My Jaw Hit The Floor…

| October 11, 2010 | 0 Comments

Like most small business owners, I’m always out meeting new people and looking for good business connections.  It might be a new phone guy, an IT guy, or somebody to print business cards.  Because of my relentless networking, I often find myself at – drum roll please – networking events.

Let me tell you, some are much better than others…

Just last week, I attended a nice breakfast event in Scottsdale.  Every-one was very friendly and had great stories to tell.  Later they brought on a guest speaker from the financial industry.  Of course, he was promoting his services and looking to latch onto a few new clients…

I started listening eagerly, only to be shocked by his commentary on the markets.

Now I know you’ve probably sat through a number of these financial “talks”.  Some older gentleman with graying hair stands up and offers his financial management services.  He talks about retirement planning, asset allocation, and risk versus reward.

Inevitably, he pitches some product “de jour” like annuities, private REITs, or managed accounts.

While he may have the best of intentions, you need to realize these guys are all salesmen.

They get paid by selling you investment products.  There is nothing wrong with that model… as long as everyone knows which side of the fence they stand on!

Of course, polished salesmen always have an opinion…

When our presenter was asked about gold, my ears really perked up.

After hemming and hawing about the markets, he made the decisive statement, “Gold would only fall in value!”  He recommended kicking it out of your portfolio.  He thought the true value was closer to $800 an oz.

Of course, comments like that always bring a flurry of questions.  I looked around and I counted about a dozen people shaking their head in disagreement and rolling their eyes.

The presenter’s logic was simple.

Over the last 30 years, gold has delivered an annual rate of return of just over 1.5%… and during those same 30 years, inflation has run about 3%. In effect, you’ve lost 1.5% of purchasing power every year you’ve invested in gold.

Now it’s here that I almost choked on my coffee.

Suddenly, the entire room was anti-gold.  Those people who rolled their eyes at the thought of selling gold… started seriously thinking about it! Everyone was nodding along to his diatribe on selling gold.  And all I could think was – You’ve got to be kidding me!

I’m not going to argue with his statistics… they’re probably right.

What I am going to argue against is his conclusion.

First off, having gold in your portfolio isn’t a bad idea… but like everything, moderation is key.  You don’t put 20% of your portfolio in any one investment – even gold.

Second, the Federal Reserve and other central banks are running the printing presses at full speed.  “Easy credit” is the phrase of the year.  And quantitative easing is now overheard in conversations across the country.

When central banks flood the market with currency, it leads to devaluation and inflation.  Any novice investor knows the best investment to make during inflation is in hard assets.  And in my mind, one of the best hard assets to own is gold.

Now, I’m not telling you to buy gold and hold it for 30 years…

What I’m saying is over the next few months and years, gold prices will rally as inflation becomes a concern.  When will this happen?

Just wait for unemployment numbers to start falling.  As more and more people go back to work, the employment landscape changes.  Fewer unemployed people means less competition for open positions… that means companies will need to start increasing pay.  And as pay levels increase, so will the demand for goods and the willingness to pay higher prices.

Trust me, inflation is around the corner… and investors are already preparing for the worst.

Gold prices are up huge… and they’re continuing to rally.  Keep in mind, I’ve been telling everyone to buy gold since it was near $800 an oz.  Today it’s over $1,300… that’s a gain of over $500 an oz!  I don’t think we’re anywhere near the end of this run… so hold on tight.

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Category: Currency Trading

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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