With inflation looming, gold should be at the front of every investor’s mind. It’s the ultimate store of value.
But how much should you own? In today’s guest essay, our US colleague, Dr Steve Sjuggerud, shares his thoughts...
Best regards,
Frank Hemsley
For The Right Side
The Right Amount of Gold Investors Should Own
BY DR. STEVE SJUGGERUD
You often hear “You need to own gold!” But how much is the right amount?
You don’t want to own too little gold and have the purchasing power of all your savings shrink dramatically. You can’t afford that. But you don’t want to be an end-of-the-world nutcase either.
Well, one of the world’s shrewdest investors – Jean-Marie Eveillard – has 10% to 12% of his extremely successful investment fund allocated to gold and gold plays...
Jean-Marie Eveillard’s First Eagle Global Fund beat the stock market every year this decade. What’s more, he’s done it conservatively... He doesn’t take big risks. Over 30 years, he’s proven to be one of the most successful mutual fund managers ever.
So what does Jean-Marie Eveillard recommend buying today?
“After equity markets have gone up 35%-40% or more over the past three months, ideas that are immediately appealing are few,” he told Bloomberg news today. But he did have one big idea... gold.
Right now, his fund is about 10% invested “in gold and gold mining securities,” he said.
His explanation is simple: “It’s insurance to protect against the fact that current policies by the American government and the Fed are potentially wildly inflationary.”
Jean-Marie likes gold because he expects the Fed will leave interest rates near zero for a very long time.
The Fed will “stay pat until the politicians give them the green light to raise rates, which will take quite a while. As long as unemployment is very high, politicians will be reluctant to push up short-term rates.”
When I got into investing nearly 20 years ago, Jean-Marie was already a legend. After doing my homework, his First Eagle Global Fund was one of the very first investments I ever bought. (Back then, it was called the SoGen fund... it still uses its old symbol, SGENX.)
Jean-Marie started managing the fund in 1979. If you had invested $10,000 in the fund back then, it would be worth roughly $500,000 today. (Heck, I should have kept my money in there!)
His “big idea” now is very simple. Gold pays no interest. And money in the bank pays nearly no interest. You can print money. But you can’t print gold. If the Fed keeps interest rates near zero for the foreseeable future, the obvious outcome is that it will take more slips of paper (dollar bills) to buy an ounce of gold.
He believes his clients’ money should be about 10% or so allocated to gold and gold investments. What's right for your situation? That’s up to you. But if you’re substantially under or over the legendary investor’s gold allocation, then you ought to consider getting more in line with him...
Good investing,
Dr. Steve Sjuggerud
For The Right Side
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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Click here to learn more about the imminent threat of inflation we are facing and for how you can use gold and other “wealth fortress” tactics to protect yourself.
MARKET NOTES
The battle for $1000 gold
BY BRIAN HUNT
There is a giant battle happening in the market right now. Let’s call it “The Battle for $1,000 Gold.”
Today, we take a close look at the fighting. As you can see in the chart below, gold made a run at $1,000 in early 2008. This “run” came at the end of a big move higher for gold in late 2007 (which coincided with a big move lower for the U.S. dollar).
After taking a needed break, gold made another push toward $1,000 in June 2008. The sellers beat it back. Gold made yet another push toward $1,000 in February of this year. Again, it was beaten back by sellers. The cycle repeated two weeks ago when gold kissed $980 and fell back.
The government knows gold in the quadruple digits sends a signal of “dollar trouble” to the world... so it would rather see gold much lower. And there are several conspiracy theories on how the U.S. government is holding gold prices back. We think they’re far fetched...
But we can say for sure that markets are often like battlefields. One side fights to claim new territory, only to be thrown back by defenders. As you can see from today’s chart, we have a full-blown battlefield in the gold market.
On the “bull side” you have governments around the world debasing their paper currencies in order to bail out everyone. On the “bear side” you have major selling pressure that steps in to fight at the $1,000 line.
Our bet is on the bull side. After all, you could write the name of every historically successful paper currency on a hamster’s left... ear.
Brian Hunt is an Editor for the DailyWealth, this article was originally published in his Market Notes.
The Daily Reckoning – Killer summer ahead
BY BILL BONNER
London, England
Thursday, 18 June 2009
Summer begins in 3 days. We can hardly wait. We predict it will be a killer.
Several interesting things are likely to happen this summer.
- Unemployment rates will go up.
- Rising joblessness will increase rates of defaults, foreclosures, and bankruptcies. Not just at the consumer level – but throughout the system... including banks, states, businesses, as well as households.
- The stock market will take a dive as earnings fall and investors realize that there will be no quick recovery.
Oh... and one more thing: US bonds could collapse. But watch out; here’s where it gets tricky. Another swoon in the stock market could send investors running for the smelling salts in the bond market. A collapse of bond prices, on the other hand, could send them helter-skelter into stocks.
Yesterday, the Dow rose 7 points. Oil held at $71. The dollar lost a little ground – to $1.39 per euro. And gold added 3 bucks.
It is impossible to predict what will happen – or when – in the markets. So let us turn our attention to the real economy. Here, we see the picture more clearly: We’re in a depression. We write depression with a small ‘d.’ We’re saving the big one for later.
Few economists or analysts will tell you we’re in a depression. They’re looking at “green shoots” and rising trendlines. They’d do better to read a little history. Such as the history of the Great Depression.
Martin Wolf in the Financial Times (reporting the results of a study by two American professors):
“First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.
“Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.
“Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.
“The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.”
Yesterday, we proposed two sine qua non for a new boom. Either the feds revive the old economy – by getting people to borrow and spend more money. Or, the mistakes of the past must be corrected...
Read on...
To read the Daily Reckoning in full, click here.
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