Important Investment Missing in Most Portfolios

by Michael Lombardi, CFP

This morning, quietly, gold bullion has moved up to a new 45-day high at $956.00 per ounce. The U.S. dollar is down against most world currencies this Monday morning, an event which often sends gold prices higher.

Let’s look at the cold, hard facts:

  • Some of the world’s smartest investors are predicting that the U.S. dollar will fall perceptively against other world currencies in the months ahead, as the U.S. has accumulated too much debt fighting three wars: the economic war at home, the Iraq war and the Afghanistan war. Gold bullion prices bode well in such an environment.
  • This will be the first year ever that the U.S. government runs a trillion-dollar deficit. If the U.S. dollar is the reserve currency of 70% of world central banks, what will be the rationale of keeping a debt-ridden currency as a central bank’s reserve currency? Gold bullion prices bode well in such an environment.
  • After the largest and boldest monetary and fiscal stimulus programs we have ever seen, will rapid inflation not eventually follow suit as a classic side effect of economic over-stimulation? Gold bullion prices bode well in such an environment.
  • Finally, back in 2002, when gold was trading at $300.00 U.S. per ounce, I was screaming as loud as I could that gold was ripe as an investment. Here we are seven years later and gold is up 200% since then, or about 28% per annum. “The trend is your friend,” as they say in technical analysis, and gold bullion prices certainly are boding well with this trend.

Now, let me ask you an important question about your personal
investment portfolio: how much of your portfolio, if any, is exposed to gold-related investment? While I obviously do not know your personal situation, I can tell you that only five percent to seven percent of our investment newsletter subscribers have exposure to gold, and this is very low.

A smart, well-prepared investment portfolio should have at least 10% to 15% exposure to gold. If the events listed above continue to unfold as predicted, those without exposure to gold-related investments will deeply regret the missed opportunity. If you regretted not getting into gold when it was trading at $300.00 an ounce, when gold is at $2,000 an ounce or more, you’ll regret not getting in at today’s current price of $956.00 an ounce. A bold statement, I know. But, let’s say I’ve got a hunch.

Michael’s Personal Notes:

Canada’s central bank is the first to come out and call its domestic recession as over. According to the Bank of Canada, Canada’s GDP will grow at an annual rate of 1.3% this quarter, marking an end to a nine-month recession — one of the shortest recessions ever experienced by Canada. I can’t figure out if coming out and saying that the recession is over is a good thing or bad thing. It’s good in that such statements help restore consumer and business confidence. It is negative in that, what happens if there is no growth this quarter? What happens to the credibility of a central bank if it is wrong? If I weren’t reading between the lines, I’d think the set-up for higher interest rates is in play.

Where the Market Stands:

The Dow Jones Industrial Average sits today at 3.6% higher than it started 2009. The rally in the confines of an overall bear market is alive and well. With the Dow Jones being the final market index to turn positive for 2009, the mood amongst investors and the Street is improving. Significantly, last week, the Dow Jones moved above the psychologically important 9,000 level. The calls for “Dow 10,000” are coming out from the bullish camps. Let’s not get too ahead of ourselves. After all, this is a bear market rally, not a new bull market.

What He Said:

“Recipe for Catastrophe: To me, the accelerated rate at which American consumers are spending, coupled with the drastic decline in the amount of their savings, is a recipe for a financial
catastrophe.” Michael Lombardi in PROFIT CONFIDENTIAL, September 7, 2005. Michael began talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.