Today's Market
by Dr Invest


Rumor has it that Soros and Paulsen have invested into gold EFTs. Though no response has come from their offices and they were unavailable for contact, this is likely a hedge against a coming market down turn.

Even though the stock market rose today, there is no real fundamentals to warrant further investing. It was with the suggestion that Merkel would support infusions of cash into the euro, that caused elated investors to put yet more money into stocks.

About gold.... although it has risen only a little, should the market take a sudden downturn, gold will be king once again. There are  a number of factors that could bring the downturn. Let's start with Iran and Israel. Any engagement in war between Israel and Iran would immediately crush the tepid stock markets. Second, world economies are slowing. When considering the already low GNP in the U.S. economy, a slow down will quickly push us into a recession.

Any of these scenarios will let gold rule just a bit longer. Most economists do not believe that gold will grow dramatically, but any where from 12% to 20% could be likely. Think with me for just a moment...individuals, banks and governments have bought gold and are holding gold. Gold is a commodity, but is useless as an investment vehicle unless some one exchanges cash for the gold. So you need an interested buyer and a seller. When individuals, banks, and governments begin selling, they will need hundreds of thousands of buyers for their gold. This is the dilema with commodities, gold prices go down when there are bunches of sellers who can't find buyers.

Soros and Paulsen are buying ETFs which can be quickly sold, providing immediate liquidity. Not so if you are holding physical gold. You must get your physical gold to a broker, he will charge you a finder's fee for selling your gold, and if the market is flush will desparate sellers, the broker will have to sell your gold at a discounted price.

Now if you are a LONG-TERM investor in gold, it really makes no difference whether you can sell your gold because one day, gold will eventually go up in value. The same can be said for real estate. Even though house prices are low now, one day they will go up. But buying something because it has always gone up in price is not always a good reason to make the investment. Natural gas will ...one day... go up in price. Most people wouldn't touch natural gas as an investment right now, but one day it will go up in price.

Lets look at another idea... you put 1/3 of your $300,000 portfolio in gold which has only returned negative -6.41% in 2012. 1/3 of your portfolio has been in stocks which have returned 12%. And 1/3 of your portfolio has been invested in bonds returning 6%. Where was the money best invested?

With the above portfolio, gold is becoming the least desireable investment. Even with a rise of 12% in gold prices for 2012, gold will only return 5.5%... which is less than bonds. Yet there are seminar after seminar of SALESMEN touting the benefits of gold.

I still think gold to be a great hedge against a recession and or inflation, but gold has not proven itself a worthwhile investment for these first seven months of 2012. I think we will see a sudden stock decline in the next two or three weeks and gold will rise as stock prices fall. This could provide new life for gold or simply provide a selling opportunity for banks and governments.

BOND PORTFOLIO

As discussed yesterday, TIP and BND continue to decline in the face of a rising stock market. There is no logic or reason for stock investments at this time. It is only the hope of stimulus that drives the prices in the stock market. Now is the time to sell TIP and BND if you want to make a profit. I am suggesting that you adjust your stop-sell to 3% below your original purchase price and wait for the decline in stocks that is almost certain to come in September. TIP and BND should regain their valuations. TIP is presently oversold and investors will be looking to fill their portfolio with TIP.  BND will also regain ground as further weakness is exposed in the stock market.

(note: the above information is for entertainment purposes only and not to be used as investment advice.)