While I share the great concern about her destructive economic policies of this administration, I am getting a contrarian tick about the dollar and gold.
Every right wing talk show and business TV show is flooded with adds selling gold to consumers. “The dollar decline is inevitable” the pitchmen warn, “Gold is the only safe money.”
When there is this much noise and whenever anything is inevitable it is time to be cautious.
I remember during the seventies when inflation seemed inevitable. The doomsday newsletters like Harry Brown and Howard Ruff had middle class investors buying gold coins, opening us accounts in Swiss banks and investing in Swiss Franc CDs. Gold reached over 800 dollars an ounce.
And then the inevitable did not happen.
Volcker and Reagan wrestled inflation out of the system, the dollar soared and gold plummeted. Silver which ran as high as $50 an ounce came crashing down to under $5. The real reason for its rise and spectacular bubble was not the desire for sound money but the manipulations of the notorious Hunt brothers.
Middle class investors who bought into the fear and invested heavily in foreign currencies and gold were badly damaged.
It is challenging enough to get accurate information about domestic stocks. Understanding the factors affecting currency values and foreign markets are far beyond the scope of middle class investors (and most professional investors as well.)
Interest rates are near zero. They cannot go down any further, and given the deficit will likely go up. When interest rates go up the costs of holding a non interest bearing asset like gold goes up, and this puts down ward pressure on the price of the metal.
While the dollar may seem vulnerable its value on world markets are relative to other currencies. As we see the Dubai fantasy teetering on the brink of bankruptcy and countries like Greece nearing default, the dollar may start looking better if for no other reason than other countries are looking worse.
The amount of uncertainty multiplies greatly when you leave our borders. If you are concerned and want some gold limit your exposure to 10% of your assets and even dollar average that to avoid buying at a top. Consider gold stocks like Newmont or Goldcorp that you can sell easily and quickly if the market turns against you.
Do not put gold in your 401k or retirement account. The tax protection is better suited to income investments, even low yielding but secure Treasuries. If you think interest rates are going up (I do) avoid long term bonds of any nature. Bond face values drop as interest rate rise.
Successful investing requires controlling your emotions. Anger and fear over this administration’s policies can easily influence your investment decisions. Rarely does such emotional influence lead to better decisions.