Entries Tagged as 'Precious Metals'

Inflation: Higher And Higher We Go

Economics / Inflation
Jul 08, 2014 – 10:48 AM GMT
By: Darryl_R_Schoon

Economics
In the end game, truth is found only at the margins

In Time of the Vulture: How to Survive the Crisis and Prosper in the Process(2007, 2012 3rd edition), I wrote about inflation and its root cause:

In a credit-money system, over time the constant infusion of increasing amounts of credit will inevitably lead to higher and higher rates of inflation. Because common knowledge of this fact is not in the best interests of those benefiting from the system, it is hidden away. And in the US, hiding the real rate of inflation is done the old-fashioned way, by lying about it.

Prior to the 1990s, the cost of a basket of standard goods and services was compiled. This was called the consumer price index, the CPI, and any rate of increase was considered to be the actual rate of inflation. However, in the early 1990s, this began to change.

Perhaps the old method of tracking inflation seemed outdated or quaint, much like the Geneva Accords [which outlawed torture], to Alan Greenspan and Michael Boskin, the chief economist under President Bush Sr., and a newer way of calculating the CPI was needed.

What was needed was a way that would show a slower rate of increase rather than the actual rate, a way that would save the US government money by lowering social security payments and Medicare benefits tied to the CPI, a way that would convey to global investors that all was well in America, that inflation was under control.

The government keeps changing the rules

Changing the way inflation is calculated

Irrespective of what the newly reconstituted CPI says about inflation, its effects cannot be hidden. Remember Motel 6? A low cost motel chain started in Santa Barbara, California in 1962 whose advertised price was a part of its name, $6.00 per night for accommodations.

I recently checked the prices Motel 6 charges, forty-four years later. The current room rates of Motel 6 at three different locations in Santa Barbara are:

1962 2006

Motel 6 location #1 $6.00 $105.99 an increase of 1,767 %

Motel 6 location #2 $6.00 $82.99 an increase of 1,383 %

Motel 6 location #3 $6.00 $61.99 an increase of 1,033 %

Home prices are also higher as advertised in Morris County New Jersey.

1966 2006

Three bedroom home $15,900.00 $399,900.00 an increase of 2,515 %

Four bedroom home $19,000.00 $624,900.00 an increase of 3,289 %

Marijuana also shows a similar increase in price since the 1960s.

1966 2006

One lid of pot $10.00 $250.00 an increase of 2,500 %

The cost of attending college at the University of Minnesota also rose.

1968 2004

Cost per unit $8.25 $183.00 an increase of 2,218 %

THE DIFFERENCE IN PRICES

BETWEEN THEN AND NOW

IS DUE TO INFLATION

INFLATION IS THE INCREASING COST

OF GOODS AND SERVICES CAUSED

BY THE CONSTANTLY DECLINING

VALUE OF PAPER MONEY OVER TIME

THE MORE MONEY YOU PRINT

THE LESS IT’S WORTH

ECONOMICS – SHILL OR SCIENCE

Gold/Oil Ratio Redux

I continue to monitor the Gold/Oil ratio (GOR). The last time I wrote about it was December, 2008. At that time Gold closed that day at $837 and Oil closed at $42.36. That is a GOR of 19.75.

Here’s the chart at that time:

Gold/Oil Ratio chart

20-Year History of GOR

Notice there were two peaks, a three step drop, a double bottom and then a BIG rally. We are experiencing the same thing again.

Gold/Oil Ratio from 2011

Gold/Oil Ratio from 2011

We don’t see the first peak in 2011, then we have a three step drop, a double bottom and then… I think we may be setting up for another rally in Gold (and Silver). Oil is now at $106, Gold is $1,317. At a GOR of 20, assuming Oil stays the same, Gold could be trading at $2,120. With all the chaos in the world, suppose Oil goes to $150. Gold could then be $3,000. Silver is currently $21. At $2,120 Gold Silver could be $141; At $3,000, Silver could be $200.

No guarantees, of course.

When Real Interest Rates Fall, Gold Rises

Mike Burnick writing for Money and Markets has this informative piece:

Real Yields Sink

Historically, real interest rates (long term bond yields minus the inflation rate) have always had a very close, inverse correlation with the price of gold. In fact, it’s the single most predictive factor for gold prices.

When real rates fall, gold inevitably rises, and vice versa. As you can see in the chart below, real interest rates declined steadily after the financial crisis and Great Recession in 2008, and gold rose every step of the way.


Click for larger version

But as you can see above, real yields began rising again in 2012, which continued last year. This corresponds almost perfectly with a sharp decline in gold prices, but recently real rates stopped rising and are now rolling over again, as you can see at the far right.

While interest rates around the world are declining steadily this year, inflation is beginning to edge higher.

This is pushing real (inflation adjusted) interest rates down again … which is precisely when gold shines!

Forget the Consumer Price Index. We all know this flawed gauge of inflation is way behind the curve in measuring the true cost of living and it’s a backwards-looking indicator. Instead, focus on leading indicators of future inflation pressure: Higher commodity prices, rising wages, higher rental rates and soaring health-care and education costs … these are all pointing to higher inflation down the road.


Spend A Few Minutes With Jim Rickards

Controversial best-selling author James Rickards sits down with Hedgeye CEO Keith McCullough to discuss a number of important subjects in this wide ranging interview such as the FED, USD, the flagging economy and much more.

Alex Stanczyk: Physical Gold Supply Never Been Tighter

In an interview at IN GOLD WE TRUST, Alex Stanczyk, Chief Market Strategist for the Anglo Far- East group of companies, who just returned from a trip to Switzerland. Alex confirmed to me the distribution of gold from west to east is not slowing down whatsoever. Refineries in Switzerland are still working 24 hour a day to cast bars for China, sometimes having difficulties sourcing the gold.

What I do know is that we are on the threshold of a situation that has never occurred before. A (Gold) squeeze is imminent, it could take 3 months or 6 months, but all I know is that it’s coming, and I know that with 100 % certainty.

What this means to me is at some point soon, we will wake to a new paradigm: Gold will be unavailable at any price and Silver won’t be far behind.

Got Gold?

Jim Rickards “Currency Wars”


How To Move Velocity Of Money

It appears there might be a concerted effort on the part of the government officials and the MSM to frighten you about the safety of your money. Cyprus is the current example that violates our property rights and even the Constitution by stealing from depositors to bail out the banks. We say here that we should exercise care when we choose a bank, because some aren’t managed well. The fear now is no bank is safe and neither are our deposits.

So what to the PTB want you to do? They want you to pull out your savings and spend it on some asset. It doesn’t matter right now what you spend it on, but they want the money moving. They want the velocity or turnover of money to accelerate. That’s is inflationary! The more we see prices moving up the more we will want to spend on more assets before they move higher in price. Already we are seeing housing prices moving up and a dearth of homes for sale. We are seeing natural gas and crude oil increasing in price, along with gasoline.

We know prices have been rising faster than the Government propaganda. Soon we will see all manner of price increases. The FED needs all that money involved with QE, work at restoring growth in the economy and they believe they can withdraw the punch bowl at just the right time to cap inflation before it gets really out of hand. Good luck with that!

The only way to protect some of what you have is with Gold, Silver, Platinum and Palladium. The mania is coming!

Where’s Palladium Going?

I’ve written many times about precious metals; Gold Silver Platinum, and Palladium. In today’s interview with Rick Rule is interviewed today at King World News about Palladium and how the price could soar like platinum. The sources of Palladium are three countries and all politically unstable.

Gold And Silver Update

With Gold trading above $1695.40, traders should be long Gold and we are already long Silver after it traded above $31.53. Gold closed at $1685 up $21 or +1.26% and Silver closed at $31.63 up $1.34 or +4.41%. We are primed for Gold to trade above $1700 with heavy resistance at $1800. Silver’s next major resistance area is $35.

I recommend you listen to James Turk at King World News for a very interesting take on Germany’s call to repatriate their Gold from the U.S. He talks, too, about the shortage in Platinum that sent the price soaring from $1513 to almost $1700 in three weeks. The same scenario, I believe, is looming in Silver. The U.S.Mint announced no more Silver Eagles will be sold until January 28th. The must be experiencing a shortage of Silver. If Germany can’t get their Gold for seven years, maybe we have a shortage in Gold, also.

Have you looked at the Light Crude chart lately? Oil sure looks like we’ll be back to $100 or higher rather soon!

Gold & Silver Update!

Gold and Silver have gone sideways after the last drop which stopped us out of the two metals. Now, it appears we are ready to move up again. Silver just flashed a BUY signal after taking out the high of the last three weeks at $31.53. Gold is on the verge of a BUY. We are waiting for a trade higher than $1695.40. The high for today is $1686.20.

Trading short term can be exciting, however, the real danger is missing out on the big moves. That’s why I accumulate on weakness and hold on for the protection that Gold and Silver offer.

Does that make me a prepper? Not necessarily, just prudent. Have some food and water set aside, along with a gun and ammo, and precious metals.

Copyright © 2007 Mover Mike. Design by Anthony Baggett.