Are Investors running in the wrong direction?


Dear PGM Capital Blog readers,
Since July 22nd of this year we have seen the major global markets based on fear of a default of Greece in a tailspin.

As can be seen in below charts, in the first instance Investors run to precious metals like gold, sending the price of Gold to an all time high of US$ 1,920.00 an oz, but during the last week we have seen Investors dumping gold and fleeing into USA Treasuries and by doing so sending the yield of the 10year note to an all time low of 1.715% on September 22nd 2011.

The big question most people are asking themselves is, if  those investors fleeing into USA treasuries, are running in the wrong direction?

Here below we’ll try the analyze the current global situation and provide you with our vision of the direction the world and global markets are heading.

In our opinion the flight into the USD and US-Treasuries is temporary and investors will soon turn around in the good direction and put their money in the safe heaven of Gold, Silver, the stocks of their producers and other mining companies. The reason for this is simple: in a world in  which central banks and politicians are printing money at will to save failed institutions and countries, that printed money will become worthless and subsequently inflation will shoot through the roof.

Gold and Silver for thousands of years have functioned as real money until 40 years ago, when president Nixon decoupled the USD from Gold in order to be able to print money at will. Other countries followed the USA and also decoupled their currencies from Gold. By closing Gold Standard on August 15th 1971 and subsequent ended the Bretton Woods system of international financial exchange and going into a FIAT currency system, the world has placed the foundation for the current global financial and debt crisis.

FIAT Money is nothing else than currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.

Below a quote from Wikipedia on FIAT Money

Fiat money is money that has value only because of government regulation or law. The term derives from the Latin  fiat, meaning “let it be done”

The question most people are asking themselves is, “If the above is true”why did Gold and Silver sell off that dramatically last week?

The answer to this question is very simple.

Global Capital Markets can be considered a very cruel animal, and the Gold and Silver ones are no exception. History will prove that the only intention of last week’s Gold & Silver market correction, was to professionally scare investors out of the market.

We used this correction to add Gold, Silver, Platinum, Palladium and Rare-Earth elements to our personal portfolio and those of our clients.

Last but not least, those of you who after reading this article still believe that  USA Treasuries or Euro-Bonds are still the safe havens in the current world crisis, please answer the following questions:

  • If you don’t want to own the USD today, do you want to hold a promissory note that will give you USDs in 10 years?
  • What do you think the purchasing power of your USD or Euro will be in 10 years?

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities as well as the stocks of their producers can be very volatile and that sharp corrections might happen in the short term.

Yours sincerely

Eric Panneflek

One thought on “Are Investors running in the wrong direction?

  • While agreeing with Mr Panneflek on the prospects for gold & other precious metals to resume their rising trend, I also realize all too well that man is an emotional “animal”, governed by ratio as well as by fears and unreasonable decisions. There is always a reason why:
    – having grown used to certain habits & values, it is difficult to let go and turn to something else, especially for older folks who have ‘always’ believed in Uncle Sam’s dependable status.
    – having seen one’s portfolio drop with some 15% in the past few months and witnessing the ‘meltdown’ of gold as well, an older investor (say over 70) may well wonder whether his cash would have lost as much of its value in these past few months if he had cashed in his then still 15% higher portfolio. He may then wonder how long it will take for his portfolio to grow back to its latest 15% higher value.
    Of course these considerations may not be rationally inspired, but then, neither is any prediction on the next growth of anything.
    The moral of all this is that economics and especially the ‘art of investing’ may seem to rest on inviolate numbers, but basically it rests on the folly of mankind.
    Having said all this, I still think that the rationale for gold to climb back and grow beyond its last pinnacle, makes perfect sense, assuming of course that nothing happens that we, rational people, have not anticipated.
    Surprises in life are always there, and one can always be caught with one’s pants down in a blizzard.

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