Thursday, April 21, 2011

Betting Against President Obama

Gold has been in the news lately. The University of Texas disclosure that it has been buying gold as part of its endowment investment put gold in the news. Further, the news of gold futures breaking the $1,500 an ounce mark put gold in the news, as did reports that investors were looking to gold due to the weakening of the U.S. dollar and the Standard and Poor's downgrade of the United States fiscal outlook to negative.

Why invest in gold? Gold is considered a safe-haven for investors. When the dollar weakens, when uncertainty rises, and when the economy weakens, the price of gold tends to rise. Essentially, the worse the financial situation becomes in the United States, the more valuable gold is. The same applies to silver and other precious metals.

Investing in gold, essentially, is a bet against President Obama or the Congress taking action that will greatly improve the United States economy. When President Obama suggests hiking taxes, doesn't want to cut spending enough, won't eliminate unneeded regulation, and continues to side with big unions instead of trying to create conditions that will create jobs, grow the economy, and grow revenues, it's a sign that the future of the country's economy is at risk. An economy at risk means that investors look to buy safe-haven investments. Gold has low risk, because it has intrinsic value. Unlike buying stock in a company, there's no risk of gold going bankrupt. You can't make something out of stock. On the other hand, with gold, you could make jewelry or decorations. Some people even have replacement teeth made out of gold.

Were the United States to have its Aaa rating cut or default on obligations, economic havoc would take place. Stocks would decline in value, the dollar would weaken, and then we would see job loss and greater unemployment leading to a cycle of economic slowdown and progress away from prosperity instead of progress towards it. Meanwhile, the price of gold would go up. If the United States dollar were to weaken by 10 percent today, another $150 an ounce would be added to the price of gold making it worth around $1,650. In our recent interview with a middle class American who has invested in gold, she alluded President Obama's failure to stop the weakening of the United States dollar:
The Report: Some say President Obama is weakening the dollar and that sends gold higher and stocks lower. Do you agree?

Nicole: I bought gold when we were seeing a price of $1,000 an ounce and I still have the gold investment. I could make a profit of over $400 an ounce right now. Barack Obama doesn't seem committed to stopping it. However, the economy is recovering and so my strategy is to have stocks and to have gold because I think both will go higher.

Investors who are hoping to earn a profit by buying gold now and selling it later are essentially expecting President Obama to fail, and the price of gold to go up as a result, earning them a profit. So far, they've been right. When President took office, gold was under $1,000 an ounce. An investor who bought gold on the day of President Obama's inauguration could sell it now for a 50% profit. Betting against President Obama worked for over two years, and there's a good chance that it will continue to work for the remainder of his term in office.

1 comment:

  1. If I ran a casino, I'd take like 4:1 bets on Obama's re-election. For every dollar someone bet, I'd pay $4 if Obama won again.