Gold bullion and rare gold coins is the perfect instrument for riding out any financial storm. Global debt crisis, banking failures, over printing of money/collapse of the dollar, inflation/hyperinflation, turmoil in stock markets are a few examples of when gold shines. Gold has been valuable to human being for over 5,000 years. Currencies have come and gone, civilizations have fallen and technology has advanced and throughout all of it gold has proven to retain its worth.

The main reason people buy gold is to diversify their portfolio against downturns in paper assets. For example, when the collapse of many big banks in the U.S. occurred at the end of 2008, gold went from around $725 per ounce to close to $925 per ounce, a 27% increase. In 1987 when the stock market crashed, the infamous Black Monday, gold shot up to $500 per ounce, which was the highest level since 1983.

Gold bullion is primarily a hedge against inflation. In 1910 one ounce of gold could buy roughly 222 loaves of bread. Today that same one ounce of gold can buy roughly 275 loaves of bread. The dollar however has lost 95% of its purchasing power. If you owned $100 worth of gold in 1910 (5 oz) it would be worth roughly $5,500 today. In comparison, if you had $100 dollars in 1910 it would be worth roughly $5 today. That is a pretty big difference.

There have been many financial and global crises over history, and yet gold has always survived as a safe haven. Therefore don’t you think that as we continue to go through this global financial crisis gold will continue to be a safe haven for your dollars?

On a side note, look at the chart below, for the last 10 years gold has been in a positive trend cycle. Does this look like a bubble formation? Absolutely not! It has accumulated approximately 17% per year, building support and resistance all along the way.

“Gold, is a bargain, below $1000 an ounce…” Richard Russell Dow Theory Letters

I have written previously that if the Dow breaks below its November 20, 2008, 7552.29, it would be a sign of things to come, particularly if Economic Cycle Research Institute’s (ECRI), Weekly Leading Index (WLI) was to begin declining in a persistent way. The WLI had risen for four weeks in a row. It was a good sign and I was hoping for the best but then it declined for four weeks in a row. If this continues I would expect the Dow to slump below 7552.29 which would be a serious break down for the stock market and a signal of prolonged distress for the economy.

On Friday, February 13, the WLI was down for the fifth week in a row. I doubt that many people realize how important these next few weeks are going to be. We need to see the Dow and the WLI turn up in a persistent and pervasive way or things are going to begin to look even worse than they do now. If the WLI continues to decline I would expect to see the stock market decline in a decisive manner followed by a big dose of unemployment!

On Friday, the Dow was down 82.35 to close at 7850.41, only 298.12 points above its November 20, low. Gold was down $6.90 to close at $941.00. Gold is only $62 from its all time high set in March 2008, of $1003.00. Many experts believe that once gold breaks through this resistance level gold will be off to the races again.

In this weeks Barron’s, Sandra Ward interviewed Ray Dalio. Dalio, was one of the few who warned about the dangers of “excess financial leveraging.” His clients include world governments and central banks according the Barron’s article. Dalio believes that dollar devaluation is the only way out of this mess!

In his February 12, 2009, daily remarks section, Richard Russell, Dow Theory Letters wrote, “The bailout plan — The cost will be upwards of $2.5 trillion. How will these enormous debts ever be repaid? Answer, they won’t be repaid. The alternatives — the dollar will collapse along with world fiat money, or the dollar will be devalued against gold. A devalued dollar decreases the burden of debt. The debt is denominated in dollars. If the dollar is devalued (worth less) the burden of debt is decreased. If the dollar is devalued, what will the future price of gold be in terms of dollars? Nobody knows. Gold in 1980 hit $850. If gold is adjusted for inflation, gold today should be at least $2200 an ounce in dollars.”

I have followed Russell since 1991. He began recommending gold shortly before the bull market for gold began in August 1999. He seems to be as bullish today as he was then. He went on to say, “I continue to think gold below $1000 is a bargain. Once gold is over $1000, it may move into a highly speculative run-away mode.”

Remember, “it would be foolish to acquire gold for the short term but it would also be unwise not to own some gold for the long term!”