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A subscriber to our newsletter asked me a question that is worth an answer for all our readers below:

David,

Your thoughts on the following article,

Howard
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Ask Matt: Gold doesn’t make for diversified portfolio

USA TODAY markets reporter Matt Krantz.

Q: Is gold a good asset to own to reduce volatility in your portfolio?

A: Fans of gold like to say it’s a precious metal that holds its value no matter what. Gold, the advocates say, is the rock of stability even when stocks turn volatile.

The problem, though, is reality hasn’t proven this theory out. While gold sometimes can be relatively calm vs. the stock market during extreme bear markets, it’s hardly stable. Investors are learning that gold can add, not subtract, market volatility this year.

Just as the stock market started to exhibit some weakness, following comments from Federal Reserve Board Chairman Ben Bernanke, gold got even uglier. The price of gold lost 23% of its value during the second quarter, one of its worst showings in at least nine decades, Bloomberg News says.

Historical studies have shown gold as an asset with high relative volatility and low long-term gains, making it a poor choice for investors looking for a diversified portfolio. Some experienced traders might be able to capitalize on gold in very short moves, but only if they know how to get out at the right time. Very few gold traders have shown the ability to time the market, profitably over the long term.

Here is my reply:

Howard,

USA Today is not where I would go to for information on gold. 

As far as this article, I agree with the premise that most people will lose money “trading” gold.  It is also true that gold is “volatile” and one should not expect gold to always go up when the stock market goes down.  If the stock market keeps rising, based on the Fed’s inflating and QE to Infinity policies, gold will rise right along with it.  Gold, like the stock market, has periods when it does well, like the 11 years from 2000-2011, when it crushed the stock market.  It also has periods, like the last year and a half, when it doesn’t.  The recent smash was not due to economic forces.  Yesterday, I wrote that the first $230 drop, in a one day period, was a one in four thousand year event, and it came out of no-where, without any event as a cause.  Of course not, it was a Fed/JPMorgan manipulated event designed to prop up the dollar, the bond market and the stock market.  You are looking for a logical, rational answer when the event was not caused by logical, rational events.  When gold bounces back, and you are checking its performance to the stock market in the next two or three years, you will understand why you want – no, make that NEED it in your portfolio.

The most important metric for gold is not “stability” or “volatility” or the stock market.  It is the Fed’s policy of purchasing Treasuries to hold down interest rates, which is necessary to support the stock market and the bond market.  Focus instead on the CAUSE of gold’s volatility and on WHAT will cause gold to rise again.  The Chinese, with all their billions and billions to invest have a voracious appetite for gold.  They would use this USA Today article to wrap up their rotten fish and dump it in the trash. 

Gold rose along with interest rates and inflation in the 70s.  Gold will rise to new all-time highs again along with rising interest rates and inflation.  Interest rates are already starting to rise, in spite of QE to Infinity, and will explode when it ends – if it ends.  And if it doesn’t, the dollar will fall hard and gold will rise on the weak dollar, which is what happened in the 70s bull market.  We are set up for the perfect storm for gold – but the winds will be at gold’s back, not as they have been for the last 18 months, in its face.  There is no way out – the Fed can’t save both the stock market and bond market, and save the dollar.  They will have to choose.  Either way, gold will offer safety and stability and its “volatility” will be on the upside.

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Changing subjects, I watched the Netanyahu interview on Face the Nation.  There is absolutely no doubt that Israel, with America’s help or not, will take down Iran’s nuclear bomb project.  He stated very clearly that to Israel this is a matter of their survival and he will NOT BE LATE in pulling the trigger.  That probably put the timetable within the next 6 to 12 months.  Talk about a “Black Swan” event that will send gold (and oil) to the stratosphere!  Read the following Newsmax article and the next one by Dan Friedman that shows Israel’s resolve when they feel threatened.  This is coming and if you think not, well you are wrong.  At the very least, plan for this event and pray it doesn’t happen, but it’s up to the Ayatollahs now.  The Americans and the Israelis have warned them to stop enriching uranium and they refuse.  They will not take the warnings seriously, or don’t care about the consequences.

The difference is that to the Israelis, this is an “Existential” problem and to the Americans it is not.  Think of it this way – this is Israel’s “Cuban Missile Crisis.”  Here is the link to the interview below.  I think you should listen to what Netanyahu has to say.  He is dead serious about this and it is more obvious in the interview than in the article.

Netanyahu Tells ‘Face the Nation’: Iran Getting ‘Closer and Closer to the Bomb’ (VIDEO)

Here is what Newsmax has to say:

Netanyahu Says Israel May Have to Deal With Iran Before US

Newsmax, July 14, 2013

JERUSALEM — Israeli Prime Minister Benjamin Netanyahu said Iran is moving ahead toward nuclear weapons capability and warned that his country would act by itself if necessary to prevent that from happening.

“We’re closer than the United States,” Netanyahu said Sunday in an interview on CBS-TV’s current affairs program “Face the Nation,” according to a transcript of his remarks. “We’re more vulnerable. And therefore, we’ll have to address this question of how to stop Iran, perhaps before the United States does.”

Iranian officials have said the country’s nuclear facilities are intended only for civilian purposes such as energy and medical purposes. 



Netanyahu has said Iran is seeking to develop nuclear weapons that would pose an “existential threat” to Israel and “all options are on the table” to stop it, including a military strike.

Iran’s president-elect, Hassan Rohani, has said he would seek to ease international economic sanctions aimed at curtailing the development of his country’s nuclear program. 



Netanyahu dismissed speculation that Rohani’s victory last month signals a possible change in Iranian nuclear policy, and urged the international community to toughen the sanctions.

Rohani’s strategy “is be a wolf in sheep’s clothing. Smile and build a bomb,” the Israeli leader said on “Face the Nation.

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Dan Friedman comments on the JPost article below:

[Naturally, this story relies on “unnamed US officials.” But if true, and Israel used submarines to destroy Russian missiles stored in Syria, then the sound of the explosions were heard clearly in Moscow and Teheran. df]

-Dan Friedman

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Report: Israeli submarine strike hit Syrian arms depot

JPOST.COM, 7/14/2013

Sunday Times: Israeli Dolphin-class submarines hit Latakia arms.

Israeli Dolphin-class submarines carried out a July 5 attack on an arms depot in the Syrian port city of Latakia, according to a report in the British Sunday Times, which contradicted a previous CNN report that the attack was the work of the Israel Air Force.

The alleged Israeli naval strike was closely coordinated with the United States and targeted a contingent of 50 Russian-made Yakhont P-800 anti-ship missiles that had arrived earlier in the year for Syrian President Bashar Assad’s regime, the Times cited Middle East intelligence sources as stating.

According to the report, the Israeli fleet of German-built submarines launched a cruise missile at the weapons cache after which Syrian rebels reportedly attested to hearing early-morning explosions at a Syrian portside naval barracks.

On Friday, anonymous US officials told CNN that Israel had carried out an air strike on the Syrian city.

Three unnamed US officials told CNN the IAF had targeted Russian-made Yakhont anti-ship missiles that could pose a threat to Israel.

Qassem Saadeddine, spokesman for the Free Syrian Army’s Supreme Military Council, said the pre-dawn attack hit Syrian Navy barracks at Safira, near the port of Latakia. The rebel forces’ intelligence network had identified newly supplied Yakhont missiles being stored there, he said.

“It was not the FSA that targeted this,” Saadeddine told Reuters. “It is not an attack that was carried out by rebels. This attack was either by air raid or long-range missiles fired from boats in the Mediterranean.”

A loud explosion was heard near Latakia on Wednesday, an opposition monitoring group said, but the cause of the blast was unclear.

Explosions in Latakia, part of Assad’s stronghold on the Mediterranean coast, have been extremely rare during Syria’s two-year-old conflict.