In the Twilight Zone. . .and Then There's Gold

Casey's Daily Dispatch (10/08/2009)
"I find myself feeling a bit like I'm in the Twilight Zone.

How could I not? As I write, the stock market is again rallying because 'only' 521,000 people filed for first-time unemployment benefits last week.

That's it? Just over half a million people? Pshaw, a mere pittance. Party on!

Feeling as I do about the stock market – which is to say, Rod Serling must surely be straightening his tie right now before walking through the door at any moment – how do I feel about gold?

I have to believe that it has moved too far, too fast, given the lack of visible price inflation. Much of what appears to be driving gold is the risk that the dollar will soon be replaced as the world’s reserve currency.

While the dollar's reserve status may ultimately be one of many victims of this crisis, I think it is not imminent. Thus, I have to believe that what is going on is little more than Mr. Market catching a bit of gold fever. This may be the take-off point of the Mania phase in gold, and the recent price action raises the odds of that as a possibility. But I'm skeptical.

Personally, I am waiting for a pullback before buying more gold to cushion my portfolio against the inflationary blowback that will materialize as the crisis drags on and morphs into a currency crisis.

And I have not been afraid to take some profits on some of my faster-running gold shares. But I do so with full intention and every expectation that I'll be able to buy these same shares again in the near future at lower prices, and profit all over again.

Which reminds me to remind you not to let Mr. Market's wild-eyed enthusiasm for gold sweep you up any more than he does for any other asset class.

As Doug Casey has said and I have often repeated, 'Gold is money, and sometimes it's also a good investment.' Today, I think it has rarely been all that important as money, but given how sharp the run up has been of late, it's probably not a terrific investment either. So, hold your core position and look for opportunities to buy on dips. At least that's how I'm playing it.

Now, for a bit more perspective on how we got to where we are, I'd like to share a snippet from Jeff Clark, the editor of CGR. Or, more specifically, a video clip of President Nixon explaining why a 'temporary' suspension of gold convertibility is necessary. As Jeff put it. . .
'This would be funny if the results hadn't been so dreadful. Could he truly have believed that this action would strengthen the dollar and fight inflation? Boggles the mind.'
You, too, can have your mind boggled by this this link."

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