This morning, Gold surpassed $1100 for the first time as the dollar dropped. In my opinion, Gold and Silver have much higher to go, albeit at a path I'm unable to predict. However, I do think the rise will be quite large and is likely to accelerate in the coming months. Thought the internet bubble got nutty? Well, there is no fever like Gold fever!
I believe that Gold is telling us that many currencies are on their way out and that hard assets on their way in.
It isn't just the United States that has spent oodles of money on stimulus packages. Europe has and so has China, to name a couple. A lower dollar, in terms of purchasing power is inevitable eventually, since the "plan" appears to be to facillitate a controlled decline in the dollar in order to make our exports cheaper. A second benefit would be to surreptitiously "devalue" our debt to other countries. However, as we allow our dollar to fall, other countries engage in a practice known as competitive devaluations. The purpose of this is to prevent THEIR exports from falling.
The danger in this policy is that a full blown currency crisis or trade war can erupt at any time, and, as in the Great Depression, be to NO ONE'S benefit. Economists agree on very little, but they all agree free trade is in everyone's good.
Personally, I'm quite baffled as to why the US stock market has continued to rally but markets are often very hard to understand. I'm starting to suspect that inflation is creeping itself into the economy. Another reason for that suspicion is the price of oil, which continues to go up despite a clearly poor economy and no growth in demand. The most recent case of hyperinflation occurred in Zimbabwe very recently and their stock market multiplied many times over and did so in record time.
Other countries are starting to realize their appetite for Gold. That has recently begun to change. India just bought 200 tonnes from the IMF. Sri Lanka bought 5.3 tonnes and countries like Russia have been accumulating, too, although they have been coy about their plans. Hong Kong, which had until recently kept its Gold in London just demanded delivery back. Germany has asked for return of its Gold that the U.S. was holding for them.
All of these are the early signs of a new Gold Rush. Until recently, Central Banks were selling Gold, but now we hear about buys and LARGE ones. Meanwhile, the world mine supply of Gold has been falling for years and a physical shortage is a distinct possibility. The Federal Reserve has been doing everything possible to keep the price of Gold DOWN using sales of Gold futures contracts and other market interference mechanisms. When pressed, they've admitted to market involvement. They NEED a low Gold price to keep people from realizing that inflation pressure is building and they will NOT under any circumstances allow any type of audit. If we acknowledge higher inflation, cost of living adjustments will be higher and drive the budget deficit even more. Ron Paul initiated legislation to audit the FED co-sponsored by more than 300 Representatives. Don't we have a right to know?
Finally, there hasn't been an audit of physical gold supplies at repositories like Fort Knox in more than 50 years. Why not?
It is quite possible that a massive shortage is in the making or already exists.
If you have the ability to purchase some Gold or high quality mining shares with new discoveries, this might be the time to give it more than just a passing thought.
Marko's Take
Re: markets rallying inexplicably, I think it's because market of course runs on perception, and the layperson does not really understand basic economic indicators (leading vs. trailing; how employment #s can be misleading, etc.).
ReplyDeleteI think there aren't that many journalists who know their finance/econ, and when they report breathlessly on a shift in unemployment data without parsing a series of factors that would actually be indicative of an improvement in the economy, the lay readership (and investor) buys into it blindly, and invests more in the market, not knowing they've been encouraged by a [data] shell game, and are further funding a [derivatives] shell game.
Unfortunately, most of the time we don't know the reason for the overall rally until well after the event. Since i sincerely doubt there is any recovery of note and there should be more signs of it by now, I only hypothesize that perhaps it is discounting inflation. I do agree with the shell game comment. Let's face it, we are all forced to make decisions based on information we suspect or know to be false or misleading....
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