the general equity markets
might be entering a bear market. if the federal reserve doesn't take drastic measures in significantly lowering rates to meet market expectations, expect brutal sell-offs down to the DOW 10k level. there will be rallies here and there of course, but expect a very volatile 2008. massive amounts of liquidity need to be injected into the financial system in order to stave off a great depression scenario. with the credit markets seizing up and other derivatives and bond insurers like MBIA and Ambac about to blow up, it is going to get real ugly real fast unless some surprising measures are taken by the FED in order to inject confidence back into the system and flood it with massive amounts of liquidity. of course, all this liquidity is inflationary and that is excellent for commodities, especially precious metals like gold. the dollar will drop even further, while gold takes out $1000+ in this type of environment. based on Bernanke's past remarks, the FED is willing to risk inflation to prevent deflation at this point. and even if the markets react positively and run to new highs over the next couple of years, it still won't matter as the value of the dollar crumbles. just look at the performance of the German stock markets during the Weimar Republic or the present situation in Zimbabwe. yes, these are extreme examples. but, when money can be printed out of thin air, as in the case of the dollar and other fiat currencies, this creates inflation - an increasing amount of paper chasing a fixed amount of goods and services.
in this type of environment, and even during a stagflationary one like we are in at the moment, you want to buy gold bullion. or, buy GLD, the exchange-traded-fund (1 share is equivalent to about 1/10 ounce of gold + transaction costs). if you want more leverage (and hence risk) to gold's price moves, then you can buy gold mining and exploration companies, but you have to be very selective. the biggest large caps that institutions like are ABX and NEM. then, you have great growth companies like GG and AUY. some other decent companies that exhibit good leverage to rising gold/silver prices include: SLW, KGC, GOLD, RGLD and AEM. or, you can buy a precious metals fund, which takes care of the stock selection, such as Vanguard's.
check out wikipedia for some easy reading:
https://en.wikipedia.org/wiki/Gold_as_an_investmentfor some more in-depth reading, check out the following report:
https://www.traderview.com/economiccomme ... sMoney.pdfthis is about protection of purchasing power, and that is what gold does. gold has ceased to function as a regular commodity and is now functioning as a currency. if you own dollars, you have been losing over 30% of purchasing power since 2000. even with the stock market gains from 2003-2007, gold has significantly outperformed general equities.
![](https://home.earthlink.net/~intelligentbear/dj-au-ratio-lt.gif)
source:
https://home.earthlink.net/~intelligentb ... dow-au.htmin my opinion, this bull market in gold is nowhere near over. when everyone begins talking about gold and gold stocks at parties, dinners, etc., then you know it's time to probably sell. but, it's quite possible that gold doesn't crash in price and stays fixed at a level much higher than here, should the dollar decline so much in value. if that happens and if the united states wants to maintain its global hegemon status and dollar as the reserve currency, they will have to back the dollar with gold not via convertibility, but via the balancing of existing gold inventory in reserves to the expansion/reduction in the money supply.
[disclaimer: of course i am long gold and gold stocks]