EconomicCrisis.US

In 2009, the U.S. media were finally forced to start comparing the current, U.S. economic collapse with the “Great Depression” of the 1930′s, simply because there were no other historical precedents remotely comparable to the current meltdown.

A recent question from regular reader “Johnny O” asked me how the gold market had performed during the U.S.’s first “Great Depression”, in order to (hopefully) gain some insights into how the gold sector would perform this time around.

After professing that I was far from an expert concerning that period of time, I suggested to him that the 1930′s made a poor comparison – since current parameters were so much more bullish for the precious metals sector than during the “Dirty Thirties”.
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It’s wildly fashionable among investment circles to bash the US Dollar’s prospects. Profligate US Government spending, our Federal Reserve’s easy money policies, and the soaring gold price are heralded as proof of the Dollar’s weak outlook. Investors are concerned that a weak Dollar will result in inflation, more expensive imports, capital leaving our shores and depreciation of Dollar denominated assets. While there are few things all investors can agree upon, many see the Dollar headed for ruin.

Bottom Line

Many investors are structuring their portfolios with an underlying assumption that the Dollar can only fall. They are flocking to commodities, foreign currencies, gold, overseas stocks and bonds and similar amid a widely held view that a continued collapse of the US Dollar will make them profitable. Similarly, they shun domestic stocks, particularly those with little or no foreign exposure, US Treasury debt, and Dollar oriented instruments because they’re viewed as providing little protection against Dollar weakness.
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Gold has surged 60% in the past 12 months and it’s not letting up. The “yellow metal” is continuing that scorching surge into the last part of the year, establishing new highs on a near-daily basis. In fact, gold established yet another record price Wednesday when it peaked at $1,153.40 an ounce on the New York Mercantile Exchange (NYMEX).

And the records are going to keep on coming.

With the U.S. dollar in a freefall and global gold demand rising, analysts say the precious metal will likely continue its bullish trend through at least the first half of 2010. It could rise as high as $2,000 an ounce, which would represent a 73% gain from current record levels.
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When Nouriel Roubini talks, the world listens. Roubini is, of course, the once-obscure New York University economist whose dire warnings about a financial crisis proved depressingly prophetic. Last week, Roubini was shouting. Writing in the Financial Times, he warned that the Federal Reserve and other government central banks are fueling a massive new asset “bubble” that — while not in imminent danger of bursting — will someday do so with calamitous consequences.

Here is Roubini’s argument: The Fed is holding short-term interest rates near zero. Investors and speculators borrow dollars cheaply and use them to buy various assets — stocks, bonds, gold, oil, minerals, foreign currencies. Prices rise. Huge profits can be made.
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