-- Posted Thursday, 4 December 2008 | Digg This Article | Source: GoldSeek.com

If you have to pick one investment class that will shine in 2009 then choose gold, and probably silver. My prediction is that this will be the year when the Dow Jones to gold ratio goes to one.

That is to say the Dow Jones Index will plunge again, way beyond the 7,000 limit target I suggested long ago for 2008, and head to 4-5,000, while at the same time the price per ounce of the yellow metal will tip the $4-5,000 an ounce level, way above the $2,000 now mooted by Citigroup.

US economic implosion

Obviously only a terrible implosion of the US and global economy could produce such a massive shift in asset values. But I fear that is what is coming in 2009 and the moment to prepare for it is now before it is too late.

Just look at those US auto figures for November, down 37 per cent, and that is the figure across the board - the Japanese and Korean manufacturers also got their sales walloped, albeit Chrysler took the biggest hit of 47 per cent.

No manufacturer on earth has profit margins big enough to absorb that sort of a sales collapse. That it is the largest consumer goods section of the world’s largest economy just sets the whole US economy up for a collapse. The only historical parallel is 1930.

Now the Federal Reserve and US Treasury have been on to this case for some while, pumping money into the US economy - around $8 trillion on the last count, or more than half the annual GDP. That must have some countering effect to this collapse in the real economy.

Bailout trillions

But any observer can see that money produced and spent this fast is not being invested wisely. Trillions to support banks on the brink of collapse can surely only put off the evil day, while running up bigger debts that have to be repaid in devalued dollars - or defaulted on - later.

What we have in motion is a downward spiral of mounting debts and falling production in the US economy. You really have to be hopelessly blind not to see it when you think about it. And spirals continue down until they reach a bottom. We are not there yet.

If the US was a Third World country the IMF would be called in to run the economy. Debts would go into default, uneconomic companies and projects would be allowed to fail putting people out of work and interest rates would shoot up.

The US authorities have been acting as though they could spend their way out of this fate. It might work to some extent, but all logic suggests this will not be enough to prevent an economic implosion. For 2009 that looks far too close to the Third World model for comfort.

Buy precious metals

What are investors to do in such circumstances? Personally I would avoid US treasury bonds which look like the next asset bubble about to burst, and go for gold and silver which will be the next bubble to form as the world struggles to dig itself out of this very big hole.

Eventually the world will emerge from this crisis, just as it emerged from the Great Depression of the 30s, but we have not even seen the bottom yet, let alone begun the recovery phase.

-- Posted Thursday, 4 December 2008 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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