Take a very defensive investment posture with gold bullion investment.
May 23, 2011 – It’s official: Thursday the World Gold Council declared China is now the largest consumer of physical gold bullion, with a whopping 225% first-quarter year over year increase in purchases. More significant, India, now in second place, did not slow down its own consumption.
By any measure that represents a huge increase in demand, which Commerzbank analysts say gives “cause for optimism that the price will sustain its long-lasting rally,” according to the Wall Street Journal. The gold price responded early today, climbing past $1,500.
Goldman Sachs Group’s commodity research team told Bloomberg that “Gold is simply pricing sovereign default risk, it still remains a big issue … [and] that kind of risk will continue to support gold prices.”
On May 25 the Fed will counter that risk with the release of its revised figures for first quarter GDP growth, which I expect will be another smoke and mirrors sideshow. But “gross domestic product is used to measure a country’s economic growth and standard of living. It measures neither,” Research Affiliates’ chairman Rob Arnott told Brian Milner in the Toronto Globe and Mail. “GDP measures spending. It does not measure prosperity.”
When consumption if financed through debt, prosperity declines – it doesn’t grow. Arnott proposes a more realistic evaluation that he calls “structural GDP,” which excludes deficit spending. By that measure the per capita GDP “has fallen back to levels not seen since 1998.” Not coincidentally, the GDP exclusive of government spending is also at the 1998 level. “What we find is that this recession is horrific.”
The average consumer has been saying that all along and they are getting tired of hearing Bernanke trying to convince us it is otherwise. “Now is a wonderful time to have a very defensive investment posture,” Arnott says. “As deficit-spending is reined in, either voluntarily or because the capital markets choke on new debt” we can expect the markets to be driven “massively lower.”
We can also expect a strong position in physical gold bullion to provide us with that “very defensive investment posture.”
