Saturday, December 4, 2010

Peter Schiff : Wall Street will rediscover Gold.

Peter Schiff:"...Wall Street will rediscover gold. Traditionally Wall Street had always included gold and gold mining shares as an asset class in investment portfolios and included them in their allocation models. In addition, most equity mutual funds held gold shares, and the shares themselves were fairly represented in popular indexes, such as the Standard & Poor’s 500. However, during the 1990s this practice became passé. Gold and mining shares had performed so poorly for so long that holding them actually became an embarrassment. Today, Newmont Mining remains the sole gold stock in the S&P 500 index. The total market capitalization of all publicly traded gold stocks is actually less than the smallest (in market cap) of the 30 stocks in the Dow Jones Industrial Average. Also, with the advent of derivatives, gold lost its appeal as a hedge against bear markets or other unforeseen economic shocks. The poor performance of gold and mining shares following the 1987 stock market crash helped to solidify the view that gold no longer served its purpose as a legitimate hedge. I’m convinced, however, that this thinking is about to change, as gold, the “barbaric relic” and ultimate old economy asset, makes a comeback. Once holders of derivatives discover that the hedge value of derivatives is only as good as a counterparty’s ability to pay, gold will reclaim its former role. Gold is not simultaneously someone else’s liability; it has intrinsic value and therefore provides the ultimate insurance. Also, when the market crashed in 1987, gold was seven years into its bear market, and the fundamentals were decisively different than they are today. Back then, many investors and mutual funds still held gold shares as insurance, and they tried to cash in on those positions after the crash. As a result of all that selling, gold and gold shares plunged as well. Expecting this phenomenon to repeat itself, many potential gold buyers are watching today’s stock market from the sidelines, waiting to buy. When the stock market collapses this time, the gold price will be supported by fence-sitters looking to buy instead of a lot of owners trying to sell....... Peter Schiff in Crash Proof 2.0 - A fully updated follow-up to Peter Schiff's bestselling financial survival guide-Crash Proof, which described the U.S. economy as a house of cards on the verge of collapse, with over 80 pages of new material

The economic and monetary disaster which seasoned Wall Street prognosticator Peter Schiff predicted is no longer hypothetical-it is here today. And nobody understands what to do in this situation better than the man who saw it coming. For more than a decade, Schiff has not only observed the U.S. economy, but also helped his clients restructure their portfolios to reflect his outlook. What he sees today is a nation facing an economic storm brought on by growing federal, personal, and corporate debt; too little savings; and a declining dollar.

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