Is the Gold Rally Nearing Its End?

I have been thinking for some time that the gold rally is nearing its end. If you have some of your portfolio in gold and have enjoyed huge returns over the last couple of years, I think it is time to cash in and buy stocks.

"Bulls make money, bears make money, but pigs get slaughtered."

Don't be a pig in the gold market.

The following article about Fed Chairman Bernanke's comments on gold prices reminds me of Alan Greenspan's "irrational exuberance" comments at the height of the 1990's tech bubble.

Bernanke Puzzled by Gold Rally
By Jon Hilsenrath
Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk.

In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

“I don’t fully understand movements in the gold price,” Mr. Bernanke admitted. But he suggested it might be another example of investors fleeing risky assets and flocking to assets that are perceived as less risky, not only Treasury bonds, but also ones like gold.

DJIA 11,000: No Bull?

US STOCKS SNAPSHOT-Dow Closes Above 11,000 On Earnings Optimism

Mon Apr 12, 2010 4:06pm EDT NEW YORK, April 12 (Reuters) - The Dow industrials closed above 11,000 for the first time in almost 19 months on Monday as expectations of solid first-quarter earnings spurred buying in the financial, energy and industrial sectors.

Historically, the market has been a leading indicator of future economic growth or contraction. Probably, history is repeating itself. Sorry for all who got out when the DJIA was in the 6,000's.

To read the whole article, click on the blog post title or copy and paste this: http://www.reuters.com/article/idUSN1220382820100412?feedType=RSS&feedName=mergersNews&rpc=22&sp=true

On The Bright Side-DJIA

In spite of the daily onslaught of poor economic news and anti-business policies coming from DC, the Dow Jones Industrial Average has had a great year. In the past year, the DJIA has risen from about 7659 (3/25/09) to just under 11,000 (3/25/10).

I am still investing more heavily in international mutual funds--especially China, India, and Southeast Asia funds--than most financial planners recommend. Africa, the Middle East and Latin America have some great opportunities, as well. I do not expect US stocks to really take off until our leaders decide to cut corporate tax rates.

On the other hand, a pure contrarian investor would be buying more US stocks right now at low prices in anticipation of future growth. Perhaps the market is already factoring in expected policy changes after the 2010 and 2012 elections (which would explain the recent run-up). Who knows? I gave up trying to figure out market psychology years ago.