Blanchard research note: Why it's time to load up on gold


By Neal R. Ryan
Vice President and Research Director
Blanchard Economic Research Unit
Blanchard & Co., New Orleans
Tuesday, February 27, 2007

There were serious losses today across the board in stocks and commodities.

What to do?

The dollar is cracking. The end of the easy money via the yen carry trade, which we forecast a few weeks ago, seems to be taking place. It is decimating the Chinese stock market and now is taking its toll on the U.S. stock market.

For a few reasons this is all very good for precious metals investors, though it might not seem that way right now, since everything is out in the yard like a garage sale.

1) Wall Street will start begging, in its subversive way, for a cut in interest rates sooner rather than later. And Wall Street probably will get lower rates because Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson don't want to be at the helm of the economy while it spirals down the tube. According to the Fed, inflation is in check, so getting interest rate cuts to keep the economy and, more importantly, the stock market afloat for investors will be the order of the day. Rate cuts will be very positive for precious metals.

2) The yen is finally strengthening against the dollar, and the euro seems to be becoming the currency of the hour. There also has been chatter that China will have to tighten interest rates on the yuan to cool off its economy. Again, all this is very precious metals-positive because of money that will be flowing into gold amid a weakening dollar.

3) Investors will begin moving much more quickly into precious metals to get away from the volatility in uncertain global markets. Conversations will shift away from your uncle telling you all about how he made money in the Brazilian and Malaysian stock markets to how he has begun buying gold and silver.

4) This is all taking place with the strongest season for precious metals investing still a month away, and with the new gold supply/demand situation we constantly pound the table about starting to work its way into investor consciousness.

So load up. It's going to be a fun ride over the next week.

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