In the fine print of most investment advertisements or in the softly spoken disclaimer at the end of a commercial, we generally read or hear the phrase “past results are not indicative of future performance”. While those exact words may not be written or uttered, something along those lines is found on almost any piece of investment literature or in investment product commercials.
The mainstream consensus on rising rates is wrong
Heading into 2011, the consensus outlook on precious metals is slightly positive but the consensus believes that higher interest rates will ultimately support the US currency and in turn engender a move out of Gold. The Gold naysayers are using “rising rates” as a way to dismiss Gold. Rising Rates will hurt an economy that is only three years into a de-leveraging cycle and have a dramatic impact on debt service payments. This will lead to greater monetization.
Last year, as we were about to enter 2010, I was optimistic about the economy but cautious on the market (2010: A Good Year for the Economy and a Mediocre Year for Stocks?), as several macro developments I was watching suggested as much. However, the converse appears to be the case this year in which it is quite possible 2011’s best returns will occur in the first part of the year while the second half may be a bit problematic.
Over the last two days, commodity stocks and commodities opened strongly, but quickly lost ground to profit-taking in the early morning hours. The consolidation process seemed orderly until today when silver dropped $1.80, gold dropped $47.90, and crude oil dropped $3.19 at the session lows. Basically, supply has entered into the equation.
You’ve seen the proof in real time. Once-dominant industrial companies, e.g., General Motors, can run out of money. The biggest banks, e.g., Bank of America, can run out of money. Even sovereign governments, e.g., Greece, can run out of money. Yes, all those organizations are still limping along, but only after being rescued by other giant institutions, such as the U.S. government, the less unhealthy European governments, the European Central Bank, and the International Monetary Fund.
With gold well into record territory, investor enthusiasm is boiling over.
There is a wide range of opinions on the outlook for metals, reflecting the uncertainty in nearly all of the variables that impact metal prices.
The sovereign debt and worries and fears of a double dip recession still cloud the outlook for some investors. Another round of quantitative easing will inject another $600 billion into the global money supply. The announcement of QE2 built confidence that the American economy will remain in positive territory. It also re-ignited inflation concerns, pushing gold to a further record high.
Last month, I addressed the hype around gold confiscation, and debunked the myth that collectible or numismatic coins would offer effective protection. But there is another sales pitch that many dealers will use while trying to "up sell" you to numismatics. They may argue that on investment merits alone, numismatics are a better bet. While this may be a more rational line of thinking than the typical confiscation con, it is bad advice for investors hoping to protect their assets in an economic slump.
The year 2011 brings in a host of opportunities and challenges to America. Will we accelerate toward economic insolvency by continuing the policies that have created this crisis, or will a new Congress elected on the energy of the Tea Party movement find the courage to change course?