Monday, June 18, 2007

Building a Position in Gold

We have been gradually building a position in US Global Investor Fund Gold Shares (USERX) as a hedge position against (1) potential turmoil resulting from terrorist activity/disruptions in global oil supplies and (2) the likelihood of a more liberal element gaining control of the US political agenda post-November 2008 [our usual disclaimer: we are making no judgment as to the social value of a more liberal agenda; we are saying that higher taxes, higher spending, more regulation of industry and a more protectionist trade policy is not positive for the economy]. We recognize that neither of these risks to the US economy are at the forefront of investors minds--they are way too obsessed with a strong global economy pushing up interest rates and inflation right now.

Our concerns aside, gold and gold related investments have done little in over a year. In the meantime, nothing has occurred that would suggest a lower probability of either risk mentioned above. Indeed in the last month, two domestic terrorist plots have been foiled; Iran has become ever more defiant of the terms of the nuclear nonproliferation treaty of which they are a signatory and more blatant in their involvement in the Afghanistan/Iraq conflicts; Hamas appears to have triumphed in Gaza, making it now a terrorist state; the proposed FY2008 budget has huge spending increases not to mention 30,000+ earmarks; as this is being written, a debate is going on to as to how to penalize oil companies as some sort of poor corporate citizen despite that the fact those doing the debating refuse to provide for procedures that would allow for the approval of new refining capacity or for permission to drill in areas where not only is there strong reason to believe that huge oil deposits exist but where the Chinese/Cubans are already drilling and …...well, you get the picture.

In any case, we are adding to our position in USERX this morning in the Aggressive Growth Portfolio.

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