A month ago I approvingly quoted David Einhorn on buying gold: "... I decided holding gold is better than holding cash, especially now that both offer no yield." I made the same decision and effectively doubled my gold exposure over the next two weeks, doing so with gold and silver bullion-holding stocks (CEF and GLD) and some gold stock index funds (GDX and GDXI). My main holding is physical gold, but buying now at much higher levels it is easier and quicker to get out of "paper gold" if necessary.
Paul Kasriel, chief economist at Northern Trust, made similar comments on interest rates and gold on November 13 which I finally saw today. This cuts through all the BS we read about gold lately which Kasriel summarizes in a few sentences. Kasriel calls it as he sees it. He was one of the first to call for a recession and stock market top in 2000 and also in 2007 and for the following bottoms as well, so his credentials are superb.
All this reminded me of a paper John Hussman wrote on gold and the XAU Index in 1999. At that time he said,
"In the rare instances when 1) The rate of inflation has been higher than 6 months earlier, 2) Treasury bond yields have been lower than 6 months earlier, 3) the NAPM Purchasing Managers Index has been below 50, and 4) the Gold/XAU ratio has been above 4.0, the XAU has soared at an astounding rate of 123.63% annualized. In contrast, when none of these have been true, the XAU has plunged at -53.21% annualized. That's a gaping difference."
These are both simple basic economic and financial reasons for why and when gold is a good investment, which it is now. If the recovery really takes hold and taker off, and if interest rates on TBills rise, there will be a smaller incentive to own as much gold as at present.
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