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April 30, 2008

If Investors Were Smart ...
by Alex Wallenwein

... they'd be bidding up gold ands silver - instead of oil!

If traders and investors were smart, they would bid up the price of gold instead of oil. Likewise, if governments and central banks were smart, they would take the lid off the gold price and actively encourage investment in that most precious of all commodities.

Why?

Simple. Everybody can live with a high and further rising price of gold - because such would not in any way drive up the prices of other commodities, of transportation, of manufacturing processes, and of all products that are either hydrocarbon based themselves (like all forms of plastics or rubber) or that require hydrocarbon input (such as heating/cooling energy).

In short, piling money into gold would actually preserve the buying power of those worthless but over-hyped forms of scrip and electrons we all refer to as "money".

As long as my fiat dollars buy approximately the same amount of the things I need in order to just exist next year, or five, maybe ten years from now, I can live with a high price of gold even if I'm not a gold investor.

But I might become one, if I see gold rising to fantastic heights relative to dollars.

However, if it's the price of oil that gets bid up, things look different. More and more of my meager paycheck will go to gasoline and heating/cooling my home while everything else gets more expensive as well, and while the buying power of my dollars drops against other currencies.

The problem is, of course, that neither governments, nor banks, nor other large (oil) corporations benefit from higher gold prices. So governments, their central bank paymasters, and the large corporations that feed off of both institutions do their utmost to suppress gold whenever they can and actually encourage speculation in oil and related products.(1)

Why?

Why would they do this?

Most of them buy into the global warming/Kyoto treaty scam, so they think higher prices will cause you to drive less. As a neat side-benefit, the oil companies get to make record profits.

What makes me think this is intentional? Well,for one thing, oil inventories are actually rising. Supply is up,demand is waning - but prices are rising anyway. I see no underhanded attempts to manipulate the oil price down.

As far as gold and silver are concerned, however, demand is high and supplies are shrinking - but the price is falling despite serious inflationary pressures and tremendous dislocations in the debt-driven financial markets, all of which usually support gold. Hence, underhanded downward manipulation of the gold price is occurring.

Doesn't take much to figure that one out.

If you presume that central banks, governments, and large corporations are all run by individuals who have the best interest of their respective countries and their countries' populations at heart, it really makes no sense at all.

But the title of this article isn't "If Governments Were Smart ...". We already know they are stupid - or at least that they have reasons for acting that are different from those most people attribute to them.

So, let's get back to traders and investors' mindsets:

Traders of course will put their monetary electrons wherever they see a quick, "tidy" profit. Right now, in the trading world, it seems as if oil is considered a better and more sure-fire quick-profit deal than gold. Gold is being suppressed (or, for the uninformed, "doesn't perform well"), and oil keeps on shooting up.

No problem. Oil makes sense for traders - at least in the very, very short run, which unfortunately seems to be the only time horizon they are mentally equipped to operate in. In the longer term, this profit calculation is turning into a wash, however.

In the longer run, the precious electronic currency units they earn with their tactics are buying less and less of what they want in life, reducing their effective profit margin considerably. The more this happens, the more they must rely on further trading profits, just to be able to keep up, just to break even and eke out yet another little bit more so they can brag about it - but the higher oil goes, the more expensive everything else becomes.

Bad, bad traders.

How about investors, then?

Buying stocks in oil companies seems like it would be all the rage, lately. Well, actually no. One look at two of the largest oil companies in the world will show you that their stock price has benefited little if anything at all from the most recent run-up in oil prices.

Do the oil companies care, however? Uhm, no. Their profits are up, big time. Why their stocks don't reflect that is yet another issue, but we will not deal with that in this article.

So, if there is any such thing as "smart money" out there, you know where it should be going - but it doesn't. If there was any such thing as "smart governments" out there, you know into what type of asset class they should be encouraging investment - but they don't (except for maybe China, which actively encourages its citizens to buy gold).

Where does that leave you, as a retail investor?

Should you "fight city hall" and put your money in gold rather than oil? Well yes, of course. (What was that famous investment maxim, again? Buy low, sell high - right?)

The lower gold goes, the more you should be buying. Why? Because you know it won't stay low. Besides, what we call the "price of gold" is a complete mirage anyway, and the fact that it is being manipulated downward in this worldwide financial crisis amid heightened inflationary expectations should be seen as yet another indication of official stupidity, and therefore as a gift from "stupid" - straight to you.

Euro vs. Dollar Gold Monitor subscribers are aware of technical warning signals of (yet another) impending precious metals sell-off are mounting, but so what? All the more reason to buy in when gold drops down to $800. If it drops even lower, the better. If the fiat establishment feels compelled to let you buy the only thing that can be used as physical money and that has real value for less and less worthless scrip, so be it.

In the end, you'll have the gold, and they will have the worthless fiat scrip. Now that's what I call a "trade"!

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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