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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
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  • Gold Rises As The Defacto World Currency And Storehouse Of Investment Wealh 0 comments
    May 30, 2010 9:22 AM | about stocks: GLD, GDX, IEF, TMV, FXE, FXY

    The chart of the Yen, FXY compared to Gold, GLD, the US Dollar, UUP, the Euro, FXE, Aggregate Debt, AGG, the US Government Note, IEF, and european shares, FEZ, shows that gold has arisen as the defacto world currency and storehouse of investment wealth; click on chart below to enlarge.

     

    One of the greatest investment vehicles of all times has been the HUI precious metal mining stocks, $HUI. The HUI turned lower on May 13, 2010. These shares generally make market turns with US Treasuries, $USB, which turned parabolically lower on May 27, 2010.  The joint spigots of Federal Reserve credit liquidity, and the yen carry, FXE:FXY, FXA:FXY, FXC:FXY, BZF:FXY, INP:FXY, and SZR:FXY, that have propelled gold mining up, have been turned off by fright over sovereign debt and risk aversion to developing mining properties: the age of profitable investing in metal mining shares is over. The chart of the premier precious metals mining investment fund, USERX, shows that it has been in decline now for two weeks. Gold, GLD, traded up today to close at 118.9; the gold mining shares, GDX, traded down to close at 49.9; the gold mining shares have disconnected from the price of gold. The HUI as an investment vehicle died May 13, 2010. Institutional investors, insurance companies and banks should invest in HGD.TO.  The chart of GDX is provided below; click on chart to enlarge.

    US Government Debt is turning from being a safe haven investment: the ten year note IEF, the 20 to 30 year government bonds, TLT, and the zeros, ZROZ, have all turned parabolically lower.  Candice Zachariahs of Bloomberg reports:  “The U.S., Spain and Greece are among developed nations whose borrowings put them in a ‘ring of fire’ amid sovereign debt concerns, said Pacific Investment Management Co. Mary Childs of Bloomberg reports that  “The U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce projected record budget deficits, according to Moody’s … The U.S. retains its top rating for now because of a ‘high degree of economic and institutional strength,’ the … ratings company said … The government’s finances have been ‘substantially worsened by the credit crisis, recession, and government spending to address these shocks,’ Moody’s analysts lead by Steven A. Hess wrote. ‘The ratios of general government debt to GDP and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa-rated countries.’ Debt to revenue has more than doubled over the past three years and is now over 400%, which could lead to ‘potential stress’ on finances, the report said.”  Institutional investors, insurance companies and banks should invest in TMV. The chart of IEF shows a close at 93.10; click on chart to enlarge. 

    The only way an individual investor can preserve and grow wealth is by investing and possessing personally gold coins, as the chart of the gold ETF, GLD, shows a cup and handle pattern, meaning that gold is going higher. Chart of the gold ETF, GLD, shows a close at  118.9 ; click on chart to enlarge.  

    The stock market has broken lower; it has turned from bull to bear and there is no turning back. The "too big too fail" US financial institutions are traded by RevenueShares Financials, RWW; these stocks comprise the Ben Bernanke Portfolio; it is now in its fifth week of decline which commenced shortly after the Fed Chief's quantative easing, that is Federal Reserve Facilities, such as TARP were terminated; click on chart to enlarge.

        

    Bradley Davis writing in the Wall Street Journal article Euro Falls After Spain Downgrade writes that the euro fell after Fitch Ratings announced a one-notch cut to Spain's credit rating. This propelled US Stocks, VTI, 1.3%, European Stocks, FEZ, 2.2% and world stocks, VT, 1.7% lower. The chart of Spain, EWP, shows a close lower at 33.58 today.

    Bryan Keogh and Sonja Cheung of Bloomberg Business Week in article Bond Sales Fall to Least in Decade, Yields Soar report that banks globally may have a capital deficit of more than $1.5 trillion by the end of 2011 and some may require state support, according to Independent Credit View, a Swiss rating company. Banks “must feel like the lepers of the financial markets,” Mann wrote in a report. The chart of world financial institutions, IYG shows a 19% fall since April 14, 2010. 

    Spreads on investment-grade bonds widened 44 basis points in May to 193 basis points, the biggest monthly increase since they soared 108 basis points in October 2008, according to Bank of America Merrill Lynch index data. The average premium reached 196 basis points on May 25, the widest since October. “Market sentiment remains fragile,” said Simon Ballard, a senior credit strategist at Royal Bank of Canada. There’s “little evidence of any fundamental change in the outlook for risk assets.” High-yield spreads widened 154 basis points to 727 basis points, the index data show. Overall yields on the debt jumped to 9.54 percent this week, the highest since February. The chart of HYV shows a fall to the March 14, 2010 level.

    The article LIBOR & Ted Spread Chart (05/28/2010) documents that the Ted Spread began to rise with the announcement of the Euro Stability Pact. Ever since liquidity has begun to evaporate on concerns of the solvency of financial institutions in Europe.

    For institutional investors, such as banks, investment bankers and insurance companies, I recommend the Direxion 300% bear bond market ETF, TMV, and  the Proshares 200% Bear Market ETFs,  SRS, SJH, SSG, EEV, SMN, SMK, BZQ, SIJ, EPV, FXP, SCO, JPX, and BOM seen in  Finviz screener which shows a portfolio gain of 20% since April 24, 2010.

    For personal investors I recommend investment in gold coins as the chart of the gold ETF shows a cup and handle pattern, suggesting that prices will be heading much higher.



    Disclosure: No Positions
    Stocks: GLD, GDX, IEF, TMV, FXE, FXY
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