"Hennecke stressed that investors should go for physical forms of gold and other
precious metals rather than "paper gold investment scheme where there isn't full
backing, where the metal might be leased out or used for derivatives. That's
crucial because there is 80 times more paper gold in the market than actual
physical metal in existence in the planet."
For the most part alternative currency trades remain 'highly specialized' investments, not often seen in the 401k, IRA, or the average brokerage account.
If gold and silver go mainstream, which they often will do in times of crisis of confidence, the rally may be rather impressive on short covering alone. Expect the exchanges to invoke special rules to allow for settlement of delivery obligation in cash or kind rather than bullion, and at artificially low, albeit significantly higher, prices.
But this may not help those who are holding gold in 'custodial accounts' where the same gold has been lent out to the market and sold, or is loosely mingled with multiples of uncertain ownership.
Can't happen? Who would have thought that one of the largest retail commodity brokerages, Refco, could roll over? Counter party risk is always an issue when you are 'off-exchange.'
“The desire of gold is not for gold. It is for the means of freedom."
Ralph Waldo Emerson
Go for Gold and Silver: Strategist
By CNBC
Wednesday, 2 Sep 2009 2:44 AM ET
China's key stock index recovered its poise on Tuesday, rising nearly 0.5 percent after diving 6.7 percent the day amid liquidity concerns and worries that lending growth may slow in the country. In August alone, the Shanghai Composite lost nearly 22 percent, snapping a seven-month winning streak.
If those stock gyrations are hard to stomach, there are other investment options to help ride out the wild swings in China, according to Martin Hennecke, associate director at Tyche.
For one, Hennecke liked convertible bonds in China, saying he is bullish on the Chinese economy given its fundamental strength, compared to Europe and the U.S. (No thank you for now, its a bubble and a bit less than free market environment, even given its bawdy good time with capitalism over the past ten years. - Jesse)
"Valuation is not as cheap anymore compared to the beginning of the year. Hong Kong-listed China companies are slightly cheaper than (those in) Shanghai," Hennecke said on CNBC Asia's "Protect Your Wealth". " One who plays more cautiously -- convertible bonds in China are an option."
Gold and silver ranked among Hennecke's top recommendations, as China, the world's largest gold buyer this year, is likely to buy more of the yellow metal going forward.
"Whether we see a further crisis or a recovery globally, with inflation coming back up again...gold should do quite well and it hasn't risen much this year yet," said Hennecke.
Hennecke stressed that investors should go for physical forms of gold and other precious metals rather than "paper gold investment scheme where there isn't full backing, where the metal might be leased out or used for derivatives. That's crucial because there is 80 times more paper gold in the market than actual physical metal in existence in the planet."
Hennecke also preferred exposure to direct agricultural commodities, as opposed to investing in commodities through equities, where markets have already rallied sharply.
"Agricultural commodity prices are similar to precious metals. (Prices) across board are mostly dropping, apart from sugar and a few items. So direct commodities are quite undervalued and quite cheap now," he explained. "Agricultural prices are likely to rise quite substantially."
Hennecke expected the investment environment to be volatile, as the U.S. will be saddled with a massive debt load over the next ten years.
"It's tricky to see where stock markets are heading, it depends on how fast inflation feeds through as a result of the debt problems." (Precisely correct, except for those who prefer to see what they have already decided *should* happen. They are often wrong, but rarely uncertain. - Jesse)
