Tags: The | Gold | Rush | Continues

The Gold Rush Continues

Thursday, 29 September 2005 12:00 AM

1. Gold Soars on Strong World Demand

Conventional wisdom says that when gold rises sharply, expect an acute reversal shortly afterward.

But with the U.S. economy still licking its wounds over Hurricanes Katrina and Rita and wrestling with high energy prices, gold could go higher yet.

So says James Attwood, writing recently for the Dow Jones Newswire.

He says that as gold prices rose to 17-year highs last week, peaking at $475.45 an ounce, investors who are still worried about U.S. economic growth and dollar weakness could throw more financial resources into the gold sector and perpetuate the rally even further.

"Analysts say the uncertainties driving gold are likely to linger, especially with Rita threatening U.S. energy infrastructure," writes Attwood. "That keeps gold on track to hit $480 to $500 an ounce by year end, they say. That is a far cry from the record London afternoon fixed high of $850 set back in January 1980, not inflation-adjusted, or about $2,000 adjusted for inflation. The Comex high was $875, made on Jan. 12, 1980."

If U.S. economic growth is stagnant over the next year, gas and oil prices continue to induce sticker shock on American consumers and the dollar struggles, gold could continue to be the safe haven of choice for investors.

Foreign bourses could play a big role in a sustained gold rally, as well.

Says Attwood; "In addition, gold appears well supported fundamentally with: the prospect of central banks such as those of Argentina and Russia stepping up gold purchases; unusually strong physical demand from India in the festival season starting mid-October, and sluggish mine production expected in the Middle East."

He points to a recent research article from J.P. Morgan that claims gold's strength is fueled by China's appetite for luxury goods.

The article contends that Chinese demand "is still in its infancy and could support gold demand for many years."

Dow Jones also asserts that South African gold mine expansion is cooling. The article adds that domestic and foreign economic ripples could boost gold prices to $495, although there is some sentiment for gold to climb high - but not that high.

"Gordon Cheung, precious metals director at Mitsui Bussan Hong Kong, says he expects prices to stay capped at $475 in the near term, with a possibility of further correction."

Attwood adds that Cheung issues a bit of a caveat, saying that gold could be up to $490 per ounce by December 2005, fueled by an anticipated weakness in the U.S. dollar as the Federal Reserve adopts a less aggressive approach on raising interest rates in the face of persistent economic uncertainties.

2. 'Hurricane-Proofing' Your Portfolio

On Wall Street, you often hear the big money guys talking about "bullet-proofing" their portfolios.

That means designing your investment portfolio in such a way that even if it takes a body blow, you can easily absorb the hit with minimal damage to your investment assets. Of course, no investment plan is immune to losses, but the idea is to limit them so they don't destroy your financial future.

Make no mistake - as an investor, protecting your portfolio should be job No. 1, if only to maintain your peace of mind.

Research indicates that an investment loss hurts an investor about twice as much as a gain helps.

During periods of market volatility, investors experience a more acute sense of loss. For anyone with a short memory, the bear market of 2000-2002 is a vivid example of that.

Today, given recent events, the popular method of portfolio bulletproofing is to make your investments "hurricane-resistant."

USA Today's Adam Shell writes that "ever since Hurricane Katrina crashed into the Gulf Coast on Aug. 29, nimble traders and money managers have been reshaping their portfolios in an attempt to sidestep - and profit from - the potentially devastating one-two punch packed by Katrina and Rita."

Now the idea is that some industries and companies will profit handsomely from the damage inflicted by Mother Nature.

Andrew Corn, CEO of Clear Asset Management, tells USA Today: "Like most tragedies, there is a silver or, in this case, a golden lining."

The key in building hurricane-proof portfolios is to pick the sectors - and the companies within those sectors - that are poised to profit most from natural disasters. Obviously, construction and home-repair providers (think Lowes or Home Depot) might be natural choices for a disaster-proof stock portfolio. Energy and utility companies can also fill a niche.

Even clothing retailers tend to do well in natural disasters.

Companies like Abercrombie & Fitch and The Gap are often the first places shoppers go to replace - what else? - their clothing, which is often lost in a hurricane or other catastrophe.

While no actual hurricane mutual fund exists today, feel free to cherry-pick the companies you think will grow and prosper even as most others wither on the vine after a devastating event like Katrina or Rita.

Remember, there's really no avoiding the ebbs and flows of stock market performance.

Hits are inevitable and typically occur because of a bear market, a recession, inflation fears or a currency problem. That's why the goal is to achieve built-in protection for your capital and perhaps make a profit even when traditional portfolios are spiraling downward. Plus you still want to be able to beat or keep up with the markets when they are rallying.

That's why bulletproofing your portfolio is so critical - it protects you and your money and creates more opportunities to grow your investment portfolio - even after a hurricane.

3. Profiting from the Next 5 SuperSectors


In the past year alone,

But a new group of leaders is about to emerge and dominate the market. Our

Don't miss out. Become a charter member of our brand-new

4. U.S. Productivity Decline: Is Economy Doomed?

The Federal Reserve doesn't see productivity - or at least the lack of it - as a major issue in the coming months.

In fact, one of the Fed's reasons for raising interest rates 0.25% last week was that productivity is strong and fueling U.S. economic growth.

"Monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity," the Fed said in a September 20, 2005 news release.

"Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained."

But with the hangover from two major hurricanes afflicting the short-term health of the economy - at least for the short term - some economic observers say that the chaos caused by the storms will hamper economic growth for the long term by throwing millions of people out of jobs and destroying billions of dollars' worth of homes and other physical capital.

And that's led some to question whether the Fed has a productivity problem on its hands.

While productivity has generally gone underneath the media's radar screen, the Fed has been monitoring the benchmark for signs of slowing.

With red flags - in the form of diminished purchases of high-end computers and other office and manufacturing equipment - some say that productivity is down and that more rate hikes might be in order to sustain the momentum of the American economy.

Outside of defense and aircraft manufacturing, capital goods deliveries have declined in five of the first seven months of 2005. One reason for lower capital goods investment is exorbitant energy spending. To cover rising energy costs, companies are using money that might have gone toward workers and equipment, and that has generated a slowly widening productivity gap.

The most recent issue of Business Week reports that productivity growth has declined significantly over the past few years, dropping from a year-over-year rate of 5% in the fourth quarter of 2003 to 2.2% in the second quarter of this year.

"But such fluctuations are normal responses to the cyclical ebbs and flows of the economy," says Business Week. "More important is the underlying rate of long-term productivity growth - what economists call the sustainable rate. But that's devilishly difficult to discern through the gyrations of the economy."

The Fed is keeping a closer eye on productivity after revised economic data from 2002-2004, which showed that the economy grew slightly more slowly than first reported.

Part and parcel to that is the fact that capital investment grew more slowly than first thought.

"The revisions have prompted some top Fed officials - most prominently San Francisco Fed President Janet L. Yellen - to mark down their estimates of trend productivity growth," says the magazine.

And Business Week reports that productivity is waning.

"Some Fed officials now peg the underlying rate of productivity growth at about 2 1/4% vs. the 2 1/2% or more they thought previously. That would put the economy's speed limit at something closer to 3%, rather than 3 1/2%."

If productivity declines any more sharply, the U.S. economy could be in trouble. High productivity has been a boon to the Fed as well as the economy for 10 years now. If it shifts into lower gear, both will have a big problem.

5. Expert: Critical Illness Insurance Vital

Is critical illness insurance something that Americans can't afford to live without?

Not surprisingly, the insurance industry thinks so. But in this case, insurers just might have a point.

Right now, several mega-trends are driving the growing need for critical illness insurance. Despite advances in medical technology, more people are being diagnosed with critical illnesses each year. However, more people are surviving those illnesses than ever before, and although that's good news, it's resulting in additional expenses that individuals haven't had to deal with in the past.

So what is the financial side of the equation?

Americans also are largely unprepared for the economic consequences of a critical illness, since many employees are living paycheck to paycheck. A recent report by MetLife cites a 53-year low for the U.S. savings rate (just 1.3%) coupled with record-setting consumer debt.

Another recent Harvard University study also revealed that unpaid medical bills resulting from serious illnesses accounted for about half the 1.7 million annual bankruptcies in the United States.

According to Randy Stram, vice president of MetLife Critical Illness Insurance, when employees are educated about the financial impact of a critical illness, they're more apt to recognize the value of critical insurance coverage in helping protect the equity in their home and savings for other important priorities - such as a child's college education or their own retirement.

"Even with a comprehensive medical plan, there still could be significant out-of-pocket expenses of about $12,000 a year on average, according to the Harvard study, as the result of a serious illness," he explains.

Among costs that generally go uncovered: medical and prescription drug co-pays, experimental and nontraditional treatment, and expenses related to travel, childcare or domestic help.

Although group medical premiums are consuming more employee dollars each year and clearly make up the lion's share of out-of-pocket expenses, purchasing critical illness insurance can be a small price to pay for peace of mind.

Stram notes that nonsmokers in their early-to-mid-40s who purchase $25,000 of lump-sum group critical illness would pay about $20 per month.

"You can imagine how helpful a $25,000 lump-sum payment would be to help someone living paycheck to paycheck manage their illness and focus on recovery," he adds.

Typical critical illness insurance products usually offer such a lump-sum benefit of up to $100,000 for six prevalent critical illnesses - including cancer, heart attack, stroke, kidney failure, coronary artery bypass graft and major organ transplant.


© 2019 Newsmax. All rights reserved.

1Like our page
1. Gold Soars on Strong World DemandConventional wisdom says that when gold rises sharply, expect an acute reversal shortly afterward. But with the U.S. economy still licking its wounds over Hurricanes Katrina and Rita and wrestling with high energy prices, gold could go...
Thursday, 29 September 2005 12:00 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
© Newsmax Media, Inc.
All Rights Reserved