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Cramer: Gold Critical For Diversified Portfolio

Release Date: 
Friday, August 9, 2013

Gold and Silver Prices:

Gold prices recovered from earlier losses to end the week modestly higher as China’s improving economy may signal increased demand for gold.(“Gold Rises for Third Day on Bets China Demand Will Climb,” Bloomberg, 8/9/13/) Gold closed the week up $1.20 at $1,315.70. Silver also ended the week in positive territory, closing at $20.66, up $0.67. 

Cramer: Gold Is Critical For A Diversified Portfolio

Financial analyst and commentator Jim Cramer told his Mad Money viewers this week why every portfolio should include gold:

“You want a portfolio that works in all kinds of markets... How to protect your wealth… in an increasing chaotic and unforgiving investment environment… There are five areas you need to have covered for maximum protection and maximum upside…You need some gold because gold has a special property the other ones don’t have; the one that makes this precious metal ‘precious’ to any diversified portfolio. Gold tends to go up when everything else goes down. Not always but does tends to do it that way. So I regard gold as your insurance against economic or geopolitical chaos, your insurance against uncertainty and inflation… the price of gold goes up in many calamities. I like to think of a gold position as a kind of ‘stock insurance.’ Would you own a home without homeowner’s insurance? You wouldn’t own a car without car insurance. You shouldn’t invest without gold because gold pays off when everything else fails; that’s what the position in your portfolio means. This is not about upside… This about minimizing your risk, your downside.” (CNBC Mad Money, 8/5/13.)  (“Cramer: 5 things that should be in your portfolio,” CNBC, 8/5/13)

Real Inflation Closer to 10%; Gold Important Inflation Hedge

Forbes contributor Jack Adamo warned readers that the government’s statistics on inflation fail to tell the real inflation story. “The government number for current inflation is 2% for the 12 months ending February 2013. Using the government methodology from 1990, inflation today is a little under 6%. Employing the methodology used in 1980, the number is even worse, 9.6%. The government has to keep changing the lie to stay ahead of the cruel facts.”

Mr. Adamo also warned quantitative easing will likely end in fiscal disaster. “What will the eventual effect of all this Quantitative Easing be? Do you think the answer to that is over your head? Too complex? It’s not. You are smart enough to figure out this answer in 10 seconds. Just ask yourself this simple question: If just printing money could make countries richer, wouldn’t the whole world be wealthy by now? History gives us the answer in recent disasters like the Weimar Republic and Zimbabwe, as well as examples going back at least as far as ancient Rome.

“So, we have a simple progression here. Experience and objective third party data tell us that U.S. inflation statistics are a lie. History tells us that all fiat currencies eventually fail. Today’s rate of exotic monetary adventurism is unprecedented.”

Mr. Adamo concludes, as many other analysts do, that gold is critical to a diversified portfolio. “In my view, the only x-factor is whether these Central Bank policies lead the world to high inflation, wherein the gold price will explode, or a decades-long period of low-to-negative economic growth, accompanied by deflating financial assets. I’m not sure which it will be, or whether it will be some mutant variant of the two, but gold is an inflation hedge and cash is a deflation hedge; I want to have a good helping of each on hand.” (“Ignore Government-Issued Stats, Gold Is Still An Inflation Hedge,” Forbes, 8/8/13.)

Investors Should Take Advantage of “Cheap” Gold: Aden Sisters

In their most recent Aden Forecast, noted financial analysts and newsletter authors Mary Anne and Pamela Aden advise investors to take advantage of gold’s recent consolidation before prices rise. “Diversify your investments…You want to keep some core holdings in gold because it will offset the decline in the U.S. dollar, which will eventually become worthless, as it has over the past few decades… with gold at extreme oversold levels, the most since 2008…you know the lows are near and the downside is limited.... The recent sluggishness is providing a good time to buy, if you want to buy more gold...Ben Bernanke said gold is down this year because investors see a reduced need for disaster insurance, and no one understands the gold price, including himself.  He’s right, no one knows where gold is going, but we do have a good idea why it will rise, and why it rose for 12 years since 2001.

“We all know that the monetary stimulus by the Fed, and other central banks, is very bullish for gold because the end result is inflationary. The central banks clearly do not want a gold standard of any kind. It’s much too restricting.  This is one key reason why China, Asia in general and India have been buying up gold. They see how cheap it is and they’re taking advantage of it, just like we want you to do. We are too.”  (The Aden Forecast, August 2013)

Richard Russell:  Pension Fund Bailouts May Devalue Dollar

Richard Russell, author of the Dow Theory Letters, wrote that government bailouts for pension funds may further devalue the dollar and bolster gold prices:

“Pension funds are underfunded all over the nation -- in cities, counties, states and the federal government. The know-nothing politicians are being blamed. On top of that, municipal bonds everywhere are imperiled…Chicago is the next candidate to run into pension trouble, but not a word about it in most of the papers…The average American (unless he's depending on his pension money) does not know what is happening…Once the public is aware and feeling the losses in the pension funds, there will be enormous pressure on the government to make everything all right, by putting up the needed money. How will the government do it? They'll do it the easy way -- it's called printing money. Got gold?”  (“Richard’s Remarks,” Dow Theory Letters, 8/7/13)

Gold Prices Should See Support from Emerging Markets, Asia

Dan Denbow, portfolio manager for USAA’s $1 billion Precious Metals and Minerals Fund, noting that emerging markets are taking advantage of lower gold prices, believes investors should continue to acquire gold for its defensive characteristics. “A lot of people were chasing the returns they’ve seen over the last several years.  They had forgotten that the reason you own gold is for its defensive characteristics. So we’ve seen a lot of that money leave from weaker hands… Hopefully going forward, investors will want it for the defensive characteristics. It will stabilize the investment demand and pricing environment…As long as the emerging markets keep coming in at these prices, that should be supportive of gold prices in the band we’ve been in for the last three months or so.  And then if we get any kind of inflation scare, you might see prices rise sharply.”  (“USAGX’s Denbow:  Gold Range—Bound For Medium Term But Long—Term Support Remains,” Kitco News, 8/6/13)

Marcus Grubb, managing director of investment at the World Gold Council told with CNBC, “We feel that speculative money has largely come out of the gold market. We feel that gold is nearer the bottom than the top right now. You'll see a stronger market towards the end of the year, and into next year…A huge amount of demand coming from India and China has underpinned the market at this level.”  (Bullion’s speculative trade near its end:  World Gold Council,” CNBC, 8/6/13)

Silver Eagles on Pace for New Record Sales

Investors continued to acquire silver American Eagles at a pace that may set a new annual record. “Sales of the U.S. Mint’s American Eagle Silver Bullion coins experienced their best July ever with a whopping 93.4% increase over July 2012 sales… During the January through July period of this year, total American Silver Eagle sales hit 29,450,000 ounces, a threshold not accomplished until November 5th of last year. The current annual sales record is 39,868,500 American Silver Eagle Bullion coins sold in 2011 when the 29.45 million silver ounce mark was not achieved until September 2011.”  (“2013 American Eagle Silver Bullion sales continue to shatter records,” Mineweb, 8/7/13)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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