GOLD THOUGHTS
by Ned W. Schmidt, CFA, CEBS
Schmidt Management Company
August 8, 2007

As U.S. mortgage market infrastructure continues in collapse, era of paper assets is fading into history. Last week's chart showed that Gold has provided higher returns than paper assets over past ten years. Today's graph places situation in a longer term perspective. Era of real assets, personified by Gold, is early in a cyclical upswing. Good part is yet to come. Plotted is ratio of US$Gold to S&P 500. When rising, Gold is performing better than paper equities. The ratio remains at a multi year high, confirming that the rise of Gold over paper equities continues. Solid line is average for entire 62 years, and provides means for valuing Gold and paper equities. Based on Gold's price, the S&P 500 should be 570, down 60% from current level. Based on S&P 500's current price, Gold should be at $1,700, up 150%. Reality will be somewhere in between these guesses, but the bias has to go to Gold.

FOMC may have made a wise decision Tuesday, one of their few. Goal of moderate inflation benefits all. Bailing out hedge funds, private equity funds, mortgage brokers, and bond dealers benefits the undeserving. Saving speculators is not part of Federal Reserve's mandate. Risk exists as an attempt will likely be made to fix collapsing U.S. mortgage market. Better solution would be to rapidly flush down the drain those funds and brokers which have exacerbated mortgage mess. Sooner they are gone, quicker system can recover. Doing what needs to be done, rather than politically fashionable, has rarely been a Federal Reserve policy. Given the Fed's record and continued likelihood of mortgage market bailout, moving out of both North American dollars into Gold is the wisest investment course.

© 2007 Ned W. Schmidt
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Ned W. Schmidt,CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT. That report now includes a weekly message, TRADING THOUGHTS, to help investors identify timely points for buying Gold and Silver. His monumental report, "$1,265 GOLD", with 255 pages and 98 graphs, is now widely known, and is available at www.amazon.com or from the author by clicking HERE This work has now been read by investors in over twelve countries around the world. Ned welcomes your comments and questions. His mission in life is to rescue investors from the abyss of financial assets and the coming collapse of the U.S. dollar. He can be contacted by Email.