The gold price
The War on Money - 1 June 2009
A kind of war has begun, a war against money and savers...
THIS YEAR the federal US government is conducting a fiscal experiment, writes Porter Stansberry in Daily Wealth – something that's never been done before.
The government will attempt to borrow 50 cents of every dollar it spends, pushing our annual deficit to more than $2 trillion. This amount of deficit spending will equal between 15% and 30% of our country's total GDP.
That's a level of fiscal stimulus that's never been attempted before – ever, except in time of war.
There is a war of a kind underway. Most people don't understand it because it's not a war that involves soldiers or guns. It's a war against sound money. It's a war against creditors. While every battle involves uncertainty, there is no doubt who will win this war: inflation.
Last year, I began to write about my fears the government would go overboard in its efforts to prop up the banks and the economy. Those fears have more than come to pass. In addition to the enormous amount of fiscal stimulus, the Federal Reserve has tripled the size of its balance sheet and bought long-duration US government bonds, monetizing our debts. We will pay for this profligate spending, not through constitutional means – as approved by Congress – but through inflation.
Right now, inflation is moving various base metals, financial stocks, and transportation stocks higher. But the best and most historically significant way to protect yourself from the debasement of the currency is through Gold.
At the end of last year, when I could see what the government was going to do to our money, I recommended readers of my investment advisory buy shares of the Gold Mining exchange-traded fund (GDX). The recommendation has done very well. We're up nearly 60% in about six months.
I told my readers to Buy Gold stocks because I noticed the spread between the gold-mining stocks and the metal itself had never been larger.
You can see the big gap with your own eyes in the following chart. (The price of gold, as proxied by the GLD trust fund, is in red. The price of gold stocks is in blue, tracked by the GDX fund.)
For obvious reasons, the price of gold and the gold-miner fund are normally tightly correlated – as they were at the beginning of 2008.
But then, in the big financial blowup, the shares of gold miners fell while the price of gold remained essentially unchanged on the year.
Why? Because when hedge funds were forced to deleverage as credit became scarce in the third quarter of 2008, they had to sell their holdings – which included gold stocks. But Gold Bullion itself avoided the worst of the sell-off. That meant the unwinding of many leveraged commodity bets created an unusual anomaly between the price of gold stocks and the price of gold itself.
As you can see, the gap between the two, which went as wide as 40%, hasn't yet been closed fully and still stands at about 15%. If you don't own Gold Bullion yet, I hope you buy some soon. It's going much higher. If you want extra leverage to this rise, it's not too late – I believe – to take a position in gold stocks.
THIS YEAR the federal US government is conducting a fiscal experiment, writes Porter Stansberry in Daily Wealth – something that's never been done before.
The government will attempt to borrow 50 cents of every dollar it spends, pushing our annual deficit to more than $2 trillion. This amount of deficit spending will equal between 15% and 30% of our country's total GDP.
That's a level of fiscal stimulus that's never been attempted before – ever, except in time of war.
There is a war of a kind underway. Most people don't understand it because it's not a war that involves soldiers or guns. It's a war against sound money. It's a war against creditors. While every battle involves uncertainty, there is no doubt who will win this war: inflation.
Last year, I began to write about my fears the government would go overboard in its efforts to prop up the banks and the economy. Those fears have more than come to pass. In addition to the enormous amount of fiscal stimulus, the Federal Reserve has tripled the size of its balance sheet and bought long-duration US government bonds, monetizing our debts. We will pay for this profligate spending, not through constitutional means – as approved by Congress – but through inflation.
Right now, inflation is moving various base metals, financial stocks, and transportation stocks higher. But the best and most historically significant way to protect yourself from the debasement of the currency is through Gold.
At the end of last year, when I could see what the government was going to do to our money, I recommended readers of my investment advisory buy shares of the Gold Mining exchange-traded fund (GDX). The recommendation has done very well. We're up nearly 60% in about six months.
I told my readers to Buy Gold stocks because I noticed the spread between the gold-mining stocks and the metal itself had never been larger.
You can see the big gap with your own eyes in the following chart. (The price of gold, as proxied by the GLD trust fund, is in red. The price of gold stocks is in blue, tracked by the GDX fund.)
For obvious reasons, the price of gold and the gold-miner fund are normally tightly correlated – as they were at the beginning of 2008.
But then, in the big financial blowup, the shares of gold miners fell while the price of gold remained essentially unchanged on the year.
Why? Because when hedge funds were forced to deleverage as credit became scarce in the third quarter of 2008, they had to sell their holdings – which included gold stocks. But Gold Bullion itself avoided the worst of the sell-off. That meant the unwinding of many leveraged commodity bets created an unusual anomaly between the price of gold stocks and the price of gold itself.
As you can see, the gap between the two, which went as wide as 40%, hasn't yet been closed fully and still stands at about 15%. If you don't own Gold Bullion yet, I hope you buy some soon. It's going much higher. If you want extra leverage to this rise, it's not too late – I believe – to take a position in gold stocks.
Porter Stansberry, 01 Jun '09
Porter Stansberry is founder and publisher of Stansberry & Associates Investment Research, a private financial publishing company based in Baltimore, Maryland, and editor of the monthly Porter Stansberry's Investment Advisory.
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