“I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s. ….When I watch Chairman Bernanke, observe the “stimulus” black hole, and think about our lack of fiscal discipline and political will, my instinct is to want to short the dollar. But then I look at the other major currencies. The Euro, the Yen, and the British Pound might be worse. So, I conclude that picking one these currencies is like choosing my favourite dental procedure. And I decide holding gold is better than holding cash.”

- David Einhorn - Oct 19, 2009

Financial problems in Europe (especially Greece and Spain) have dominated world headlines for months. And rightly so. The European Union has significant structural problems that offer no easy solution.

Resulting fear is causing money to flow into the traditional “safe havens” of the US dollar and US treasury bills. But is the US really in better shape than Europe?

More than a few analysts have suggested that shifting from the Euro to the US Dollar is akin to jumping from the Hindenburg to the Titanic.

The US debt is about $15.7 trillion – triple what it was 10 years ago - and greater than the debt of all European countries combined. While the spotlight might be on Europe at the moment, it could shift to America in a heartbeat. The US will be approaching its debt ceiling again near the end of this year. We expect the political battle between the Democrats and the Republicans will likely push the dire US situation onto the front page again.

Given the fiscal problems that continue to plague the Western economies, we expected global investors to view gold as a greater safe haven than the US dollar, but old habits die hard. But it also wouldn’t surprise us to learn that central banks are doing all they can to keep a lid on gold so that it isn’t widely seen as a viable alternative to buying newly issued government bonds.

We continue to believe that many stocks are attractive investments, although we acknowledge the frustration created by short term volatility. History has proven that good companies with good products and services will find a way to prosper as they manoeuvre through difficult economic times. And the best companies will pick up market share as well. We continue to seek out investments that will mitigate some of that volatility by providing predictable yield or a hedge to market movements.

Finally, we continue to recommend having some exposure to gold. The price of gold is still up 10% since Jan. 1, 2011 and has been up every year for the last 12 years. Central banks are still one of the major buyers. The need for stimulus, bailouts and printing money looks set to continue.

One would think that gold equities would hold up as well as gold itself. Unfortunately, that is not always the case. There have been two time periods in recent history when gold equities have underperformed gold bullion for approximately 15 months: late 1999 through 2000; late 2007 through 2008. Coming out of both of those divergences, returns from the gold equity sector were spectacular. Gold equities tend to offer greater upside in the medium term, but also have greater volatility in the short term. With gold at $1,500+, the gold companies are very profitable. If gold moves up to $2,000, which we think is very possible, they should be very profitable. We believe these companies represent great value and at some point the market will realize how attractive they are.

Rest assured that we are doing all that we can to protect and grow your purchasing power in these uncertain times.

Our main advice on the media front is this: try not to get caught up in the unrelenting barrage of day to day headlines. Leave that to us…and have a great summer