April 4, 2009 – Gold Bullion

The fact is there are not many investments which can claim to be beneficial during good and bad times. When investors are looking for haven buying, they turn to gold. When investors are balancing portfolios during thriving economic conditions, they turn to gold. Last year gold trading rose over 20% in response to declining economic conditions. While the equity markets were dropping to record lows and lost $29 trillion of value, investors were buying gold bullion in record amounts.

You have to ask yourself why gold is such a great investment no matter what financial conditions are like. Of course, one of the reasons is because it is a precious and limited metal. Anything that is limited in quantity will hold value. But gold is also seen as one of the most stable of investments, because the price may get temporarily dragged down when the economy causes falling metal demand, but there is never any doubt it will rise again. That leads back to the fact it is a precious and limited metal.

Precious metal investing has been popular since man discovered gold. Even ancient civilizations traded pure gold jewelry and coins for other commodities. With the current economic conditions, it sometimes feel as if we are going to have to return to trading shells and beads again to survive. It’s a doom and gloom world right now with investors seeking safe haven investments. Gold is a soft metal for hard times.

Deteriorating Conditions

Investors had really hoped that early 2009 would bring better news about the recession. Instead it has brought more instability. The markets are weak and that is why they swing by such large numbers at every piece of bad news. The news is bad around the world too.

· US based Bank of America has asked for more bailout funds from the US government signaling a banking system that remains unstable
· UK housing prices have fallen for several months in a row
· Germany’s economy is expected to contract by at least 2.5% in 2009
· US housing foreclosures rose by an astonishing 81% in 2008
· Stock markets lost an estimated $29 trillion in value in 2008 and many stocks continue to decline to new lows
· Retail sales continue to decline
· Export-based economies are suffering losses as a result of the recession leading to less demand

The reductions in exports by countries such as China and Mexico are causing currency declines that are alarming. The current economic crisis is unique and has no precedent. Sure…it reminds you of the 1929 recession, but it’s not the same thing at all. In 1929 the federal government began a public works campaign to put people back to work but it did not buy bank or private assets. In 1929, the global economies were not so intricately tied together either. Before the current crisis began, how many average investors understood the US subprime mortgage market was funded by countries around the world? It was a house of cards waiting for a big wind.

A Gold Rush

Gold price projections for 2009 vary depending on which analyst report you read, but the majority of predictors are bears. In other words, they see the average price of gold rising in 2009 as it did in 2008. When you consider that 2008 was one of the worst years in financial terms, and 2009 is predicted to be more of the same, looking to gold investments as a hedge against portfolio losses makes sense.

Here’s another way to look at it. In 2008, whoever decided to buy US gold coins or gold bullion on New Year’s Eve 2007 would have seen close to a 3% average increase in value by the end of 2008. But there were plenty of opportunities along the way to buy and sell and make a substantial profit. If 3% does not sound like much, just consider most investors lost up to a third of their portfolio value when the stock markets plunged. Gold increased in value during a year that will go down in history as one of the worst years economically.

In good or bad economic times you can depend on gold over time to preserve your investment value. There are expectations for a weaker US dollar during 2009 and gold prices normally go in the opposite direction. A weaker US currency will mean stronger gold prices as investors seek safe haven assets.

A Safe Haven From What?

Gold prices have declined so far in 2009, but that is not going to continue over the year. In fact, some analysts are predicting it will reach over $1000 an ounce from its current $894.30 per troy ounce price. But even if you just look at the current price you realize what a haven an investment in gold can be.

Despite falling housing prices, falling equity markets, falling interest rates, and falling consumer spending….gold prices are holding to a level over $800 an ounce. That is really remarkable when you consider the severe problems financial markets are having.

Unfortunately, the government cash injections into the global economies are simply not working yet. In fact, US Federal Reserve Chairman Ben Bernanke said it would take significantly more government stimulus in order to halt the recessionary slide.

So how much is enough? No one knows how much is enough and that thought is scary in itself. If the government doesn’t know what will work to stimulate the economy, how are you supposed to know how to invest your money to avoid large losses in 2009? That’s the trillion dollar question, and one of the best answers is to buy gold whether it’s in the form of bullion or coins. Gold is a safe haven asset…always was and always will be.

When It All Looks Bad….Gold Looks Good

Interest rates are at zero percent for many investments now which make investments like government securities uninteresting and unproductive. The stock markets are expected to remain volatile in the months ahead meaning those who have already lost so much will be seeking safer places to put their money.

Gold, on the other hand, is expected to outperform other asset classes in 2009. The price may rise and fall but the trend is expected to be upward as the recession unfolds.

When things are looking bad in the financial markets….gold looks even better!

Stewart Lawson

April 4, 2009

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