-- Posted Wednesday, 10 September 2008 | Digg This Article
| Source: GoldSeek.com
By: Peter J. Cooper
There is almost hysteria among gold bugs about the recent drop in gold prices and silver bugs have had an even harder time. But time and again financial markets have shown that the best way to succeed is by keeping your head (and strategy) while all others are losing their’s.
Nothing has changed in the outlook for precious metals. In fact, it has got much better. What we are seeing is the largest financial bail-out in US history. That has kept US Treasury Secretary sleepless for the past couple of months. He says it is the first time ever in his career - do you think that is a positive sign? I don’t. He knows the risks he is playing with and it is scaring even a former chairman of Goldman Sachs.
We also have Lehman Brothers clearly on the brink of disaster, seemingly with nobody about to help them stay standing. Will this be another bail-out? Or will the Treasury see what happens this time?
Financial stocks weakened yesterday on the not unrealistic questioning of what lies ahead for the sector. Lehman is not the only US bank in trouble. There are more than a hundred on the critical list, and these are not minor banks like in the Savings & Loans crisis.
Ahead we have the political uncertainty of the US election - which means Mr Paulson will most likely not be in his post for much longer. At the same time the US stock markets still seem remarkably high for this stage in the economic cycle, and predicating their optimism on a recovery in 2009. That is surely most unlikely. There is nothing in the figures - even in the ones manipulated by officials - to suggest an upturn.
So a stock market crash is on the horizon. I think that is what keeps Mr Paulson awake at night: the prospect of a systemic meltdown of asset values. It has happened before. But not since the 1929 crash at a time when the banking system was so weak.
Will the US manage to make it through? Well, of course, but not without huge capital losses for many folk and massive changes to its financial system. There will also be lower interest rates and inflationary government borrowing to keep the ship afloat.
In this scenario precious metals will soar as a store of value which central banks can not touch. The volatility of gold and silver we are seeing now is just a reminder on the downside of the spectacular upside potential of precious metals.
Anybody who holds their portfolio now - or better still buys into precious metals - is doing the right thing. To sell and obtain dollars would miss this opportunity, and exposure you to the further devaluation of the greenback which has to follow this systemic failure.
Incidentally Arabian investors have been piling into gold at these depressed levels as these traditional precious metal buyers clearly think gold is a bargain right now. Actually silver is the best buy.
Peter J. Cooper
http://arabianmoney.net/
-- Posted Wednesday, 10 September 2008 | Digg This Article | Source: GoldSeek.com
