader who knows his financial history and knows the markets. You can click here to learn more about his work.

Editor's note: Dr. Steve Sjuggerud writes True Wealth, one of the top five financial newsletters in the world. Steve's investment philosophy is simple: Buy assets of great value when no one else wants them, and sell them when others will pay any price. 

Recently, Steve uncovered a "glitch" in his favorite gold investment¦ This anomaly allows investors to make up to 665% after gold prices rise. Click here to learn more.

Newly Educated Fred Thompson?

Here we have a fairly new video of Fred Thompson mocking the liberal idea that spending and printing money and not saving will save us all:

On the other hand, we have him below mocking Ron Paul on these very same issues.  



I want to know, is Sen. Thompson newly educated, or is he just acting?  If it's not just acting, I would love to see him join Ron Paul's Campaign for Liberty, or perhaps donate to Downsize D.C.

Also, here's a messege from Tom Dyson of Daily Wealth:

The Stupidity of Government Intervention
By Tom Dyson

The only other time I'd ever seen this was in my school history books, learning about the Great Depression...

In September 2007, Britain's most overleveraged mortgage bank – Northern Rock – asked the government for an emergency loan. When its customers heard the news, they rushed to the nearest branch of Northern Rock to withdraw their savings. They formed queues around the block.

The next day, the government announced it was guaranteeing Northern Rock's deposits, and the panic went away. Then a funny thing happened...

Suddenly, people started draining money from all the other banks in Britain and depositing it at Northern Rock!

The government intended to make the financial system stronger by shoring up Northern Rock. But it made the financial system weaker by undermining the financial strength of all other banks. In the end, the government ended up nationalizing the whole system.

The same thing happened in Ireland. It was the weakest financial system in the euro-zone. Then it guaranteed all its deposits. All the money in Europe started flowing into Ireland. This weakened the banking systems in the other European countries, and they had to guarantee their bank accounts, too.

In the United States, the government is doing everything it can to help homeowners stay in their houses. These people couldn't afford their houses in the first place, but the government wants to keep them happy. So it won't let the banks foreclose their properties, and it's making banks reduce the principal on the loans.

Would you lend money to a home buyer knowing the government won't let you take the house if he doesn't pay you... or that the borrower doesn't have to pay the whole loan back? No way. Not unless you could charge an astronomical interest rate. The government won't let you do that either. Government regulations cap the interest rates you can charge on a mortgage.

So the government thinks it's helping unfreeze the credit markets. But it's actually making them worse.

Here's the point: Government intervention makes the whole system weaker.

Intervention kidnaps money that would otherwise be available to businesspeople and entrepreneurs... and it invests it in places that businesspeople and entrepreneurs would never put their money... like uncompetitive car companies or failed banks. Then it creates unintended consequences that make everyone poorer.

Government stimulus does not stimulate, it stifles. So when you look at the current levels of government intervention all around the world... India, Australia, China, Taiwan, Britain, Europe, and the biggest of all in America... you have to conclude it will lead to the biggest loss of productivity ever.

When the government controls an economy's financial decision-making, no one makes any money. This is why the government interventions haven't had any effect so far. It's also why stock prices will fall to valuations far lower than at normal bear-market bottoms of the past few decades.

So I'm not ready to call a bottom in the stock market. I'm only willing to buy a stock if it has a balance sheet with no debt, it generates tons of cash flow from selling a simple product, and it pays a dividend I know cannot be cut under any circumstance.

Besides that, I'm sticking to gold and cash.

Good investing,

Tom

Happy New Year Everybody!

From Bergen, Norge,

Christopher D. osborn

Chris Weber predicts a return to the Gold Standard

The following is Daily Wealth's latest advice on Gold. It start's with a scary question: "Will the government confiscate my gold?" and goes on to explain why it won't happen.

Will the Government Confiscate
My Gold?
By Chris Weber
December 4, 2008

I get this question from time to time, and I suspect that it is something many people worry about.

After all, gold was confiscated back in the 1930s. Why couldn't it happen again? To answer this, we have to go back a few years to show how different things are now.

First, gold was money back then and had been money for thousands of years. In the U.S., that practice went back to the Constitution. The founders had lived through the ruinous paper money inflation of the American Revolution and were resolved that the printing of paper money unbacked by gold or silver would never happen again.

Now, fast forward to America's biggest economic crisis, the Great Depression. When it started, the U.S. was still on the gold standard. People could take their paper money to banks and convert it into gold coin or bars at the old price of $20.67 per ounce.

But this put a crimp on the government's ability to inflate. And the new president, Franklin Roosevelt, came into office believing that massive new paper money and credit creation was the way to get the country out of the depression.

So he believed that gold would have to be removed as money. On March 6, 1933, just two days after he came into office, he barred banks from paying gold to depositors. One month later, on April 5, he outlawed what he called "hoarding" of gold. All gold coins had to be taken to banks and exchanged for paper money, at the price of $20.67 per ounce, with two exceptions – each person was allowed to keep no more than $100 in gold coins, and rare coins were not included.

So now we come to the situation today. Gold is no longer regarded as money in any legal sense. Almost no one has even seen or held a gold coin, or certainly less than 5% of the population. Since 1933, money is whatever paper value either the market says it is or the government says it is. There is no more legal tie to gold.

This is a first in human history. Earlier suspensions of the link between gold and money were short and to be gotten over with as soon as possible. But when the world went off the gold standard in the 1930s, it never went back on. Needless to say, inflation has soared since then. The paper dollar has lost over 95% of its value.

Today, however, unlike 1933, there is no reason for the government to confiscate gold. Indeed, the government is even minting it and selling it. It can't sell gold fast enough, and there are shortages.

(If, for some crazy reason, the government decided to confiscate gold, I doubt many people would comply. The gold would go into hiding and trade in an underground economy, the way illegal drugs do today.)

Gold was confiscated in 1933 because everyone thought of it as money. They used gold as money, and this situation made it impossible for the government to inflate, because you can't print gold.

Now, nothing stands in the way of the government's ability to inflate. The central banks have been doing it at record rates during the last few weeks in order to avoid deflation.

But I think future inflation will so ravage the value of the U.S. dollar, as it did during the American Revolution and the Civil War, people will demand that once again the dollar be backed by gold.

In the world economy I see emerging today, income and cash are going to continue to be sought after. Short-term interest rates will eventually rise, giving your cash a better return. But particularly, you'll be happy to have your gold and precious metals.

Good investing,

Chris Weber

Gold Still A Good Buy

Here's an article from an investment email list I subscribe to about how Gold may still be a very good investment.

Where to Start When You Want to Buy Gold
By Dr. Steve Sjuggerud

"You think people were surprised when gold hit $1,000 an ounce," a
legendary investor told me this week. "Wait 'til they see $5,000."

As we talked, this investor could hardly hold back his enthusiasm. You
see, he has spent his career finding crises, then buying assets at the height of
panic.

Normally, he does this far away from Wall Street in emerging markets.
And he's done it many times in his career. But now, for the first time, he's
thinking about coming to the States.

Most Americans wonder what will happen next. They have never seen anything
like this before. But my friend has seen it many times. He explained it
simply:

"In crisis, banks want safety," he told me. "So they get rid of
potentially nonperforming assets at any price. They don't care what they get, or
how much they lose on a property, for example... They just want to get it off
their books."

Having seen this many times in emerging markets, my friend is convinced the
Great Inflation is coming to the States in the next few years. The last time we
saw double-digit inflation was in 1981. It could get even worse this time
around. "It's already happening," he says, pointing to the U.S. money supply
figures, which have shot up over the last few months. "It will just take time to
ignite."

My friend is buying gold. One of his holdings is 100-year-old gold
coins. He has many millions of dollars worth of them. He has personally
experienced bank closures and currency revaluations, which have nearly
bankrupted some of his businesses.

So he owns physical gold. This is not like money in the bank. The
government can easily seize your bank account... or devalue your currency... or
confiscate your retirement account (which just happened in Argentina). It's much
more difficult for a government to mess with your physical gold – if it can even
find it.

For years now, I have been recommending 100-year-old gold coins. The
price of gold has more than doubled since I started recommending them. And so
have the prices of these gold coins.
It's not too late to buy. Relative to
their meltdown values, rare coins are cheap. But I don't think that's going to
be true for long...

People are finally catching on to the idea of holding physical gold.
Plain gold bars and "bullion" gold coins (coins that don't have value as a
collector's item), which should sell close to melt value, are in short supply.
You either won't be able to buy them at all... or you'll have to pay an
outrageous price for delivery at some undefined date.

Gold dealer Kitco has stopped selling 18 types of silver and gold bullion
coins and bars. The company's not even sure how long it's going to take to fill
orders that are already in. And bullion gold, which is only worth its melt
value, is now selling at premiums not seen since Y2K caused a market
panic.

So I much prefer the rare gold coins... the 100-year-old ones in near mint
condition. With bullion, you only make money if gold goes up. But with rare
gold, you can make money two ways... if gold goes up and if the "collector's
premium" over melt value goes up.

I've heard from a lot of readers who don't know how to start investing
in gold coins. Professional Coin Grading
Service has a website with lots of information, including a link to www.coinfacts.com, which is a good starting
point. If you want a book, Coin
Collecting for Dummies is actually a good starting place, even if you don't
think of yourself as a collector.

I am comfortable pointing you in the direction of a few honest dealers, who
have taken good care of my subscribers for many years. Van Simmons, in
particular, is a mentor of mine (www.davidhall.com). Dana Samuelson and his
team (www.amergold.com) have done my
readers right for years as well, as have Michael, Glenn, and Rich at Asset
Strategies (www.assetstrategies.com).

The Great Inflation is coming, my friend says. And he knows better than
anyone. He believes gold could hit $5,000. So as a part of his portfolio of
assets, he owns millions of dollars of 100-year-old gold coins.

"People told me I was crazy when I was buying them," he told me. "But
the gold was mine, outside of any bank. And now I've made triple-digit
profits."
My friend believes this is just the beginning for gold. Do you have
some gold, or gold coins, in your portfolio? Maybe you should...

Good investing,

Steve

As for my own recomendations for where to buy Gold, I'm not expet at all, but I like the Liberty Dollar as it can actually be used in some stores across the United States, including one place on Martha's Vineyard in Vineyard Haven, if I remember correctly.

Anyway, as Steve said, good investing.

Christopher D. Osborn
Posted from Bergen, Norge