This kind of sentiment tends to be overly emotional and misses the big picture. This latest gold sell off was sparked by Fed Chairman Bernanke's admission last week that Washington's Keynesian stimulus has failed. He admitted that despite trillion-dollar deficits and a gross devaluation of the dollar, the economic picture remains bleak. As such, he outlined the Fed's "Operation Twist" his latest stimulus effort. Taking the Chairman's distress to heart, investors dumped "risk assets" like gold and silver. But stimulus is the very reason why we have been buying precious metals in the first place.
In the meantime herd instincts seem to have taken over and many people are making bad decisions. They're betting that the Fed has turned off the monetary spigot for good, forcing investors to "get defensive." Losses from the recent broad stock market sell-off are likely generating margin calls, and many investors may be taking profits from their gold and silver investments to cover.
It's my belief that they are as wrong now as they were when this happened back in 2008. The reality is that the US economy is most likely in the midst of a depression. I believe the Fed and the Administration are going to do whatever it takes to mask that fact - and their only tools are spending and printing. If the economy fails to revive, I believe many more banks will start failing. To prevent another highly unpopular round of bank bailouts (possibly termed TARP II), the Fed will likely launch its next round of quantitative easing (QE III). If I'm correct, the prospects for gold and silver should be bright.
Remember gold is, in my view, temporarily losing its luster because the dollar is temporarily regaining some of its shine. But those buying dollars now are those who were surprised by the renewed weakness in the U.S. economy. They had previously sold their dollars to buy "riskier" assets that they thought would perform well as the U.S. and global economies recovered. As they concede their mistake, they are reversing those trades. They were wrong about the recovery and I think they are just as wrong about the dollar and gold.
It's my opinion that a weakening U.S. economy is far more bullish for precious metals than a strengthening one. That is because the Fed is more likely to print money, and in larger quantities, when the economy is weak than when it is strong. And so, I'm convinced that the economy will slow against a backdrop of inflation rather than deflation. Gold and silver are traditionally the best hedges against inflation.
Viewed through this perspective, the current correction can be an opportunity to buy physical bullion. But don't be cajoled into leveraged accounts or other gold sales rip-offs. (For more on common gold scams and rip-offs, CLICK HERE to read Peter's recent report.*)
But if you're looking to help protect your assets for the long-term, now may be the time. If you believe in the unreliability of paper money and the cluelessness of our economic leaders, don't get caught in the game of trying to find the lowest possible price.
We look forward to helping you make your first purchase or add to an existing position.