Gold Shifts Warning

by | Dec 5, 2007 | Archives

Gold shifts could create gold investment dangers now.

Here is an urgent interim note about gold and shifts in gold prices, This note about shifts in gold values is in addition to my daily messages.

The time is 6:00 am on Wednesday morning December 5 and when I began my day two hours ago, I had no plan to write and send this note. In fact spending the time has screwed up my schedule for the day….but as I read the mail gold and gold shifts this morning I knew I must send this warning….for three reasons.


Marty Weiss, a newsletter publisher like myself, just sent out a marketing piece that reads:

“With credit markets sinking into deeper turmoil …

“With more severe losses spreading to a wider range of financial institutions …

“And with the Fed’s rate cuts thus far failing to stem the crisis …

“We are coming dangerously close to a money panic.

“ Few Wall Street analysts are talking about this in public. Fewer still understand its potential consequences. Many don’t even know what a money panic is. But historians do. They realize that …

“A money panic is a stampede from greed to fear, risk to safety, buying to selling. Once set into motion, it can spin out of control, feeding on itself, wrecking havoc in financial markets.”

I have great respect for Marty’s skills but there is a tendency in marketing to overstate the case. The reality is no one knows which way the economy will go. This is a really important point which we’ll get to in a moment.


Another reader wrote this morning.

“ Gary , a recent article says: “HEDGE EXPERT SAYS MOST BANKS NOW INSOLVENT – Florida fund suspends withdrawals. FINANCIAL TIMES:

“A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time…However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter:

“The risk/return characteristics are far less attractive than in the past.” In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession which he also predicts. “Our entire banking system is a complete disaster,” he wrote.

“In my opinion, nearly every major bank would be insolvent if they marked their assets to market.”

He also said he would be putting some of his own profits into gold and other precious metals… [*]”

The reader asked, “Is this something to worry about is it?”

My reply was “Probably not. The US dollar’s risk of falling and global inflation is a worry, yes. Hedge funds getting wiped out is a worry yes…but the governments will keep the banks open as the Brits did with their recently failed subprime Building Society.


A front page article in USA Today was screaming about the vast rise in commodities…oil, wheat silver gold copper and such.

This and every fundamental economic indicator suggests that the US dollar will drop (perhaps much) more. Inflation will soar. Baby boomers on Social Security, Medicare and Medicaid, alone could cause this. These costs will almost certainly ruin the last vestiges of the dollar’s purchasing power.

One protection from this loss is to invest in commodities…such as gold and silver.

Here is the Warning

Yet there are commodity risks.

First if USA Today is writing about it, chances are the value has already been shot. The big profit may have been made. Remember “’buy on the rumor – sell on the news.” USA Today is the news.

Second remember the 95 year asset class study that this site has been mentioning in recent messages?

The asset classes were bonds, T-bills. Equities, Housing and Silver. Over the entire 95 years the class returns were:

Equities: 11.9% per annum
Housing: 6.7% per annum
Bonds: 4.8% per annum
T-Bills: 4.6% per annum
Silver; 4.2% per annum

However the results show that when the economy is in a period of rapid inflation asset class performance undergoes a huge change. Here is the rapid inflation performances.

Equities: 9.6%
Housing: 7.0%
Bonds: 3.6%
T-Bills: 5.%
Silver: 17.9%

In other words the precious metals are required in case the economy slips into hyper inflation. A global equities portfolio generally performs best during most other times.

However there is also a chance that the global economy will slip into deflation. Economic conditions are quite similar now to those that created the recession of the early 80s (when gold price collapsed).

Note what happens to your gold, silver and commodity portfolio then! Deflation brought even greater change:

Equities: -6.2%

Housing: -0.5%

Bonds: 4.8%

T-Bills: 4.6%

Silver: -15.3%

Be careful of loading too many commodities or precious metals into your portfolio. This could create a fortune…but could also leave you bust.

This is why in my personal portfolio I sold all my gold and hold real estate, equities and bonds. After tracking economic markets for 39 years I have learned only one thing for sure… “I do not really know.”

Here is the point of this message.

The best performing and safest position over the past 95 years has been a multi currency portfolio that contains major and emerging market equities and bonds.

To study this fact, in November 2005, I joined with the global investment banking arm of Denmark ’s second largest bank, Jyske Bank to construct and track a number of multi currency portfolios that we could study as a Multi Currency Portfolio Course.

In the first year we created five portfolios. Here is how they performed.

US Dollar Long 9.04%

US Dollar Short 10.43%

US Dollar Hedge 11.46%

Emerging Market 42.93%

Asia Emerging Market 114.16%

During 2006 the Emerging Market Portfolios far outperformed portfolios that held equities of from major markets.

The 2007 the Emerging Market Portfolio has a similar package of investments compared to the 2006 portfolio and rose 122.62%. Here is the November 2006 to November 2007 performance.

Swiss Samba 53.32%

Emerging Market 122.62%

Dollar Short 48.19%

Dollar Neutral 38.67%

Green 266.30%

So multi currency portfolios of equities and bonds especially and emerging equities and bonds combined with gold and silver can provide excellent protection against the US dollars fall in almost all economic scenarios.

We are continuing to track the Multi Currency Portfolios in 2008.

We are keeping the Green Portfolio. Anything that rises 266.30% in a year deserves watching.

The Emerging Market Portfolio will also run for a third year and look very much like that of the last two. This portfolio will consist of just four emerging market mutual funds and will be leveraged one time, with a loan in low interest Swiss franc and half in Singapore dollars.

The leverage through low cost loans is one reason why the portfolios performed so well in 2006 and 2007. However for 2008 we are also tracking an un-leveraged Dollar Short Portfolio. The US dollar has dropped a lot in the past few years and enormously in the past forty years. History however shows that the buck’s long term free fall is punctuated with recoveries of some extended periods…nasty for the short term speculator. The US Dollar Portfolio bets on a continued dollar drop but in a careful way without the added potential that leverage brings for profit….or loss. If the greenback shows strength this year the Dollar Short Portfolio will be a good one worth holding until the American federales once again destroy the US currency.

We are living, as the Chinese curse suggests, “in interesting times.” Yet they can be profitable times for those who do not panic and hold hard assets and multi currency portfolios in a balanced way.

Learn more about our Multicurrency Portfolio Course

Read the entire asset class study at

See my personal portfolio update at