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The Top Gold Stock of 2012

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Bill Gross is known as the bond king. He runs the $272 billion PIMCO Total Return Fund, the world’s biggest bond fund. Over the past year, his fund beat 94% of its peers, according to data compiled by Bloomberg. So when he talks about bonds, I always listen.

The Fed has just implemented another round of QE (quantitative easing), its bond-purchasing program. Some investors think this is good for bonds because the Fed’s purchases should drive bonds’ prices higher. But Gross doesn’t agree.

In fact, Gross reduced his exposure to U.S. government and Treasury debt to 21% of assets in August, from 33% the previous month. He thinks more stimulus from the Federal Reserve will lead to a resurgence of inflation. As a result, he’s bullish on gold. Here’s what he said:

“There has been an unlimited amount of paper money over the past 20 to 30 years and now – in this period of central bank expansion where it’s QE1 or QE2, or whether it’s the LTROs of the ECB or this potential new program … then central banks are at their leisure to basically print money.

“Gold is a fixed commodity that has a considerable store of value that paper money has not. When a central bank starts writing checks and printing money in the trillions of dollars, it’s best to have something tangible that can’t be reproduced, such as gold.”

Gross, who is arguably the greatest bond investor ever, says bonds are dangerous because they don’t protect you against loss of purchasing power. Gold does!

Gold Has Been Performing Better Than Treasury Bonds

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Over the past year, Treasury bonds have performed better than gold. But with the latest Fed stimulus, this trend is changing. As you can see in the chart, in the last couple of months gold has rallied 10%, while Treasuries have tumbled 9%. Gross is right. Buy gold and avoid Treasury bonds … they are the worst place to park your cash.


Evaldo Albuquerque
Senior Analyst

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