Seek Safety in Gold and Silver Before Reckoning Day
Dim Prospects for Stocks
With fall of the Dow Jones (DIA) below 12,000 along with the deterioration of the S&P500 (SPY) and NASDAQ (QQQ) throughout the past six weeks, there is plenty of evidence that the stock market in general has not been and will not hold up very well either. Poor economic data with regard to housing and consumer prices is putting a damper on growth estimates. The US government’s policies meant to spark job creation and a new economic boom are not working out as intended and whispers of a double dip recession are becoming hard to ignore.
As recently as April, the market was quite bullish with financial headlines citing consumer confidence gains, booming global demand, and expectations for even greater highs. Then, along came the economic reports that indicated otherwise. Numbers on jobs were still disappointingly bleak; the latest unemployment figure rose to 9.1% and hiring numbers missed estimates by over 50%. Home prices continued to fall, tumbling below lows in 2009, as the supply of houses on the market far exceeded the number of people who wanted to or were even able to buy one. Even worse, the Consumer Price Index continued to rise, increasing 0.2% in May, with the core CPI jumping 0.3% for the biggest increase since July of 2008. This sets up a vicious cycle of stagflation where sales and demand deflate further because of inflation, only to cause job creation to slow even more.Growth becomes stunted, and it will take an expensive combination of fiscal and monetary policy to climb out of that mess.
There are also analysts who are predicting a crash based on valuations of the market. Yale economist Robert Shiller has popularized a ratio called cyclically adjusted price-earnings that divides the S&P 500’s price by the average inflation adjusted earnings during the last 10 years. By this metric, stocks in the S&P are trading 44% above the mean ratio and equities in general should still be considered expensive. Analysts who believe government stimulus efforts are only inflating the economy see this as a signal that markets will crash back down as earnings revert to what they should be.
Perhaps the stock market is hanging on because of momentum, as investors who witnessed the roaring bull of early 2011 still want to seek out a few more profits. Or perhaps, the difficulty of the US economic situation has not been fully grasped and accounted for.Either way, the markets are due for another correction, more significant than what we’ve seen so far, and it will be difficult to avoid.
Gold and Silver Still Glitter
When growth starts to look difficult and government debt is becoming a problem, it’s the perfect opportunity to start safeguarding earnings by turning to precious metals. Gold and silver assets are the leading investments for times of uncertainty because they hold their value across time. If inflation starts rising, gold and silver will keep up in price and the real value of the investment will not suffer. Similarly, when the currency of the US or other nations weaken because of political and economic turmoil, gold becomes a safe haven because the assets will still retain value, even if there is a total economic collapse. Thus, as political problems accumulate and the markets start looking weak, demand and prices for gold and silver will rise even more.
To get gold into your portfolio, look toward ETFs that hold gold and stocks of the mining companies that sell gold. The most popular ETP,SPDR Gold Shares (GLD), holds gold and replicates the performance of gold bullion on the market, minus expenses and fees. Funds like GLD, Silver Wheaton (SLW) and iShares Silver Trust (SLV) offer a fairly direct way of investing in gold and silver without having to actually own and store the physical metals.
http://seekingalpha.com/article/275237-seek-safety-in-gold-and-silver-before-reckoning-day
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