Now is the time to buy gold!
One of our favorite market commentators, Michael “Mish” Shedlock from Global Economic Trend Analysis, cut right to the chase this week.
“Buy gold,” said Mish. That was on Wednesday, two days before the Dow’s stunning 460 point drop.
Mish was watching anomalies in the interest rate market. Wall Street figured it out later.
Mish has a great track record on the big events. Like Ron Paul, he was a small, still, voice crying out about the housing bubble back when nobody wanted to hear it.
Now Mish is alarmed by action in the interest rate markets. Normally longer-term interest rates are higher than short-term rates. After all, whatever you might charge to loan someone money for three months, you would certainly want a higher rate to loan money for ten years. You have given up the use of your money for a longer time during which market rates may change markedly, while a longer-term increases the risks that can befall the borrower and the return of your money.
In normal markets, long-term rates are higher than short-term rates. An interest rate inversion, when long-term debt instruments develop lower yields than short-term ones, is a classic indication of a weakening economy and of recessions.
Mish also notes rates on the 30-year government bond and concludes the market is growing “very concerned about US government deficits exceeding $1 trillion dollars for the next five years minimum.”
In the meantime…
Mish says, “Meanwhile, buy gold. The budget deficit picture will get much worse in a recession.”
We will note once again just how precarious the stock market is. It will grow more wobbly as the deficit picture becomes more clear.
We note as well that as the European market was nearing its close on Wednesday, someone stepped in and dumped a billion dollars’ worth of “paper gold,” gold futures contracts, on the market, driving it briefly below $1300. We don’t know who or why, but observe only that if it was an attempt to manipulate the market lower, it didn’t work. Buyers stepped in immediately and took advantage of the lower price, quickly moving gold back over $1300.