Obama and Gold

Gold investors are peculiar creatures. Cagey, alert, a bit suspicious, they always have a foot in the door no matter how good the room looks. If not actual history buffs, they have a solid understanding of what's happened in our economic past…and so have a pretty good idea of what will happen in our economic future.

So it is that precious metal investors look ahead to the Obama administration and what lies in store for the economy. Needless to say, most have a foot planted firmly in the door.

Putting aside, for the moment, the positive social implications of the first black president of the United States, the danger of combining yet another possible big spender in the White House with our current economic woes could be a formula for economic Armageddon, many believe.

Which, admittedly, would be just fine for gold.

Not that President Bush was exactly a tightwad. From a 2001 budget of $1.9 trillion, the Bush administration submitted a 2009 $3.1 trillion budget for a whopping 63 percent increase.

In a word, yikes.

Even so, that kind of spending was somewhat offset by three years of a Democratic-controlled Congress. What happens now that we've pulled the handle on that voting one-armed bandit, and it's all come up Democrat?

Not to offend members of that party by any means. Both parties, as mentioned, have this troubling compulsive spending disorder (CSD). But in the big-spending environment of the past year-of controversial $700 billion bailouts and billions in rescue plans-having a president and Congress, of the same party, with a possible filabuster-busting majority, eager to spend even more truck-loads of money may be precisely the wrong move at the wrong time.

"President Barack Obama will have the majorities in the new Congress necessary to carry out his plans for increased spending on national infrastructure and a massive fiscal stimulus package," wrote Arabian Money's Peter J. Cooper.

Yikes again. It might have been a whole lot better for us had Washington been hopelessly deadlocked over the next four years.

So why is it smart to hang onto your gold in 2009 (and maybe even add more to your portfolio)? Four reasons:

1/ "Our Last Best Hope" Syndrome. According to an Associated Press poll, some 72 percent of Americans believe, in the wake of the recent election, that President Obama will turn the economy around, and there'll be a happy ending after all.

That's all well and good…for now.

Notwithstanding this current excitement over our bright, new president, prospects for the 2009 economy, in the eyes of analysts at least, are almost uniformly dismal.

Here's one example: "The world economy will suffer a substantial decline in 2009... It is a dark scenario," admitted the International Monetary Fund's Antonio Garcia Pascual.

And that's just the problem. If Obama represents America's "last best hope"-and the miserable economy takes a turn for the worse anyway-our Obama optimism could evaporate, our collective hopes could be dashed, and things could turn downright ugly.

Do we have a last, best hope after Obama?

We do. Gold.

2/ International Crisis Predicted. Both Vice President Biden and Colin Powell alluded to it. "The problems will always be there and there's going to be a crisis which will come along on the 21st, 22nd of January that we don't even know about right now," Powell said on Meet the Press October 19, 2008.

Overlooking his glaring contradiction-that we don't know what this crisis is yet know enough to predict it will happen on January 21st and 22nd-an international emergency to test our new president, whether it happens on those dates or some other time over the next few years, would dump even more fear and uncertainty onto already overstressed Americans.

Fortunately the antidote for that kind of fear has always been gold.

3/ Show Me the Money. Talk about big spenders, according to the October 24th edition of the Wall Street Journal, President Obama is promising to spend another 4.3 trillion even while reducing tax revenue.

So where's he going to get all that money?

"A trillion here, a trillion there, and pretty soon you're talking about real money. Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018…," wrote Cato Institute's Alan Reynolds in that WSJ article.

Reynolds concludes with this: "Mr. Obama has offered no clue as to how he intends to pay for his health-insurance plans, or doubling foreign aid, or any of the other 175 programs he's promised to expand. Although he may hope to collect an even larger share of loot from the top of the heap, the harsh reality is that this Democrat's quest for hundreds of billions more revenue each year would have to reach deep into the pockets of the people much lower on the economic ladder. Even then he'd come up short."

Okay…so if our new president has no viable way of generating the funds to pay for his 175 programs, where does that leave us? With only two avenues-mindboggling tax increases or…

4/ The H Word. Hyperinflation. "C'mon," you might say. "Things wouldn't get that bad." Well, let's hope. But as it is, even without Obama's 175 programs, we're already more than a few miles down the hyperinflationary road.

Where do you think these bail-out dollars are coming from? Kindly aliens visiting our galaxy? No, they're coming from the Treasury Department's printing presses.

Which means they're being generated out of thin air.

Wrote Seeking Alpha's Jason Hamlin, "…top investors such as Jim Rogers, Robin Griffiths and Jurg Kiener are now predicting that global central banks' insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold's acceleration towards $2,000, as demand for precious metals outstrips supply."

Yikes again.