On Tuesday, Jared talked to you about buying gold in euros. If you haven’t read his article, take a few minutes after you read today’s Smart Investing Daily. It might change how you look at his idea.
There’s a rumor floating around. We’ve talked about it here before, but from a worst-case scenario point of view.
Now the mainstream financial news media is talking about it.
I’m talking about the rumor that the Federal Reserve is thinking about another round of quantitative easing. Quantitative easing is when the Fed buys government debt in order to inject more dollars into the economy.
Think of the economy like an ultra-marathon runner… those half-mad guys who run distances of 50 miles or more in a single event. Right now, our runner is bonking out. He’s cramping up and hitting a wall, and he’s running up hill.
If he doesn’t get a chance to rest soon, he’ll collapse.
But instead of getting a rest, he’s cramming power bars and energy gels, just to try and make it up this hill.
The problem is it’s too late. Those power bars will do nothing but sit like lead in his stomach.
The quantitative-easing “power bars” aren’t giving our economy any energy. In fact, all the Federal Reserve is doing is tying a weight around our ankles. The second round of the Fed’s bond-buying program shifted talk from deflation to inflation — from paying less for things to paying more.
But we’ve had a string of horrible economic reports, and now folks are starting to talk about a third round of quantitative easing.
From a Reuters article, titled “Analysis: Third time’s the charm? Whispers of QE3 emerge”:
“The U.S. economy is hitting the brakes at exactly the wrong time for the Federal Reserve,” said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
“With the expected end of QE2 within reach, the U.S. economy is in a situation where its only form of life support is about to be ripped away from it.”
Look, we all know how important this race is… If our economy can’t make it up the hill, the costs are going to be hugely painful.
But if the Fed keeps forcing bond-buying power bars down our economy’s throat, we’re going to end up running off the side of a cliff. These power bars are going to push us into an era of sharply higher inflation.
We’ve seen the start of this already.
Traditionally, commodities are the first things to climb, and we’ve all been suffering under higher gas and food prices. This should be an early warning that more inflation is coming.
Some investors are already packing up and heading for higher ground.
Again, from Reuters…
Investors stampeded out of stocks and into bonds on Wednesday as dismal U.S. economic data led the S&P 500 to its worst day in 10 months and benchmark Treasury yields fell below 3.0 percent the first time since December.
But I told you a couple weeks ago that bonds might not be the place you want to set up camp. The thing to remember is that bonds aren’t the only asset that investors run to when they’re scared.
I probably sound like a broken record, but I can’t emphasize enough how important it is to have gold in your portfolio. We’ve been right on this account so far, and I remember talking to a local business man about it in mid-winter.
He asked, “Gold’s the thing to buy right now, isn’t it?” Gold was sitting at about $1,330 an ounce. I told him what I told you guys back in late January… That gold could bounce much higher.
Yesterday, gold closed at $1,540 an ounce. And I’m going on record saying that we could get another strong price move this month.
That second round of quantitative easing is about to close. The Fed is slated to finish buying $600 billion in government debt in June. And with the economy getting weaker and weaker, we could see a major market hiccup.
Gold will go ballistic.
We’ve given you a number of ways to get gold into your portfolio. We’ve talked about one company, Goldcorp (GG:NYSE).
I first mentioned this gold mining company back in late January, and since then, the company has climbed more than 22%. I think there’s still a lot more potential with GG, too.
In my initial assessment, I said GG could climb as high as $48.94, its former 52-week high. But the company has already climbed well past that. If you’re sitting on gains with GG, we’d love to hear about them. You can send us an email at [email protected].
GG has climbed as high as $56.20, and has dipped back to about $48. This should be a support point for another move higher as gold prices continue to pop. We’re keeping an eye on GG, and any dips below $48 might be cause to cut and run with 20% gains.
We’ve also talked extensively about the SPDR Gold Trust ETF (GLD:NYSE). Jared highlighted this ETF in his article on Tuesday.
And as I told you at the beginning of this article, you might want to go back and look at Jared’s idea with fresh eyes now that rumors of QE3 are hitting the financial mainstream. The economy (and the dollar) is bonking out. Now might be the perfect time to consider other options.
Editor’s Note: You know, gold isn’t the only precious metal you should be considering when adding “safe havens” to your portfolio. Silver has had a lot more punch in recent months, and the time is ripe for another round of profits with this other precious metal.
I was just reading about a key report that talks about silver mining discoveries that help investors gain the lion’s share of profits once those discoveries hit the news. Not a lot of people know about this report, but you can learn more about it here.
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