Back in 2002 the editors of Investment Contrarians started telling their readers it was time to jump into gold related investments. This gold investing guidance and analysis proved to be extremely timely. Yes, back in 2002 we started offering gold analysis to our readers and we still do it today. We have been recognized as one of the first investment letters to tell its audience to jump into gold stocks, very early in the gold bull market. The gold guidance and analysis we provided resulted in many stocks we follow rising in price 100% or more in short periods of time. Today, you can regularly find gold market analysis in Investment Contrarians. Each time gold prices moved higher, we told our readers to buy more gold related investments. See what we have to say about gold’s future dally in Investment Contrarians.
The latest meeting by the Federal Reserve was quite significant regarding its monetary policy program, and many economists will now need to revise their analyses.
The key sentence in the Fed’s statement was, “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” (Source: Board of Governors of the Federal Reserve System web site, May 1, 2013, last accessed May 2, 2013.)
Why is this so significant? For the past few months, many economists and analysts have been expecting that the Federal Reserve would begin to discuss when it would be appropriate to begin reducing its aggressive monetary policy program, specifically the monthly $85.0 billion bond-buying level.
Many were thinking that at this meeting the Federal Reserve would indicate that at some point in the future it would begin reducing its aggressive monetary policy stance. While the Fed did indicate that it might be prepared to reduce bond buying and lower monetary policy measures, this is the first mention in its press releases that an increase is possible.
In my opinion, this indicates that the Federal Reserve now believes that additional monetary policy might be necessary, whereas we all had been hoping that the U.S. economy would begin to improve. Clearly, the recent data has shown otherwise.
Job creation remains very weak, and various sectors, such as manufacturing, do not indicate that they will increase their level of production anytime soon. Internationally, we are also seeing continued weakness in many countries, which can only put downward pressure on our own economy.
With … Read More
One of the most confusing topics of late is the low level of the inflation rate even though monetary stimulus has been quite aggressive worldwide. The most recent data point came from Japan, in which consumer prices dropped by 0.5% in March versus the same time in 2012.
The Bank of Japan is just now beginning a new monetary stimulus plan in the hopes of moving the inflation rate back into positive territory, with the target at two percent. However, some analysts question the possibility of reaching the target inflation rate over the next couple years, even with this monetary stimulus plan. (Source: Fujioka, T., et al., “Bank of Japan Sees Inflation Nearing Target in 2015: Economy,” Bloomberg, April 26, 2013.)
This aggressive monetary stimulus package has driven the yen weaker, benefiting export-oriented companies; however, while the general inflation rate is low, prices for imports such as energy will continue to rise as the currency declines. Additionally, the monetary stimulus program to drive up the inflation rate will have an impact on property prices and will raise rent levels.
However, monetary stimulus is not enough to gain traction and increase the inflation rate. Japan needs structural reforms to its business sector to encourage expansion and growth. Psychologically, the average Japanese citizen has been used to price declines for many years—this mentality will be hard to change. As an example, the latest report showed that TV prices fell by 19% from last year. (Source: Ibid.)
In America, we’ve had monetary stimulus for quite a while, yet the inflation rate is still quite low, below the targeted level. In March, the consumer … Read More
As is quite evident from the past couple months, investing in gold can be rather volatile. Clearly, the huge sell-off in the price of gold bullion over the past couple of weeks has shocked some people; an interesting result has been the reaction from the retail public, as many are now buying gold bullion in record amounts.
Last week, the United States Mint actually ran out of the smallest American Eagle gold coin, and sales to India were 20% higher than the previous record, according to Standard Chartered PLC. Clearly, physical demand remains strong for gold bullion. (Source: Roy, D., et al., “Gold Rout for Central Banks Buying Most Since 1964: Commodities,” Bloomberg, April 25, 2013.)
Here is a key question for those who are considering investing in gold: what are your goals? Is a person investing in gold to diversify his or her assets or to trade and generate profits?
Having gold bullion as part of one’s portfolio can make sense as long as it’s understood that volatility will continue to be present. Since larger investors have added gold bullion as another asset to trade, determining the price of gold bullion has become increasingly difficult.
A chart for gold bullion is featured below:
Chart courtesy of www.StockCharts.com
The recent drop in gold bullion erased an estimated $560 billion in the value of central banks’ holdings, and it was one of the largest drops in 30 years. The huge spike in volume and the massive move indicate several large stops were triggered, causing the holders to liquidate their positions.
The question now: is the selling in gold bullion completed? Since … Read More
I hope you didn’t get caught off guard this past Monday with the broad market sell-off.
If you did, you need to really think about risk management and having a good investment strategy in place so that you can avoid or minimize the impact of a market correction.
And if you think that stocks will rally, don’t be so sure, because the current market climate is tricky and remains highly vulnerable to another correction, which, of course, could be much bigger.
You need to get rid of that invincibility feeling that’s probably stuck with you during the recent rally.
Success in trading and investing has nothing to do with bravery. Taking a risk to make big gains makes sense and has its place, but after the advance we had, you also need to be prudent and hedge your gains against the highly likely and bigger correction that’s still to come.
You need to have a viable investment strategy.
Taking some profits off the table makes sense, but you also need to protect your outstanding positions.
The sell-off on Monday indicates how nervous the market is, and don’t let anyone tell you otherwise.
So it’s an opportune time to remind you that you all need to hedge just like professional money managers.
My favorite investment strategy to protect gains is the use of put options as a defensive hedge against market weakness, or something that is called a protective put, or put hedge.
There is no special knowledge required. And it’s quite simple and easy to execute.
Think of this strategy as akin to buying insurance on your home, car, life, … Read More