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Is the recent increase in GOLD investments a sign of a coming depression? Are stocks in gold backed by actual gold?

Updated on August 27, 2008

Do old financial signals point to depression?

Gold has been on an increasing upward trend for about the last five years. It has slowed but continues on an inexorable climb upward. There is a notable grumbling from the traders and amateur financiers who fancy they understand market movements.

There are bullion stocks bought at a premium due to storage and security costs. Other stocks or mutual funds merely reflect the value of the total gold market. Others still mine and market gold bullion. is a major player in gold. is an exchange traded fund that holds bullion.

The pros? Well, the pros have to pay the mortgage and that is a powerful incentive to sell to clients in rising or falling markets. When the market swells with anticipation of an upward spiral, along with a market that all anticipate will keep growing-those in the know beat a hasty retreat, pack up their tents and go fishing. No,sorry exchange traded funds are not the new answer, nor are mutual funds, foreign ADR's or, American Depository Receipts, those foreign stocks listed on American exchanges. Everything, everywhere, is down, or pointing that way. (some countries like China had a pretty good notion that their economy would continue to grow and leave the U.S. behind. In fact several countries were preparing to shed the U.S. as a major player in the

markets. A funny thing happened to China and the rest of the world. Their markets are in decline as well.

Of course, our prognosticators don't really know about russia's Mob driven, quasi KGB government structure. some recent moves in their markets have left a bitter taste on more than one U.S. investors tongue, and may have a negative effect on that market for a long time to come.

Markets are complex, mind numbing monsters that confound great financial minds, even while Joe, the shoeshine boy on 42nd. Street is showing a 35% profit in corn futures. The author has worked on a chart for a week's time, slumped over numbers hours on end-- and the formula worked-- for 2 hours.before grinding his nose into a swiftly changing market that is fickle, if not mean and cruel, leaving him broke and contemplating poison or a jump from a high bridge..

The writer has held to the Keynesian economic theory that holds modern economies run against the old rules with single entry accounting that proves a dollar must be shown to exist, or something of equal value, (such as gold) must be shown to exist, or there is no dollar. Without the dollar, in theory at least, there is a bankruptcy.

When President Kennedy took office in 1960 the economy had been practically moribund for at least 8 years, Galbraith, from Harvard, convinced Kennedy the way to get the economy moving was through government spending, actually not holding a standard behind the dollar, pointing out that a country is backed by everything available that has value plus the potential to increase wealth. Left to float on the market, gold hung around $35. an ounce but made a run for $1500, when inflation exploded under Carter.

Coupled with wide tax cuts that favored the middle class, it worked. Every president up to Bush I kept the economy rolling using the Kennedy model. Bush I veered to a new course that raised taxes. Voted out of office despite a bold winning move in the Gulf, Bush' economy was dragging under "trickle down" economics. This theory won a nobel prize for Milton Friedman. It sort of operates under the assumption that if you tax the rich less, their wealth will somehow make it down the food chain to the poor.

Clinton implemented budget cuts that actually favored the economy, which had grown surprisingly rapid after Bush I left office. With the deficit reduced to practically nil, usual payments to retire interest on the debt favored Clinton. Oil was cheap. The country was in another spending spree.

No one knows which way the world economy will turn. No situation historically comes close to the rapid changes in technology.The ability of countries to grow enough food for their people is mind boggling. Now all these people in developing countries have their stomachs full they want what the U.S. has enjoyed for many decades. Shopping, cars, homes and luxury goods are placing heavy demands on diminishing resources, including clean water and materials needed to fuel the new technology in health, computers nano technology, and semi-conductors.

Will the alternative energies be developed in time to save an over heated planet, where even animal life is threatened with extinction? Will there be enough of everything needed for everyone?. The mega computers are strangely silent. those in charge are unable or unwilling to predict what is going to happen. No world leader has stepped forward to take the lead in showing the way. this is one crisis that won't wait, and though some still cling to the notion that we may continue with business as usual, that is pure ignorance. The information is available. there is no excuse for people to put their heads into the sand. Time is running out and there is much to do.


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      Marshall 6 years ago

      The original title topic was good, but does not appear to be focused on throughout your article. You list a question for the title, and more questions within the article, but never provided answers. Your writing punctuation needs to be checked prior to posting as well.

    • Timothy C. Schewe profile image

      Timothy C. Schewe 9 years ago from

      What exactly is it that you're asking? Or for that matter talking about?