GOLD THOUGHTS: New York, which considers itself the center of the known universe, has discovered a solution to collapsing mountain of mortgage debt. NYSE is delisting NEW. Strategy of out of sight out of mind works for them. Amid this collapse of mortgage related stock prices and business models, Street analysts are showing their skills. One of these fantasy forecasters lowered NEW to “under perform” on Monday. Talk about forecasting ability. The mortgage bomb de jour for Tuesday is LEND, down from almost $60 to $5. This one also downgraded to “under perform” by a talented analyst on Monday, and the price target of $26 was discarded. Interestingly, in most of these meltdowns some hedge fund seems to be identified as holding a major position. Pity the poor individual investors, the ultimate beneficiaries of this combined ineptness. 

Gold is a unique investment. It has no balance sheet. It has no earnings estimates. It is the only investment that is a true asset, neither a debt nor residual ownership. Such is the reason that central banks around the world, from beginning of time, have held Gold. Know any central banks that prefer to hold sub prime mortgages rather than Gold? Know any Roman mortgage broker stocks?

Gold has shaken off over bought condition that developed before yen carry trade panic. Importantly, Gold did not suffer an immediate sympathetic move on Tuesday morning as paper asset markets started meltdown. NASDAQ Composite Index has completely broken down. Faces a further decline of perhaps 1-200 points, as noted previously. Such periods demonstrate need to diversify portfolios with Gold, buying during price weakness. Silver may be moving toward an important buying point, in terms of price and time, this week. GDM gave an intermediate buy signal on Monday, suggesting better times ahead for Gold stocks. 

Gold's late price weakness Tuesday during the collapse of paper equity markets is likely going to create a significant buy signal this week. 

For those that can not overcome their paper asset addiction, put options on WB, any financial institution with exposure to  housing industry, brokerage firms that may have sold mortgage debt to gullible public, and so on. 

As a final note, advertisement for a cable business show on investing has been giving some interesting advice. Viewers are advised to buy stocks from the new high list and then sell higher. Imagine how that portfolio strategy has performed over recent weeks. Such is the reason they call that strategy the “greater fool theory.”  In contrast, we try to recommend buying Gold when prices are relatively low, declining or lethargic.  We hope then to sell later when Gold rises to more than US$1,400.

© 2007 Ned W. Schmidt
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GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive a trial subscription send a note to Ned.

Please remember that no method is perfect nor is the one running the model.
All estimated returns are for the model portfolio and do not reflect those earned on actual portfolios.