New Money and Markets Article Explains Key to Understanding Gold

Larry Edelson takes a look at the reasons for gold's strong rally and past similar situations. In this issue of Money and Markets, Mr. Edelson examines historical examples and advises on the current gold rush.

Jupiter, Fla. (PRWEB) November 3, 2007 -- Larry Edelson takes a look at the reasons for gold's strong rally and past similar situations. Mr. Edelson examines historical examples and advises on the current gold rush.

The reasons for gold's strong rally are not all that different from the forces behind its past rallies.

Gold has been "hard money" for thousands of years. The key to understanding gold is to understand how the public has gotten burned in the past.

In the middle of 1998, Moscow was reeling under an estimated $150 billion worth of publicly issued IOUs, debt accumulated when the Berlin Wall fell and the former Soviet Republic turned into a splintered group of free-market Russian states. The debt was for the good of the country's new 146 million capitalists.

However, corruption in the government resulted in waste and bureaucratic nightmares. Projects either never got off the ground or ended up lining the pockets of the oligarchs who effectively printed their own money with assets previously owned by the state.

End result: The sovereign debts of the new Russia quickly went bad, and for the next five years Russia collapsed into turmoil.

It wasn't much different in Thailand. The country's economy was cooking in the earlier part of the 1990s. The country borrowed money for further expansion. Public officials and those quickly getting wealthy in Bangkok were all thinking the same way.

The Thai baht was strengthening quickly in local markets. Yet it remained tied to the dollar, which at the time was also rising in value. With currency too strong, the economy suddenly became uncompetitive in the region.

The economy continued to slow to such a point that there was only one option for authorities and regulators: Bust the Thai baht loose from the dollar and let it float freely on foreign exchange markets. Give the system some flexibility and let market forces take over.

What they didn't realize is that confidence in the government had already been lost.

Investors felt insecure about debt issued by the government. The baht collapsed and capital stampeded out of Thailand. The economy collapsed, shrinking almost 50% in no time at all. Bonds and other debt offerings went bust. And the International Monetary Fund had to step in and bail out the country.

Here's another example from 2000, in New York:

The Nasdaq hit 5,132 in March 2000, up 1,489% from its low of 322.93 in October 1990. Dotcoms were everywhere. Investors couldn't care less about brick and mortar companies with real assets, with real three-dimensional products for sale.

Forecasts kept getting raised and share prices kept going up. But suddenly investors took a breather. They thought about what they were doing. They started to ask themselves what they were really buying.

And the assets suddenly collapsed virtually overnight, in the worst stock market crash since the Great Depression. Paper, in the form of stock certificates, crumbled in value.

Fast-forward to today.

The problem: Subprime mortgages. As much as $400 billion in debt is now in danger of going up in smoke as the underlying collateral, real estate prices, tanks.

It's not so much that real estate prices are falling. It's that too big a debt pyramid has been built upon an otherwise solid asset, real estate.

"Just as in the historical examples, investors are seeing the IOUs they bought evaporate into thin air. Meanwhile, the U.S. dollar has been falling virtually non-stop. The subprime mess is one of the reasons and so is the tech wreck. In short, too many dollar-based paper assets have gone up in smoke recently," Larry Edelson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1150

About LARRY EDELSON & MONEY AND MARKETS

With nearly three decades of experience in precious metals and natural resources markets, Larry Edelson has played a pivotal role in training Weiss Research staff and in guiding Weiss Research's customers to prudent investments in the sector.

His Real Wealth Report, Gold Trader Hotline and Energy Options Alert provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management. His team of technical analysts helps enhance the timing of investment recommendations with the aim of continually improving the performance results for investors.

Mr. Edelson is also an accomplished analyst and writer, making substantial contributions to Weiss Research's Safe Money Report and Money and Markets.

He holds a B.A. Degree from Columbia University and has three children.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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