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Gold shakes off early weakness, posts modest gains
SAN FRANCISCO (MarketWatch) -- Gold futures changed direction Wednesday, shaking off initial weakness and posting modest gains in mid-session. Gold for August delivery added 30 cents to $1,195.90 an ounce on the Comex division of the New York Mercantile Exchange. Gold hit an intraday low of $1,185 earlier, according to FactSet Research. Market Pulse Stories are Rapid-fire, short news bursts on ...
Gold Stocks: 43,101 Reasons to Leverage the Alchemy Created by MCOON
Would you trade in your Washington paper (currency) for Wall Street paper (stocks)? Right now it might be hard to trust either. But there is an upside to this economic mess if you plan strategically, and treat both types of paper like Indy car tires that need to be changed out in a pit stop from time to time when their usefulness is spent. During the course of this race, which I will map out for you in detail after an introduction, there are only two simple pit stops before the final finish.
There is a raging debate going on amongst economists, both of the Keynesian and Austrian persuasions, as to whether the economic slump is leading us toward a true deflation or an eventual hyperinflation. If the economy is mimicking the Great Depression, is one argument, then cash is king, and dollars (the reserve currency of the world) are where you should be vested. Steer clear of the stock market. Wait on the sidelines until market sentiment is so negative that there is a pervasive attitude of apathy and indifference. This will be the turning point, if that can be prognosticated.
The other side of the argument says that no way are we headed for a depression-style deflation, but rather an extremely inflationary environment, the likes of which we have never before beheld (except in third world countries). This is based upon the monetary and fiscal policies that the current administration and their eager counterparts at the Fed are engaging in with their rescue packages, bailouts, economic "stimuli," and the dreaded last ditch effort of quantitative easing, a.k.a. debt monetization or MCOON (money created out of nothing.
You don't know which camp is right. The so-called experts called it all wrong, including the dead-head Fed heads, Alan and Ben. 'Span tinker-toyed with the interest rate all the way down to 1%, and 'Anke is following suit (bettering it to 0-.25%), ignoring cause-and-effect linkages of his predecessor's actions. Arbitrarily setting the interest rates has had and will have disastrous results. When there is a finite supply of something, such as gold, silver, oil, and other natural resources, fixing its price in the market place instead of allowing it to follow a natural supply-demand curve, ends up causing shortages. However, in fixing the price of money to an artificially low rate, instead of causing shortages causes its "real" value to diminish. This is because of the printing press and MCOON. There is an ability for the Fed to literally make money in amounts that you cannot comprehend. Do you know how much even $1 trillion dollars is? You may think you do (a one followed by twelve zeros), but you have likely never personally experienced more than .0001% of that amount ($100,000) at any one time. MCOON is a catalyst for inflation because it follows the natural law that states the more available anything becomes the less rare it is, and the less will be its intrinsic value. Thus, in the exchange of goods or services, you are required to pay increasingly more units of currency than before to make up for the worth(less)ness of each unit.
The game is to beat the central bankers by thwarting their efforts at taxing your wealth by MCOON (thus devaluing your dollars). Gold is the central bankers' worst enemy. Listen to Greenspan speak about gold before his appointment as Chairman of the Federal Reserve: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation... this is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." The father of Keynesian Economics, John Maynard Keynes, called gold a "barbaric relic," and said that we were all "dead in the end" anyway.
If central banks were made up of alchemists, with the ability to create gold, they would have. But the next best thing was to slowly withdraw its function (or at least try) and replace it with a substitute medium. This was done first by receipts for gold, and then keeping only a fraction of it in reserve. Eventually, gold was completely replaced by fiat (paper backed only by faith). How long will the faith in the dollar persist?
Here's where the alchemy of gold stocks kicks in. While the Fed is busy printing dollars you can be accumulating gold stocks from solid junior mining companies with good 43-101's. Printing by the fed now may cause a "type" of printing for your gold stock portfolio later. This is pit stop number one for you in the race. Here is where you trade in your low-tread tires (depreciating dollars) for new rubber (gold stocks). But remember, these new tires will wear down, too, and are not to be used indefinitely. Gold stocks will only take you so far, and will serve as your wheels only for a "season." During this time you must have chosen wisely your pit crew (men such as Bob Moriarty, James Sinclair, Jay Taylor, Jason Hommel, and David Morgan) to assist you in changing out your tires.
If you act fast enough, building speed and position (accumulating cash) before the first pit stop, you'll be ahead of the pack, and have a fresh set of tires (buy gold stocks) on before the rest of your competitors make their stops (pile into gold stocks, driving up their price).
Having eventually duplicated your efforts by having a diversified portfolio of junior gold stocks, you now have many sets of wheels (a whole team) on the speedway, and it becomes less important how each individual driver (gold stock) does than what the overall performance of the team is. By diversifying, you increase your odds of winning, and even one driver can make up for many sub par or mediocre ones. Also, second place, third, or even lower is no shame-you still come out a winner.
You see, in this race there will be a season in which the drivers (gold stocks) that have not crashed or gotten disqualified (become bankrupt) will all synergize. The leader will cause a draft big enough for all to fall in line behind and be effectively "pulled" along. Even the little guy's performance will be enhanced. In a season to come you will see surviving gold stocks that started out as pennies per share become valued in the tens and hundreds of dollars per share.
You (and only you) get to choose the next pit stop at this point. Nobody can do it for you. This is the last one before the home stretch. Here is where you trade your gold stocks back in for cash. But this is also temporary. Very temporary. It is only to make sure you are fresh and finish strong. Because almost as soon as you make this trade, you finish the race. Here you trade the cash tires back in for golden tires. This isn't rubber or paper. This is real gold bullion, and these tires are built to last.
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Click here for your first pit stop
And here for the
finish line
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