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-- Posted Wednesday, 26 March 2008 | Digg This Article | Source: GoldSeek.com

Effectiveness of a central bank can be measured several ways. For investors, that assessment is by return provided by equity capital in a nation and value of the nation's money. This week's chart shows that Federal Reserve deserves a failing grade. Back line is total return, including dividends, of S&P 500 over past ten years. That return has been a little more than 3% per year for ten years, and essentially zero for past eight. More important is the purchasing power on an investment in a nation's equity market. The red line is purchasing power of an investment in U.S. paper equities deflated by value of the dollar, measured using the value of Gold. Global purchasing power of U.S. equities has fallen by almost 60% over the past ten years, a truly dismal result. Now again, the Federal Reserve has embarked on lowering interest rates and perhaps monetizing mortgages of doubtful value. It seems to love to serve at the feet of Wall Street bankers. The Federal Reserve's failing grade on managing U.S. economy is likely to persist.

Since last we visited, $Gold has entered the correction that had been due for some time. $Gold has fallen about US$100 from the trading high. Having reached a short-term over sold condition last week, some period of rest is likely.  The over sold condition will be remedied, and another bout of short-term pessimism should develop. That process will be repeated until the final intermediate over sold condition is reached. Most corrections have at least three phases, a down leg, an up leg, and a third wave down. That pattern is likely to be a fair guess of what is to come. The rush from paper assets to commodities lasted more than six months. Such a run is not likely to be corrected in a matter of weeks. Corrections have price, time, and emotional dimensions. All three will have to play out. Investors should build cash in order to buy $Gold when the correction is completed. And the good news? This consolidation may set the stage for US$1,500, and perhaps higher. 

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

-- Posted Wednesday, 26 March 2008 | Digg This Article | Source: GoldSeek.com

Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here

Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.

Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.

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