Tags: essaye | kinsale | gold | silver

Tom Essaye to Newsmax: Investors Need to Be in Gold

By    |   Sunday, 26 Aug 2012 04:03 PM

Investors should go long on gold as a hedge against rising food costs and against longer-term central bank policies that could pump up inflationary pressures, said Tom Essaye, president of Kinsale Trading and Editor of the "7:00's Report."

A crippling drought has decimated crop yields, sending corn rising as much as 60 percent this year.

Eventually, food prices will rise in grocery stores, likely in a few months.

Gold is a popular investment when prices rise.

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"The best thing you can do is try and hedge yourself higher food inflation, and that's by buying things like gold and silver, because we are going to see higher inflation over the next several months," Essaye told Newsmax.TV in an exclusive interview.

"So you want to hedge yourself in other investments as best you can against those high food prices."

Central bank stimulus policies tend to send gold rising as well, and a cool global economy will likely prompt them to act.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

The Federal Reserve said in the minutes of its recent monetary policy report that unless the U.S. economy gains steam, it could announce plans to jolt the economy, which markets interpreted as a fresh round of quantitative easing — asset purchases from banks that pump liquidity into the economy to encourage investing and hiring.

Quantitative easing weakens the dollar, sends gold rising, and arguably plants the seeds for greater inflationary pressures down the road.

Meanwhile, European Central Bank (ECB) President Mario Draghi has said he would do whatever is necessary to defend the eurozone.

Europe's monetary authority has not announced outright bond purchases from banks via quantitative easing, but has purchased debt in the past although in Europe, the ECB withdrew money from circulation to buy those assets, whereas quantitative easing prints money out of thin air to boost the economy.

Still, Europe could follow in the Fed's footsteps, while China has said it cannot rule out resuming cuts to benchmark interest rates and to bank reserve requirements as well.

"If those things come to fruition, then gold is going higher, because they are very, very inflationary. If they do not, then you will probably see gold pause here and maybe decline a little bit," Essaye said.

Fiscal reform measures such as tax adjustments and spending cuts don't happen overnight, so expect central banks to act.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

"The only way out of this economic malaise in which the world finds itself is through central banks stimulating their economies, which ultimately is inflationary, so long-term investors should continue to buy gold at these levels."

Not only will gold rise on central bank action, but oil prices will as well.

Monetary stimulus wards of recession, thereby preserving demand for fuels and energy.

Should the Federal Reserve move, the dollar weakens, which makes oil a nicely priced commodity in dollar-denominated exchanges in the eyes of investors holding other currencies.

Keep an eye out for opportunities in stock markets, especially if Europe navigates its way out of its debt crisis.

Consumer staples are a good play.

"Consumer staples are still a good place to be. What we've seen over the past several years is that we have had sort of a stop-and-start economy," Essaye said.

"What we have seen, though, is that consumers have not gone into a hole. They continue to buy the things they need, they're just not really stretching for those big purchases, so consumer staples are important."

Housing is improving as well.

"Other things like housing is actually getting much better, which is surprising to a lot of people because we are just so used to it being terrible. That's another place you can put some capital and feel pretty good about it."

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2012-03-26
Sunday, 26 Aug 2012 04:03 PM
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