As U.S. mortgage market infrastructure continues in collapse, era of paper assets is fading into history. Last week's chart showed that Gold has provided higher returns than paper assets over past ten years. Today's graph places situation in a longer term perspective. Era of real assets, personified by Gold, is early in a cyclical upswing. Good part is yet to come. Plotted is ratio of US$Gold to S&P 500. When rising, Gold is performing better than paper equities. The ratio remains at a multi year high, confirming that the rise of Gold over paper equities continues. Solid line is average for entire 62 years, and provides means for valuing Gold and paper equities. Based on Gold's price, the S&P 500 should be 570, down 60% from current level. Based on S&P 500's current price, Gold should be at $1,700, up 150%. Reality will be somewhere in between these guesses, but the bias has to go to Gold.
FOMC may have made a wise decision Tuesday, one of their few. Goal of moderate inflation benefits all. Bailing out hedge funds, private equity funds, mortgage brokers, and bond dealers benefits the undeserving. Saving speculators is not part of Federal Reserve's mandate. Risk exists as an attempt will likely be made to fix collapsing U.S. mortgage market. Better solution would be to rapidly flush down the drain those funds and brokers which have exacerbated mortgage mess. Sooner they are gone, quicker system can recover. Doing what needs to be done, rather than politically fashionable, has rarely been a Federal Reserve policy. Given the Fed's record and continued likelihood of mortgage market bailout, moving out of both North American dollars into Gold is the wisest investment course.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html. Ned will be exploring the Gold Super Cycle at The Wealth Expo in NYC, 19-21 October. For information go to www.wealthexpo.net. To receive a copy of the new Agri-Food Value View, an exploration of Agri-Food Super Cycle, write firstname.lastname@example.org.